Reference no: EM132593385
1. On December 31, 2019, ABC Inc. sold equipment to Orpha Corp. and immediately leases it back for 10 years. The equipment selling price was $520,000, it's carrying amount was $400,000, and its estimated remaining useful life of 14 years. The rental payments' PV for one year is $35,000.
ABC company follow ASPE.
2. On December 31,2019, Tesler Corp. sold a machine to Crop Ltd. and simultaneously leased it back for one year. The machine's selling price was $480,000, its carrying amount was $420,000, and it had an estimated remaining useful life of 14 years. The rental payments' PV for one year is $35,000. Tesler Corp. follow ASPE.
3. On January 1, 2020 Burney Corp. sold equipment with an estimated useful life of five years. At the same time, Burney leases back the equipment for 2 years under a lease classified as an operating lease. The equipment's selling price (fair value) was $212,700, the carrying amount was $300,000, the monthly rental under the lease was $6,000, and, the rental payments' PV was $115,753. Burney Corp. follow ASPE.
4. On December 30, 2019, Delowar Inc. sold a warehouse with 10 separate spaces with loading bays to Mind Finance Ltd. for $1.3 million and immediately leased back 2 of the spaces. The warehouse was carried on Delowar's books at $800,000 and had a remaining useful life of 15 years. The term of the lease is 5 years with no renewal period, Delowar is a public company following IFRS 16 to account for its leases.
Instructions:
Question a. For situation 1: Determine the amount of unearned profit to be reported by ABC Inc. from the equipment sale on December 31, 2019.
Question b. For situation 2: At December 31, 2019, how much should Tesler report as unearned profit from the sale of the machine.
Question c. For situation 3: For the year ended December 31, 2020, identify the items that would be reported on Burney's income statement related to the sale-leaseback transaction.
Question d. For situation 4: For the year ended December 31, 2020. Identify the items that would be reported on Delowar's income statement related to the sale-leaseback transaction.
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