Francom Company engaged in a sale-leaseback transaction as seller/lessee. The leaseback was properly classified as an operating lease and control of the asset transfers to the buyer/lessor. The present value of the lease payments was $30,000. Profit on the transaction was $32,000. Both the sale price and the lease payments are at fair value. The profit on the transaction is: O A. capitalized as part of the carrying amount of the leased asset. Ⓡ O B. deferred and recognized over the lease term. C. deferred and recognized over the useful life of the asset. D. recognized immediately.

Francom Company engaged in a sale-leaseback transaction as seller/lessee. The leaseback was properly classified as an operating lease and control of the asset transfers to the buyer/lessor. The present value of the lease payments was $30,000. Profit on the transaction was $32,000. Both the sale price and the lease payments are at fair value. The profit on the transaction is: O A. capitalized as part of the carrying amount of the leased asset. Ⓡ O B. deferred and recognized over the lease term. C. deferred and recognized over the useful life of the asset. D. recognized immediately.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000, whichis its fair value on commitment date (trade date). Transaction costs are immaterial. OnDecember 31, 20x1 and on January 4, 20x2 (settlement date) the fair values of the asset are₱12,000 and ₱15,000, respectively. If the entity uses the settlement date accounting and that theinvestment is classified as held for trading, how much is the carrying amount of the investment inthe December 31, 20x1 statement of financial position?
Now suppose that, at the end of the lease term, Kimberly-Clark took good care of the asset and Sheffield agrees that the fair value of the asset is actually $10,500. Record the entry for Kimberly-Clark at the end of the lease to return control of the storage building to Sheffield (assuming the accrual of interest on the lease liability has already been made).
At the beginning of current year, Killer Company entered into a 5-year lease for drilling equipment. The entity accounted for the acquisition as a finance lease for P 2,400,000, which included a P 100,000 bargain purchase option. At the end of the lease, the entity is expected to exercise the bargain purchase option. The entity estimated that the equipment’s fair value will be P 200,000 at the end of the 8-year life and regularly used straight line depreciation on similar equipment. What amount should be recognized as depreciation expense on the leased asset for the current year? Show your solution.
On January 1, Hazard Company, a lessee, entered into three noncancelable leases for brand new general equipment: Lease J, Lease K, and Lease L. None of the three leases transfers ownership of the equipment to Hazard at the end of the lease term. For each of the three leases, the present value of the lease payments at the beginning of the lease term, excluding that portion of the payments representing executory costs, is 75% of the fair value of the equipment to the lessor at the inception of the lease. Each piece of equipment has an expected economic life of 5 years. The following information is peculiar to each lease: Lease J does not contain a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease K contains a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease L does not contain a bargain purchase option. The lease term is for 12 months. Required: Explain how…
On January 1, Hazard Company, a lessee, entered into three noncancelable leases for brand new general equipment: Lease J, Lease K, and Lease L. None of the three leases transfer ownership of the equipment to Hazard at the end of the lease term. For each of the three leases, the present value of the lease payments at the beginning of the lease term, excluding that portion of the payments representing executory costs, is 75% of the fair value of the equipment to the lessor at the inception of the lease. Each piece of equipment has an expected economic life of 5 years. The following information is peculiar to each lease: Lease J does not contain a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease K contains a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease L does not contain a bargain purchase option. The lease term is for 12 months. Required: Explain…
A Ltd owns an owner-occupied asset that is measured using the revaluation model. The asset’scarrying amount at the end of the financial year is R20 000. The fair value of the asset is R27 000.The entity has determined the fair value less costs to sell of the asset as R26 000 and the value inuse as R32 000.Required:Explain how you would calculate the carrying value of the asset and at what value the asset shouldbe presented at in the financial statements.
Zimmern Machines sold equipment with a 10-year economic life to Bourdain Acres, while concurrently enteringinto an 8-year leaseback. Eight years is considered a major part of the economic life of the equipment. Thesale agreement contains no option for Zimmern to repurchase the equipment or any other provision that wouldprevent its sale. Can Zimmern Machines account for the transaction as a sale-leaseback? Why?
(Lessee Capitalization Criteria) On January 1, Santiago Company, a lessee, entered into three noncancelable leases for brand-new equipment, Lease L, Lease M, and Lease N. None of the three leases transfers ownership of the equipment to Santiago at the end of the lease term. For each of the three leases, the present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, is 75% of the fair value of the equipment.The following information is peculiar to each lease.1. Lease L does not contain a bargain-purchase option. The lease term is equal to 80% of the estimated economic life of the equipment.2. Lease M contains a bargain-purchase option. The lease term is equal to 50% of the estimated economic life of the equipment.3. Lease N does not contain a bargain-purchase option. The lease term is equal to 50% of the estimated economic life of…
A Corp. sold a machinery to a buyer for P1,900,000 on January 1, 2021. Because of the entity’s commitments to its customers to provide their needs for the next three years, A Corp. simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows: Fair value of machinery - P2,200,000 Carrying amount of machinery - P1,700,000 Remaining useful life of machinery - 8 years Lease term - 3 years Annual rent payable at the end of each year, starting on December 31, 2021 - P500,000 Market rate of interest - 10% (Round off the PV factor to four decimal places, then do not round off during the computation)How much is the Right of Use Asset at January 1, 2021? How much is the Gain on Sale-Leaseback?
On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000, which is its fair value on commitment date (trade date). Transaction costs are immaterial. On December 31, 20x1 and on January 4, 20x2 (settlement date), the fair values of the asset are ₱12,000 and ₱15,000, respectively. If the entity uses the trade date accounting and that the investment is classified as held for trading, how much is the carrying amount of the investment in the December 31, 20x1 statement of financial position? 10,000 12,000 c. 2,000 d. 0
Howell Corporation, a publicly traded corporation, is the lessee in a leasing agreement with Brandon Inc. to lease land and a building. If the lease contains a bargain purchase option, Howell should record the land and the building as a(n) a. Operating lease and capital lease, respectively. b. Capital lease and operating lease, respectively. c. Capital lease but recorded as a single unit. d. Capital lease but separately classified.
On January 1, 2021, Globe Company sold a piece of machinery to Troll Company for P1,900,000. Because of the entity’s commitments to its customers to provide their needs for the next three years, Globe Company simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows:• Fair value of machinery- P2,200,000• Carrying amount of machinery- P1,700,000• Remaining useful life of the machinery- 8 years• Lease term- 3 years• Annual rent payable at the end of each year, starting on December 31, 2021- P500,000• Market rate of interest- 10%• PV of an ordinary annuity of 1 at 10% for 3 periods is 2.4869• PV of an annuity due of 1 at 10% for 3 periods is 2.7355 How much is the gain on sale-leaseback? (round off your final answer to the nearest peso value)

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