How much loss should be deferred beyond 2019 as a result of this leaseback transaction?
How much loss should be deferred beyond 2019 as a result of this leaseback transaction?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...
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Question
To raise operating funds, Pepero company sold its equipment on March 31, 2019 for P470,000 and immediately lease the equipment back. The fair value of the asset is P700,000 and the equipment has a carrying value of P650,000. The annual rental payment payments of P100,000 is significantly lower than the fair rental of P125,000 for this type of equipment. Lease term is 12 years out of total life of 25 years. How much loss should be deferred beyond 2019 as a result of this leaseback transaction?
11,250
168,750
180,000
52,500
Expert Solution
Step 1
Lease:
Lease is a contract between two parties where, lessee (user of the asset) pays rental amount timely, to the lessor (owner) for using the fixed asset.
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