Chapter 11, Problem 18P

a.

To determine

Determine the amount of gain on the sale and leaseback that Company I should recognize in 2015 under (1) U.S. GAAP and (2) IFRS.

Explanation of Solution

(1)

U.S. GAAP:

The entry to record sale and leaseback under U.S. GAAP:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
01/01/2015	Cash		76,000
	Deferred gain on sale of building			76,000
	(being deferred gain recognized on building)
12/31/2015	Deferred gain on sale of building		19,000
	Gain on building			19,000
	(being amortization of gain recorded)

Table: (1)

(2)

IFRS:

The entry to record sale and leaseback under IFRS:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
12/31/2015	Cash		76,000
	Gain on building			76,000
	(being gain on sale recognized)

Table: (2)

Working note:

Computation of amount of amortization:

$\begin{array}{c}\text{Amortization}\text{=}\frac{\text{Amount}\text{of}\text{gain}}{\text{Lease}\text{period}}\\ \text{=}\frac{\text{\$76,000}}{\text{4}\text{years}}\\ \text{=}\text{\$19,000}\end{array}$

b.

To determine

Determine the adjustments that Company I would make in 2015 and 2016 to reconcile net income and stockholders’ equity under U.S. GAAP to IFRS.

Explanation of Solution

The entry to be made by Company I on December 31, 2015:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
12/31/2015	Deferred gain on sale of building		$   57,000
	Gain on building			$   57,000
	(being deferred again recognized as an income under IFRS)

Table: (3)

Partial Conversion worksheet, December 31, 2015 (Gain on Sale and Leaseback)
Particulars	U.S. GAAP	Debit	Credit	IFRS
Gain on sale of building	($19,000)		$57,000	($76,000)
Net income	($19,000)			($76,000)
Retained earnings on 01/01/2015	$0			$0
Retained earnings on 12/31/2015	($19,000)			($76,000)
Cash	$76,000			$76,000
Buildings	$0			$0
Total assets	$76,000			$76,000
Deferred Gain on sale of Building	($57,000)	$57,000		$0
Total Liabilities	($57,000)			$0
Retained earnings on 12/31/2015	($19,000)			$76,000
Total liabilities and Equity	($76,000)	$57,000	$57,000	$76,000

Table: (4)

The entry to be made by Company I on December 31, 2016:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
12/31/2016	Deferred gain on sale of building		19,000
	Gain on building			19,000
	(being reduction to deferred gain recorded)
12/31/2016	Deferred gain on sale of building		38000
	Gain on building			38000
	(being deferred again recognized as an income under IFRS)

Table: (5)

Partial Conversion worksheet, December 31, 2016 (Gain on Sale and Leaseback)
Particulars	U.S. GAAP	Debit	Credit	IFRS
Gain on sale of building	($19,000)	$19,000	$0	$0
Net income	($19,000)			$0
Retained earnings on 01/01/2015	($19,000)		$57,000	($76,000)
Retained earnings on 12/31/2015	($38,000)			($76,000)
Cash	$76,000			$76,000
Buildings	$0			$0
Total assets	$76,000			$76,000
Deferred Gain on sale of Building	$38,000	$38,000		$0
Total Liabilities	$38,000			$0
Retained earnings on 12/31/2015	$38,000			$76,000
Total liabilities and Equity	$76,000	$57,000	$57,000	$76,000

Table: (6)