ADVANCED ACCOUNTING
13th Edition
ISBN: 9781260773033
Author: Hoyle
Publisher: MCG
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Chapter 11, Problem 29P
a.
To determine
Determine the appropriate accounting for this sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
b.
To determine
Prepare the entry that Company R would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
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Thornhill Equipment (lessor) leased a construction crane to Vanier Construction (lessee) on January 1, 2023. The following information relates to the leased asset and the lease agreement.
(Click the icon to view the data.)
Both companies use the straight-line depreciation method for cranes, and they both have December 31 year-end dates.
Required
Requirement a. Evaluate how the lessor (Thornhill Equipment) should account for the lease transaction.
Start by determining the present value of the lease payments (PVLP). Then calculate the percentage of the PVLP compared to the fair value of the leased asset. (Use a financial calculator for all
present value computations. Enter all currency values as positive amounts rounded to the nearest whole dollar. Round the percentage to the nearest whole percent.)
PVLP
Fair value of asset
PVLP as % of fair value
%
Leased asset and lease agreement
-
Cost of crane to lessor
100,000
Thornhill's normal selling price for crane
$
146,913
Useful life…
Assume that on December 31, 2018, Stora Enso (FIN) signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage. The following information pertains to this lease agreement.
1. The agreement requires equal rental payments of €71,830 beginning on December 31, 2018. 2. The fair value of the building on December 31, 2018, is €525,176. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of €10,000, and an expected residual value of €7,000. Stora Enso depreciates similar buildings using the straight-line method. 4. The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.5. Stora Enso's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Stora Enso.
1. Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2018, 2019, and 2020.…
On January 1, 2020, Perriman Company transferred equipment for cash and leased it back. As seller-lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years.
Instructions
a. What is the major issue related to sale-leaseback accounting?
b.
1. How should Perriman account for the sale portion of the sale-leaseback transaction at January 1, 2020?
2. How should Perriman account for the leaseback portion of the sale-leaseback transaction at January 1, 2020?
Chapter 11 Solutions
ADVANCED ACCOUNTING
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Ch. 11 - Prob. 11QCh. 11 - What are the two extreme approaches that a company...Ch. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - Prob. 17QCh. 11 - Prob. 18QCh. 11 - Prob. 19QCh. 11 - Even if all companies in the world were to use...Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Which of the following is not a reason for...Ch. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Which of the following statements is true for a...Ch. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Parnell Company acquired construction equipment on...Ch. 11 - Prob. 28PCh. 11 - Prob. 29PCh. 11 - Hirsch Company acquired equipment at the beginning...
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- On 1 July 2020, Harry Ltd leased a crane from Potter Ltd. The crane cost Potter Ltd$120 307, considered to be its fair value on that same day. The finance lease agreement contained the following provisions as:Required1. Prepare the lease schedules for Harry Ltd2. Prepare the journal entries in the records of Harry Ltd only for the year ended 30June 2021.arrow_forwardThe Antonescu Sporting Goods leased equipment from Chapman Industries on January 1, 2016. The agreement causes the lessee to obtain “control” of the leased asset. Chapman Industries had manufactured the equipment at a cost of $800,000. Its cash selling price and fair value is $1,000,000. Other Information: Lease term 4 years Annual payments $279,556 beginning Jan.1, 2016, and at Dec. 31, 2016, 2017, and 2018 Life of asset 4 years Rate the lessor charges 8% Required: 1. Prepare the appropriate entries for Antonescu Sporting Goods (lessee) on January 1, 2016, and December 31, 2016. Round to nearest dollar. 2. Prepare the appropriate entries for Chapman Industries (lessor) on January 1, 2016, and December 31, 2016. Round to nearest dollar.arrow_forwardAssume that on December 31, 2021, Stora Enso (FIN) signs a 10-year, non-cancelable leaseagreement to lease a storage building from Sheffield Storage. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of €71,830 beginning on December 31, 2021. 2. The fair value of the building on December 31, 2021, is €525,176. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of €10,000, and an expected residual value of €7,000. Stora Enso depreciates similar buildings using the straight-line method. 4. The lease is non-renewable. At the termination of the lease, the building reverts to the lessor. 5. Stora Enso’s incremental borrowing rate is 8% per year. The lessor’s implicit rate is not known by Stora Enso. Instructions Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2021, 2022, and…arrow_forward
- a) On January 1, 2019, a new standard for the accounting treatment of lease transactions came into effect. Discuss three significant differences between the new lease standard and the previous standard. b) Boswell Manufacturing Company has been in business for five years. Thecompany has now decided to expand its operations. To finance this process, the company is considering two approaches: (1) Lease the assets that are needed on a long term basis or (2) Issue bonds and use the proceeds to purchase the assets.The CEO is seeking your advice on the matter. Without knowledge of thecomparative cost involved, how would you advise him in the following questions:(i) What might be the advantages and disadvantages of leasing the assetsinstead of owning them. (List at least three advantages and threedisadvantages) (ii) How will leasing the assets instead of owning them affect the financialstatements? c) The information below relates to a leasing arrangement between Frankfield Leasing Company…arrow_forwardPebworth Co entered into a contract to acquire the right to use an item of plant for a period of three years from 1 April 2022. The contract meets the definition of a lease under IFRS 16 Leases. The present value of the future lease payments on commencement of the lease was $15,462,000 which is also the initial carrying amount of the right-of-use asset. Pebworth Co will also make three rental payments of $6 million per annum which are due to be paid in arrears on 31 March each year. The useful life of the plant is deemed to be five years. There is no option to buy the asset at the end of the lease term. The interest rate implicit in the lease is 8% per annum. What is the total charge to profit or loss in respect of this lease at 31 March 2023?arrow_forward1. Refer to Item 4. At what amount should the lease liability be recognized at January 1, 2022, after making the first payment of P260,000 to the lessor? 2. Assuming that the residual value of the two automobiles amounted to P150,000 at the end of the lease term, prepare the journal entry to record the transfer of the leased automobiles to the lessor.arrow_forward
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