902 SECTION 3 Financial Instruments and Liabilities To raise operating funds, Signal Aviation sold an airplane on January 1, 2016, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $620,000. Its useful life is estimated to be 15 years. The lease requires Signal to make payments of $102,771 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 11%. Required: Prepare the appropriate entries for Signal on: 1. January 1, 2016, to record the sale-leaseback. 2. December 31, 2016, to record necessary adjustments. Refer to the situation described in Exercise 15–26. Required: How might your solution differ if Signal Aviation prepares its financial statements according to International Financial Reporting Standards? Include any appropriate journal entries in your response. To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2016, for $800,000 and immediately leased the building back. The operating lease is for the final 12 years of the building’s estimated 50-year useful life. The building has a fair value of $800,000 and a book value of $650,000 (its original cost was $1 million). The rental payments of $100,000 are payable to the insurance company each December 31. The lease has an implicit rate of 9%. Required: Prepare the appropriate entries for National Distribution Center on: 1. January 1, 2016, to record the sale-leaseback. 2. December 31, 2016, to record necessary adjustments. Refer to the situation described in Exercise 15–28. Required: How might your solution differ if National Distribution Center prepares its financial statements according to International Financial Reporting Standards? Include any appropriate journal entries in your response. E 15–26 Sale-leaseback; capital lease ● LO15–10 E 15–27 IFRS; sale leaseback; capital lease ● LO15–10, LO15–11 E 15–28 Sale-leaseback; operating lease ● LO15–10 E 15–29 IFRS; sale leaseback; operating lease ● LO15–10, LO15–11 List A List B 1. Effective rate times balance. a. PV of BPO price. b. Lessor’s net investment. c. Lessor’s gross investment. d. Operating lease. e. Depreciable assets. f. Loss to lessee. g. Executory costs. h. Depreciation longer than lease term. i. Disclosure only. j. Interest expense. k. Additional lessor conditions. l. Lessee’s minimum lease payments. m. Purchase price less than fair value. n. Sales-type lease selling expense. o. Lessor’s minimum lease payments. 2. Revenue recognition issues. 3. Minimum lease payments plus unguaranteed residual value. 4. Periodic lease payments plus lessee-guaranteed residual value. 5. PV of minimum lease payments plus PV of unguaranteed residual value. 6. Initial direct costs. 7. Rent revenue. 8. Bargain purchase option. 9. Leasehold improvements. 10. Cash to satisfy residual value guarantee. 11. Capital lease expense. 12. Deducted in lessor’s computation of lease payments. 13. Title transfers to lessee. 14. Contingent rentals. 15. Lease payments plus lessee-guaranteed and third-party-guaranteed residual value. IFRS IFRS
Spiceland_Inter_Accounting8e_Ch15
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