Question

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $82,000 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $525,000. Assume that a U.S.-based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required: a. Prepare journal entries 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. Prepare the entry(ies) that Rawl would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS. Complete this question by entering your answers in the tabs below. Required A Required B Prepare journal entries for this sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer: a us-Ginap: Here, The present value of lease rental is greater than goot of assets fair value. Thus, the gain on sale transaction must be defered over the lease tom Assuring Lease rental = book wabue of berilding = $ 500,000 mo year. and, feat value os beikting = $ 827000 + $525,000 = $609,000 Glain on sale transaction = $82,000. lease vestal nundis operating = ($25,00) = $131,250 82,000 OC - 20,500

Debit bredit Tournal Entry Dati . General Journal 31-12-17 sale -> Bank To building To Deferred profit $607,000 $525,000 $82,000 Lease rental To bank $ 131,250 $131,250 profit & Loss $31,250 $131,250 To lease rental Deferred profit art To profit & lossare $ 20,500 $20, 500 $131,250 $131,250 $131,250 31/19)18 operating lease rental To bank profft and loss To lease renital Deferred profit To profit & loss $131,250 $20,500 $20, 500

a@ Assuming sales at foris verdese - $607000 The gain should be credited to = $82,000 Debit I credit The lease back is a opererting dease. Dati General Journal 31-12-17 sale bank to building $607,000 $505,000 to profit a loss 82.000 $ 11,250 Lease back operating lease 'at 525,000 lease rental To bank $131,250 31-12-18 $131,250 Lease icnlal To bank $131,250 $ 131,250 profit & loss To lease rental {131,250 @ tais remaining ante = 82,000 - 20,500 = 61500

Entries to convert us GAAP to IFRS & Debit credit $607,000 Dat. . General Journal 31-12-17 Deferred profit To profit &e loss $607,000 $20,500 31-12-18 profit & loss To Deferred profit