On
January 1, 2011, Ryan Animation Ltd., which uses IFRS, sold a truck to
Letourneau Finance Corp. for $65,000 and immediately leased it back. The truck
was carried on Ryan Animation’s books at $53,000, net of $26,000 of accumulated
depreciation. The term of the lease is five years, and title transfers to Ryan
Animation at lease end. The lease requires five equal rental payments of
$17,147, with each payment made at year end. The appropriate rate of interest
is 10%, and the truck has a useful life of five years with no salvage value.
Prepare Ryan Animation’s 2011 journal entries.
Cash.................................... 65,000
Accumulated Depreciation - Truck........ 26,000
Truck............................... 79,000
Deferred
Profit on Sale-Leaseback... 12,000
Truck under Capital Lease............... 65,000
Lease
Obligation.................... 65,000
($17,147 X 3.79079)
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Excel formula =PV(rate,nper,pmt,fv,type)
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Using a financial calculator:
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PV
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$
?
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Yields $65,000
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I
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10%
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N
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5
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PMT
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$
(17,147)
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FV
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$
0
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Type
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0
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Depreciation Expense.................... 13,000
Accumulated
Depreciation ($65,000 X 1/5) 13,000
Deferred Profit on Sale-Leaseback....... 2,400
Depreciation
Expense ($12,000 X 1/5) 2,400
Interest Expense ($65,000 X 10%)........ 6,500
Lease Obligation........................ 10,647
Cash................................ 17,147
