CHAPTER
15
SALE AND LEASEBACK
TECHNICAL KNOWLEDGE
To define a sale and leaseback.
To recognize a sale and leaseback on the part of
To recognize a sale and leaseback on the part of
To know the recognition of a transfer of asset that is not a sale
SALE AND LEASEBACK
A sale and leaseback is an arrangement whereby one party sells an asset to another party and
then immediately leases the asset back from the new owner.
Thus, the seller becomes a seller-lessee and the buyer, a buyer-lessor.
A sale and leaseback transaction may occur when the seller-lessee is experiencing cash flow or
financing problem or because there are tax advantages in such an arrangement in the lessee's
jurisdiction.
Moreover, the seller-lessee would like to avoid the burden of paying the executory costs
attendant to the asset, such as repairs, insurance and taxes.
Transfer of the asset is
IFRS 16, paragraph 100, provides that the transfer of an asset must satisfy the requirements for
the recognition of sale in order to be accounted for as sale and leaseback.
The important consideration in a sale and leaseback transaction is the recognition of two separate
and distinct transactions.
However, it is important to note that there is no physical transfer of asset.
First - there is a sale.
Second - there is a lease agreement for the same asset in which the seller is the lessee and the
buyer is the lessor.
However, the lease rent and the sale price are usually interdependent as they are negotiated as a
package.
Illustration - Sale price at fair value
At the beginning of the current year, an entity sold machinery with a remaining life of 10 years
for P2,000,000 which is equal to the fair value of the machinery.
The entity immediately leased the machinery back for 1 year at the prevailing annual rental of
P300,000.
The machinery has a carrying amount of P1,800,000, net of accumulated depreciation of
P1,200,000.
Books of seller-lessee
1. To record the sale:
Cash 2,000,000
Accumulated depreciation 1,200,000
Machinery 3,000,000
Gain on right transferred 200,000
2. To record annual rental:
Rent expense 300,000
Cash 300,000
The seller-lessee used the operating lease model because the lease is short-term or one year.
Books of buyer-lessor
1. To record the purchase:
Machinery 2,000,000
Cash 2,000,000
2. To record the annual rental:
Cash 100,000
Rent income 100,000
3. To record depreciation of the machinery:
Depreciation 200,000
Accumulated depreciation
(2,000,000/10) 200,000
Illustration - Sale price at fair value
On January 1, 2020, an entity sold an equipment with remaining life of 10 years and immediately
leased it back for 4 years at the prevailing market rental.
Sale price at fair value 6,000,000
Carrying amount of equipment 4,500,000
Annual rental payable at the end of each year 800,000
Implicit interest rate 10%
Present value of an ordinary annuity of 1
at 10% for four periods 3.170
Measurement of lease liability
The seller-lessee shall account for the leaseback as a finance lease. The lease liability is
measured at the present value of lease payments.
Present value of rentals (800,000 x 3.17) 2,536,000
Table of amortization
Date Payment 10% interest Principal Present value
1/1/2020 2,536,000
12/31/2020 800,000 253,600 546,400 1,989,600
12/31/2021 800,000 198,960 601,040 1,388,560
12/31/2022 800,000 138,856 661,144 727,416
12/31/2023 800,000 72,584 727,416 -
Measurement of right of use, asset
IFRS 16, paragraph 100, provides that the seller-lessee shall measure the right of use asset
arising from the leaseback at the proportion of the previous carrying amount of the asset that
relates to the right of use retained by the seller-lessee.
Simply stated, the cost of right of use asset is equal to a fraction whose numerator is the present
value of lease liability and whose denominator is the fair value multiplied by the carrying
amount of the asset.
Carrying amount 4,500,000
Sale price at fair value 6,000,000
Cost of right of use asset
(2,536,000/6,000,000 x 4,500,000) 1,902,000
Gain or loss to be recognized
Paragraph 100 provides that the gain or loss that pertains to the right retained by the seller-lessee
is not recognized.
The right retained by the seller-lessee is the proportion of the initial lease liability in relation to
the fair value of the asset.
The gain or loss that pertains to the right transferred to the buyer-lessor is recognized.
The right transferred to the buyer-lessor is the fair value of asset minus the initial lease liability.
Sale price at fair value 6,000,000
Carrying amount 4,500,000
Total gain 1,500,000
Fair value 6,000,000
Right retained by seller-lessee equal to lease liability 2,536,000
Right transferred to buyer-lessor 3,464,000
Gain to be recognized (3,464,000/6,000,000 x-1,500,000) 866,000
Gain not to be recognized
(2,536,000/6,000,000 x 1,500,000) 634,000
Total gain 1,500,000
Books of seller-lessee
The seller-lessee shall apply the finance lease model in accounting for the sale and leaseback
transaction.
1. To record the sale and leaseback:
Cash 6,000,000
Right of use asset 1,902,000
Equipment 4,500,000
Lease liability 2,536,000
Gain on right transferred 866,000
2. To record the annual rental for the first year:
Interest expense (10% x 2,536,000) 253,600
Lease liability 546,400
Cash 800,000
3. To record the annual depreciation of right of use asset:
Depreciation (1,902,000 14 years) 475,000
Accumulated depreciation 475,500
Books of buyer-lessor
Paragraph 100 provides that the buyer-lessor shall account for the purchase of the asset applying
lessor accounting standard.
Accordingly, the buyer-lessor shall apply the operating lease model because the lease term is 4
years or only 40% of the useful life of the underlying asset.
Moreover, the present value of rentals of P2,536,000 is less than 90% of the fair value of
1. To record the purchase of the underlying asset:
Equipment 6,000,000
Cash 6,000,000
2. To record the annual rental:
Cash 800,000
Rent income 800,000
3. To record annual depreciation of equipment:
Depreciation (6,000,000/10 years) 600,000
Accumulated depreciation 600,000
Illustration - Sale price above fair value
On January 1, 2020, an entity sold a building with remaining life of 20 years and immediately
leased it back for 5 years.
Sale price 20,000,000
Fair value of building 18,000,000
Carrying amount of building 10,800,000
Annual rental payable at the end of each year 1,500,000
Implicit interest rate 12%
Present value of an ordinary annuity of
1 at 12% for five periods 3.60
Lease liability (1,500,000 x 3.60) 5,400,000
IFRS 16, paragraph 101, provides that if the sale price does not equal the fair value of the
underlying asset, the seller-lessee shall make adjustment to measure the sale price at fair value.
Any excess sale price over fair value, shall be accounted for as additional financing provided by
the buyer-lessor to seller-lessee.
Sale price 20,000,000
Fair value of building 18,000,000
Excess sale price over fair value 2,000,000
Present value of lease liability 5,400,000
Additional financing equal to excess sale price (2,000,000)
Present value of lease liability related to rentals 3,400,000
Carrying amount 10,800,000
Fair value of building 18,000,000
Cost of right of use asset
(3,400,000/18,000,000 x 10,800,000) 2,040,000
Fair value of building 18,000,000
Carrying amount 10,800,000
Adjusted total gain 7,200,000
Fair value of building 18,000,000
Right retained by seller-lessee equal to lease
liability, excluding excess sale price 3,400,000
Right transferred to buyer-lessor 14,600,000
Gain to be recognized (14,600,000 / 18,000 x 7,200,000) 5,840,000
Gain not to be recognized (3,400,000/18,000 x 7,200,000) 1,360,000
Adjusted total gain 7,200,000
Books of seller-lessee
1. To record the sale and leaseback:
Cash 20,000,000
Right of use asset 2,040,000
Building 10,800,000
Lease liability 5,400,000
Gain on right transferred 5,840,000
2. To record the annual rental for the first year:
Interest expense (12% x 5,400,000) 648,000
Lease liability 852,000
Cash 1,500,000
3. To record the annual depreciation of right of use asset:
Depreciation (2,040,000/5 years) 408,000
Accumulated depreciation 408,000
Books of buyer-lessor
The buyer-lessor shall apply the operating lease model because the lease term is 5 years or only
25% of the 20-year useful life of the underlying asset.
Moreover, the present value of lease liability related to rentals of P3,400,000 is less than 90% of
the fair value of the asset of P18,000,000.
1. To record the purchase of the building:
Building 18,000,000
Financial asset 2,000,000
Cash 20,000,000
2. To record the annual rental related lease:
Cash 944,444,
Rent income 944,444
3. To record the annual rental related to financing:
Cash 555,556
Financial asset 315,556
Interest income 240,000
4. To record depreciation of building
Depreciation (18,000,000/20) 900,000
Accumulated depreciation 900,000
Allocation of the annual rental
The annual rental of P1,500,000 is partly rental income and partly payment of the financial asset.
Present value Fraction Allocation
Rental income 3,400,000 3,400/5,400,000 944,444
Financial asset 2,000,000 2,000/5,400,000 555,556
Total present value 5,400,000 1,500,000
Amortization related to financial asset
Date Payment 12% interest Principal Present value
1/1/2020 2,000,000
12/31/2020 555,556 240,000 315,556 1,684,444
12/31/2021 555,556 202,133 353,423 1,331,021
12/31/2022 555,556 159,723 395,833 935,188
12/31/2023 555,556 112,222 443,334 491,854
12/31/2024 555,556 63,702 491,854 -
December 31, 2020
Payment 555,556
Interest income for 2020 (12% x 2,000,000) (240,000)
Principal payment 315,556
Present value - January 1, 2020 2,000,000
Principal payment- (315,556)
Present value - December 31, 2020 1,684,444
Illustration - Sale price below fair value
On January 1, 2020, an entity sold an equipment with remaining life of 8 years and leased it back
for 5 years.
Sale price 5,000,000
Fair value of equipment 6,000,000
Carrying amount 4,800,000
Implicit interest rate 8%
Present value of an ordinary annuity of
1 at 8% for five periods 3.99
Measurement of lease liability
Present value rentals (900,000 x 3.99) 3,591,000
Table of amortization
Date Payment 8% interest Principal Present value
1/1/2020 3,591,000
12/31/2020 900,000 287,280 612,720 2,978,280
12/31/2021 900,000 238,262 661,738 2,316,542
12/31/2022 900,000 185,323 714,677 1,601,865
12/31/2023 900,000 128,149 771,851 830,014
12/31/2024 900,000 69,986 830,014 -
Measurement of right of use asset
IFRS 16, paragraph 101, provides that if the sale price does not equal the fair value of the asset,
the seller-lessee shall make adjustment to measure the sale price at fair value,
If the sale price is below fair value, the difference is accounted for as prepayment of rental.
Fair value of equipment 6,000,000
Sale price 5,000,000
Excess fair value over sale price 1,000,000
Present value of rentals (900,000 x 3.99) 3,591,000
Excess fair value - prepayment of rental 1,000,000
Total lease liability 4,591,000
Carrying amount 4,800,000
Fair value of equipment 6,000,000
Cost of right of use asset
(4,591,000/6,000,000 x 4,800,000) 3,672,800
Gain to be recognized
Fair value of equipment 6,000,000
Carrying amount 4,800,000
Total gain 1,200,000
Fair value of equipment
Right retained by seller-lessee equal to lease
liability including the excess fair value 4,591,000
Right transferred to buyer-lessor 1,409,000
Gain to be recognized
(1,409,000/6,000,000 x 1,200,000) 281,800
Gain not to be recognized
(4,591,000/6,000,000 x 1,200,000) 918,200
Total gain 1,200,000
Books of seller-lessee
1. To record the sale and leaseback:
Cash 5,000,000
Right of use asset 3,672,800
Equipment 4,800,000
Lease liability 3,591,000
Gain on right transferred 281,800
2. To record the annual rental for the first year:
Interest expense 287,280
Lease liability 612,720
Cash 900,000
3. To record the annual depreciation of right of use asset:
Depreciation (3,672,800/5 years) 734,560
Accumulated depreciation 734,560
Books of buyer-lessor
The buyer-lessor shall apply the operating lease model because the lease term of 5 years is less
than 75% of the 8-year useful life of the underlying asset.
Moreover, the present value of rentals of P4,591,000 is less than 90% of the fair value of
1. To record the purchase of the equipment:
Equipment 5,000,000
Cash 5,000,000
2. To record the annual rental:
Cash 900,000
Rent income 900,000
3. To record annual depreciation of equipment:
Depreciation (5,000,000/8) 625,000
Accumulated depreciation 625,000
Illustration - Sale price at fair value with loss
On January 1, 2020, an entity sold a building with remaining life of 25 years and immediately
leased it back for 3 years.
Sale price at fair value 10,000,000
Carrying amount 12,000,000
Annual rental payable at the end of each year 500,000
Implicit interest rate 8%
Present value of an ordinary annuity of
1 at 8% for three periods 2.58
Measurement of lease liability
Present value of rentals (500,000 x 2.58) 1,290,000
Table of amortization
Date Payment 8% interest Principal Present value
1/1/2020 1,290,000
12/31/2020 500,000 103,200 396,800 893,200
12/31/2021 500,000 71,456 428,544 464,656
12/31/2022 500,000 35,344 464,656
Measurement of right of use asset
Carrying amount 12,000,000
Sale price at fair value 10,000,000
Cost of right of use asset
(1,290,000 / 10,000,000 x 12,000,000) 1,548,000
Loss to be recognized
Sale price 10,000,000
Carrying amount 12,000,000
Total loss (2,000,000)
Fair value 10,000,000
Right retained by seller-lessee equal to lease liability 1,290,000
Right transferred to buyer-lessor 8,710,000
Loss to be recognized
(8,710,000/10,000,000 x 2,000,000) 1,742,000
Loss not to be recognized
(1,290,000/10,000,000 x 2,000,000) 258,000
Total loss 2,000,000
Books of seller-lessee
1. Cash 10,000,000
Right of use asset 1,548,000
Loss on right transferred 1,742,000
Building 12,000,000
Lease liability 1,290,000
2. Interest expense 103,200
Lease liability 396,800
Cash 500,000
3. Depreciation (1,548,000/3) 516,000
Accumulated depreciation 516,000
Books of buyer-lessor
1. Building 10,000,000
Cash 10,000,000
2. Cash 500,000
Rental income 500,000
3. Depreciation (10,000,000/25) 400,000
Accumulated depreciation 400,000
Transfer of asset is not a sale
IFRS 16, paragraph 103, provides that if the transfer of asset by the seller-lessee does not satisfy
the requirements for the recognition of a sale:
a. The seller-lessee shall continue to recognize the transferred asset and shall recognize a
financial liability equal to the transfer proceeds.
The entry is debit cash and credit lease liability for the transfer proceeds.
The rental or lease payment is accounted for as part payment of interest expense and part
payment of the principal lease liability.
The interest is computed based on the implicit interest rate using the effective interest method.
b. The buyer-lessor shall not recognize the transferred asset but shall recognize a financial asset
equal to the transfer proceeds.
The entry is debit lease receivable and credit cash.
The rental or lease payment from the seller-lessee is accounted for as part collection of interest
income and part collection of the principal lease receivable.
QUESTIONS
1. Define a sale and leaseback transaction.
2. Explain why an original owner may enter into a sale and leaseback transaction.
3. What is the important consideration in accounting for sale and leaseback transaction?
4. Explain the accounting procedures when the leaseback is an operating lease.
5. Explain the accounting procedure when the sale price is at fair value.
6. Explain the accounting procedure when the sale price is above fair value.
7. Explain the accounting procedure when the sale price is below fair value.
8. Explain the accounting procedure when the sale price is at fair value and there is an
indicated loss.
9. Explain the accounting for a transfer of asset that is not a sale.
PROBLEMS
Problem 15-1 (ACP)
At the beginning of current year, German Company sold an equipment to Sterling Company for
P1,200,000 which is the fair value of the equipment.
The equipment had a cost of P2,500,000, carrying amount of P1,000,000 and remaining useful
life of 5 years.
On the same day, German Company leased back the equipment for one year for an annual rental
of P300,000 payable at the beginning of the year.
German Company has no option to renew or repurchase the equipment.
Required:
Prepare journal entries for the current year to record the sale and leaseback transaction on the
books of German Company and Sterling Company.
Problem 15-2 (ACP)
On January 1, 2020, Canada Company sold a machine with a remaining useful life of 10 years to
Saigon Company and simultaneously leased it back for 3 years. The leaseback is appropriately
classified as low value lease.
Sale price 500,000
Machinery 600,000
Accumulated depreciation 120,000
Annual rental 100,000
Required:
Prepare journal entries to record the sale and leaseback transaction on the books of Canada
Company and Saigon Company
Problem 15-3 (IFRS)
At the beginning of current year, Juan Company sold a machine and immediately leased it back
at market rental.
The details of the sale and leaseback are:
Sale price at fair value 5,000,000
Fair value of machine 5,000,000
Carrying amount of machine 4,500,000
Annual rental payable at the end of each year 600,000
Remaining life of machine 10 years
Lease term 5 years
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10%
for five periods 3.791
The leaseback provides for neither transfer of title to the lessee nor a purchase option that is
reasonably certain to be exercised.
Required:
1. Compute the initial measurement of lease liability.
2. Compute the cost of right of use asset.
3. Determine the gain on right to transferred to the buyer-lessor.
4. Prepare journal entries on the books of seller-lessee for the current year.
5. Prepare journal entries on the books of buyer-lessor for the current year.
Problem 15-4 (IFRS)
At the beginning of current year, Pedro Company sold machine and immediately leased it back.
The following data relate to the sale and leaseback transaction:
Sale price at above fair value 6,000,000
Fair value of machine 5,000,000
Carrying amount of machine 4,500,000
Annual rental payable at the end of each year 800,000
Remaining life of machine 10 years
Lease term 4 years
Implicit interest rate 8%
Present value of an ordinary annuity of 1 at 8%
for four periods 3.312
There is no transfer of title to the lessee nor purchase option that is reasonably certain to be
exercised.
Required:
1. Compute the initial lease Liability.
2. Compute the cost of right of use asset.
3. Determine the gain on right transferred to buyer-lessor.
4. Prepare journal entries on the books of seller-lessee for the current year.
5. Prepare journal entries on the books of buyer-lessor for the current year.
Problem 15-5 (IFRS)
At the beginning of current year, Hazel Company sold a machine and immediately leased it back.
The following data pertain to the sale and leaseback transaction:
Sale price at below fair value 4,000,000
Fair value of machine 5,000,000
Carrying amount of machine 3,500,000
Annual rental payable at the end of each year 500,000
Remaining life of machine 10 years
Lease term 3 years
Implicit interest rate 6%
Present value of an ordinary annuity of 1 at 6%
for 3 periods 2.67
The lease provides for neither transfer of title to the lessee upon lease expiration nor a purchase
option that is reasonably certain to be exercised.
Required:
1. Compute the initial lease liability.
2. Compute the cost of right of use asset.
3. Determine the gain on right transferred to buyer-lessor.
4. Prepare journal entries on the books of seller-lessee for the current year.
5. Prepare journal entries on the books of buyer-lessor
for the current year.
Problem 15-6 (ACP)
Cuba Company owned a building costing P5,000,000 with P3,400,000 of accumulated
depreciation. The building has remaining useful life of 15 years.
At the beginning of current year, the building was sold to Mexico Company at the fair value of
P2,400,000 and leased back over an 8-year term, with lease payment of P300,000 to be made at
the end of each year.
The leaseback has a purchase option that is not reasonably certain to be exercised.
The interest rate implicit in the lease is approximately 6%.
The present value of an ordinary annuity of 1 at 6% for eight periods is 6.21.
Required:
1. Compute the initial lease liability.
2. Compute the cost of right of use asset.
3. Determine the gain on right transferred to the buyer-lessor.
4. Prepare journal entries on the books seller-lessee for the current year.
5. Prepare journal entries on the books buyer-lessor for the current year.
Problem 15-7 (IFRS)
At the beginning of current year, World Company sold a machine and immediately leased it
back. The following data pertain to the sale and leaseback transaction:
Sale price at fair value 5,000,000
Carrying amount of machine 6,500,000
Annual rental payable at the end of each year 300,000
Lease term 4 years
Remaining life of machine 20 years
Implicit interest rate 6%
Present value of an ordinary annuity of 1 at
6% for four periods 3.465
Required:
1. Compute the initial lease liability.
2. Compute the cost of right of use asset.
3. Determine the loss on right transferred to buyer-lessor.
4. Prepare journal entries on the books of seller-lessee for the current year.
5. Prepare journal entries on the books of buyer-lessor for the current year.
Problem 15-8 (IFRS)
At the beginning of current year, Globe Company sold an equipment with remaining life of 10
years and leased it back immediately for 3 years.
Sale price 1,200,000
Carrying amount 2,500,000
Annual rental payable at the end of each year 500,000
Implicit interest rate 12%
Present value of an ordinary annuity of
1 at 12% for three periods 2.40
It was reliably determined that the transfer of the asset by the seller-lessee does not satisfy the
recognition of a sale.
Required:
Prepare journal entries on the books of seller-lessee and buyer-lessor for the current year.
Problem 15-9 (AICPA Adapted)
On December 31, 2020, Bain Company sold a machine Ryan Company and simultaneously
leased it back for one year. The entity provided the following information at this date:
Sale price 360,000
Carrying amount 330,0000
Present value of reasonable lease rentals
(P30,000 for 12 months @ 12%)
Estimated remaining useful life 341,000
In the income statement for 2020, what amount should be reported as gain from the sale of the
machine?
a. 34,100
b. 30,000
c. 4,100
d. 0
Problem 15-10 (AICPA Adapted)
On December 31, 2020, Lane Company sold equipment to Noll Company and simultaneously
leased it back for 3 years.
The leaseback is appropriately considered a low value lease.
Sale price 480,000
Carrying amount 360,000
Estimated remaining economic life 5 years
What amount should be reported as gain from sale of equipment for 2020?
a. 120,000
b. 60,000
c. 40,000
d. 0
Problem 15-11 (AICPA Adapted)
At the beginning of current year, Racquel Company sold a building and immediately leased it
back. The following data pertain to the sale and leaseback transaction:
Sale price at above fair value 9,000,000
Fair value of building 8,000,000
Carrying amount of building 7,200,000
Annual rental payable at the end of each year 600,000
Remaining life of building 20 years
Lease term 4 years
Implicit interest rate 12%
Present value of an ordinary annuity of
1 at 12% for four periods 3.037
1. What is the initial lease liability?
a. 1,822,200
b. 2,400,000
c. 1,200,000
d. 1,000,000
2. What is the cost of right of use asset?
a. 1,639,980
b. 739,980
c. 822,200
d. 411,100
.
3. What is the gain on right transferred to buyer-lessor?
a. 800,000
b. 720,000
c. 717,780
d. 400,000
4. What is the annual rental income of the buyer-lessor?
a. 600,000
b. 329,272
c. 270,728
d. 300,000
Problem 15-12 (IFRS)
At the beginning of current year, Arianne Company sold machine and immediately leased it
back.
Sale price at fair value 5,000,000
Carrying amount of machine 6,000,000
Annual rental payable at the end of each year 500,000
Lease term 5 years
Remaining life of machine 20 years
Implicit interest rate 6%
PV of an ordinary annuity of 1 at 6% for 5 periods 4.21
1. What is the cost of right of use asset?
a. 2,105,000
b. 2,526,000
c. 2,895,000
d. 1,500,000
2. What is the loss on right transferred to the buyer-lessor?
a. 579,000
b. 505,200
c. 500,000
d. 0
3. What is the lease liability at year-end?
a. 2,177,560
b. 1,605,000
c. 1,731,300
d. 2,105,000
4. What is the net annual rental income of the buyer-lessor?
a. 373,700
b. 200,000
c. 500,000
d. 250,000
Problem 15-13 (IFRS)
At the beginning of current year, an entity sold an equipment with remaining life of 10 years and
immediately leased it back for 4 years at the prevailing market rental.
Sale price at fair value 6,000,000
Carrying amount of equipment 4,500,000
Annual rental payable at the end of each year 800,000
Implicit interest rate 10%
Present value of an ordinary annuity of
1 at 10% for four periods 3.17
1. What is the initial lease liability?
a. 2,536,000
b. 3,200,000
c. 3,000,000
d. 0
2. What is the cost of right of use asset?
a. 1,902,000
b. 2,598,000
c. 2,536,000
d. 0
3. What is the gain on right transferred?
a. 866,000
b. 634,000
c. 750,000
d. 0
4. What is the annual depreciation of the lessee?
a. 475,500
b. 190,200
c. 634,000
d. 253,600
Problem 15-14 (IFRS)
At the beginning of current year, Judy Company sold a building with remaining useful life of 30
years and immediately leased it back for 5 years.
Sale price at below fair value 18,000,000
Fair value of building 20,000,000
Carrying amount of building 24,000,000
Annual rental payable at the end of each year 1,000,000
Implicit interest rate 12%
Present value of an ordinary annuity of
1 at 12% for 5 periods 3.60
1. What is the initial lease liability?
a. 3,600,000
b. 4,000,000
c. 4,800,000
d. 0
2. What the cost of right of use asset?
a. 3,000,000
b. 4,320,000
c. 5,760,000
d. 6,720,000
3. What is the loss on right transferred?
a. 4,000,000
b. 2,880,000
c. 5,760,000
d. 6,720,000
4. What is the interest expense of the seller-lessee for the current year?
a. 120,000
b. 576,000
c. 672,000
d. 432,000
6. What is the net annual rent income of the buyer-lessor?
a. 400,000
b. 200,000
c. 300,000
d. 100,000
