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

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)

Excel formula =PV(rate,nper,pmt,fv,type)

Using a financial calculator:
PV	$  ?	Yields  $65,000
I	10%
N	5
PMT	$   (17,147)
FV	$  0
Type	0

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