Central Purchasing Ltd. (CPL) owns the building it uses; it had an original cost of $815,000 and a net book value of $250,000 as of 1 January 20X2. On this date, the building was sold to a real estate investment trust (REIT) for $537,500, which also was the building’s fair value, and simultaneously leased back to CPL.
The lease has a guaranteed, 12-year term and required payments on 31 December of each year. The payments are $74,500, and the lease allows the property to revert to the lessee at the end of the lease. CPL could have mortgaged this property under similar terms at an interest rate of 10%. The REIT will pay property taxes estimated to be $16,000 per year. These costs are included in the lease payment. CPL will pay maintenance and operating costs. The building is being depreciated straight-line, with an estimated remaining life of 16 years.
(PV of $1, PVA of $1, and PVAD of $1.)
Required:
1. Prepare entries to record the sale and leaseback of the building.
2.a) Show how all amounts related to the sale and leaseback will be presented on the statement of financial position in 2012.
2.b) Show how all amounts related to the sale and leaseback will be presented on the statement of comprehensive income in 2012.
