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6. Sales and Leaseback On January 1 20x1, Entity X sold a building to Entity Y simultaneously leased it back. Additional information follows: Fair value

6. Sales and Leaseback On January 1 20x1, Entity X sold a building to Entity Y simultaneously leased it back. Additional information follows: Fair value of building Carrying amount of building 800,000 and 1,000,000 Remaining useful life of building Lease Term Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate The transfer qualifies as a sale. Requirements (Independent cases): 10 years 5 years 12% a. If the sales price is P1,000,000 which is equal to fair value compute the following under the seller-lessee accounting Lease liability i. ii. iii. Right of use Asset Gain or Loss iv. Journal entries on January 1, 20x1 b. If the sales price is P1,000,000 which is equal to fair value compute the following under the buyer-lessor accounting Gross Investment i. Net Investment ii. iii. Unearned Interest Income iv. Journal entries on January 1, 20x1 c. Same requirements in a and b but the sales price is P1,100,000 which is above the fair value of the asset d. Same requirements in a and b but the sales price is P900,000 which is below the fair value of the asset

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