CFA Practice Question

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CFA Practice Question

On December 31, 2014, Rosen Corp. sold a machine to Carter and simultaneously leased it back for one year. Pertinent information (on this date) follows:

Sales price: $360,000
Carrying amount: $330,000
Present value of reasonable lease rentals ($3,000 for 12 months @ 12%): $34,000
Estimated remaining useful life: 12 years

In Rosen's December 31, 2014 balance sheet, the profit from the sale of this machine should be ______.

A. $34,000
B. $30,000
C. $0
Correct Answer: B

The profit on the sale would be the difference between the sales price and the carrying amount. $360,000 - $330,000 = $30,000

User Contributed Comments 3

User Comment
endlessyy Then what is that $4000 is? unearned interest?
Jurrens it only asks about the sale, not the leasing-back aspect
jrojasut09 the PV of the lease payments become a liability
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