To raise operating funds, North American Courier Corporation sold its building o

Question

To raise operating funds, North American Courier Corporation sold its building on January 1, 2016, to an insurance company for $740,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2025, at which time ownership of the building will revert to North American Courier. The building has a book value of $800,000 (original cost 1,000,000). The lease requires North American to make payments of $130,968 to the insurance company each December 31. The building had a total original useful life of 30 years with no residual value and is being depreciated on a straight-line basis. The lease has an implicit rate of 12%. EV of $1. PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for North American on (a) January 1, 2016, to record the sale-leaseback and (b) December 31, 2016, to record necessary adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the sale-leaseback. Note: Enter debits before credits. Date General Journal DebitCredit January 01, 2016 Record entry Clear entry View general journal 2. Show how North American's December 31, 2016, balance sheet and income statement would reflect the Assets Liabilities Current Income Statement

Explanation / Answer

Present value of periodic lease payments = $130988 x PVA12%,10

= $130988 x 5.65022 = $740000 (Rounded)

Journal

Remaining useful life of building = Total life x Carrying amount/ Cost

= 30 years x $400000/ $1000000

= 12 years

No. &
Date Account Name Debit Credit 1. Jan 1, 2016 Cash 740000 Accumulated depreciation 400000 Buildings 1000000 Deferred gain on sale-leaseback 140000 2. Jan 1, 2016 Leased building 740000 Lease payable 740000 3. Dec 31, 2016 Interest expense (740000 x 12%) 88800 Lease payable 42188 Cash 130988 4. Dec 31, 2016 Depreciation expense ($740000/ 12) 61667 Accumulated depreciation 61667 5. Dec 31, 2016 Deferred gain on sale-leaseback ($140000/ 12) 11667 Depreciation expense 11667

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.