Problem 15-30 (Algo) Sale-leaseback [LO Appendix 15] To raise operating funds, North American Courier Corporation sold its building on January 1, 2024, to an insurance company for $508,000 and immediately leased the building back. • The lease is for a 10-year period ending December 31, 2033, at which time ownership of the building will revert to North American Courier. • The building has a carrying amount of $430,000 (original cost $1,060,000). • The lease requires North American to make payments of $89,908 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%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the appropriate entries for North American (a) on January 1, 2024, to record the transaction and (b) on December 31, 2024, to record necessary adjustments. 2. Show how North American's December 31, 2024, balance sheet and income statement would reflect the sale-leaseback.

Problem 15-30 (Algo) Sale-leaseback [LO Appendix 15] To raise operating funds, North American Courier Corporation sold its building on January 1, 2024, to an insurance company for $508,000 and immediately leased the building back. • The lease is for a 10-year period ending December 31, 2033, at which time ownership of the building will revert to North American Courier. • The building has a carrying amount of $430,000 (original cost $1,060,000). • The lease requires North American to make payments of $89,908 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%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the appropriate entries for North American (a) on January 1, 2024, to record the transaction and (b) on December 31, 2024, to record necessary adjustments. 2. Show how North American's December 31, 2024, balance sheet and income statement would reflect the sale-leaseback.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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7...new...continue b Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020.Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable. (b) Prepare the journal entry to record the transaction on January 1, 2020, on the books of…
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