To raise operating funds, Signal Aviation sold an airplane on January 1, 2016, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $620,000. Its useful life is estimated to be 15 years. The lease requires Signal to make payments of $102,771 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 11%. Required: Prepare the appropriate entries for Signal on: 1. January 1, 2016, to record the sale-leaseback. 2. December 31, 2016, to record necessary adjustments.
To raise operating funds, Signal Aviation sold an airplane on January 1, 2016, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $620,000. Its useful life is estimated to be 15 years. The lease requires Signal to make payments of $102,771 to the finance company each January 1. Signal
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