Problem
To raise operating fund North American courier Corporation sold building on January 2018, to a insurance Company for $530, 600 and immediately leased the building back. The lease 15 for a 10-ycer period ending December 31, 20 at time ownership of the building will revert to North American Courier. The building has a carrying amount of $450,000 (origin cost $1 300.000). The lease requires North American to make payments of $90.105 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 11%. (EN of $1, FVA of $1 FVAD of $1 and PVAD of $1) (Use appropriate factor from the tables provided.)
Required
a. Prepare the appropriable entries for North American(a) January 1.2018. to record the transaction and (b) December 31, 2018, to record necessary adjustments.
b. Shaw how North American's December 31, 2018, balance sheet and income statement would reflect the sale-leaseback.