To raise operating funds, North American Courier Corporation sold its building on January 1, 2016, to an insurance company for $500,000 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 $400,000 (original cost $1,000,000). The lease requires North American to make payments of $88,492 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%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 andPVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. Prepare the appropriate journal 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.)
1. Record the sale-leaseback. Jan 01,2016
2. Record lease. Jan 01, 2016
3. Record cash payment. 12/31/2016
4. Record depreciation expense. 12/31/2016
5. Record adjustment for the gain 12/31/2016
2. Show how North American's December 31, 2016, balance sheet and income statement would reflect the sale-leaseback.