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%. 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. 2. Show how North American’s December 31, 2016, balance sheet and income statement would reflect the sale-leaseback.
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
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.
2. Show how North American’s December 31, 2016, balance sheet and income statement would reflect the
sale-leaseback.
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