Question

To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $900,000 and immediately leased the building back. The operating lease is for the final 10 years of the building's estimated 20- year remaining useful life. The building has a fair value of $900,000 and a book value of $700,000 (its original cost was $1 million). The rental payments of $200,000 are payable to the insurance company each December 31. The lease has an implicit rate of 8%. (FV of $1, PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. & 2. Prepare the appropriate entries for National Distribution Center on January 1, 2021 and December 31, 2021, to record the sale- leaseback and necessary adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Date	Particulars	Debit ($)	Credit ($)
2021 Jan 1	Cash	900,000
	Accunulated Depreciation (1000000-700000)	300,000
	Building		1000,000
	Deferred Gain on Sale Leaseback (900000+300000-1000000)		200,000
	(To record sale lease back transaction)
2021 Dec31	Rent Expense	200,000
	Cash		200,000
	(To record annual lease payment)
2021 Dec31	Deferred Gain on Sale (200000/10 years)	20,000
	Rent Expense		20,000
	(To record recognition of gain on sale leaseback)