Question

4. value: 3.00 points Exercise 15-26 Sale-leaseback; capital lease [LO15-10] To raise operating funds, Signal Aviation sold an airplane on January 1, 2016, to a finance company for $850,000. Signal immediately leased the plane back for a 14-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $880,000. Its cost and its book value were $660,000. Its useful life is estimated to be 16 years. The lease requires Signal to make payments of $114,500 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 12% C Required: 1.&2. Prepare the appropriate entries for Signal on January 1, 2016, to record the sale-leaseback. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Import a new list Record the sale of the airplane. 1 Record the lease 2 Record the cash payment. 3 Record accrued interest. 4 Credit Record the depreciation expense. 5 Record adjustment for the gain. 6 st LC

Answer 1

A B D General Journal Credit 1 Date Debit 2 January 01, 2016 Cash 8,50,000 $ 3 Airplanes 6,60,000 $ Deferred Gain on Sale Leaseback 1,90,000 5 Leased Airplane $ 6 January 01, 2016 8,50,000 7 Lease Payable $ 8,50,000 8 Lease Payable $ 9 January 01, 2016 1,14,500 $ 10 Cash 1,14,500 11 12 December 31, 2016 Interest Expense S 88,260 Interest Payable $ 13 88,260 14 15 December 31, 2016 Depreciation Expense 53,125 $ 16 Accumulated Depreciation 53,125 17 18 December 31, 2016 Deferred Gain on Sale Leaseback Depreciation Expense 13,571 $ 19 13,571 20 21 Explanation 22 Interest Expense: (12% * ($850,000 $114,500)) $88,260 23 Depreciation Expense: ($850,000/16 years) $53,125 24 Deferred Gain on Sale Leaseback ($190,000/14 years) $13,571 LO