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BartSMP [9]
3 years ago
8

To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2018, for

$800,000 and immediately leased the building back. The operating lease is for the final 12 years of the building's estimated 20-year remaining useful life. The building has a fair value of $800,000 and a book value of $650,000 (its original cost was $1 million). The rental payments of $100,000 are payable to the insurance company each December 31. The lease has an implicit rate of 9%.
Prepare the appropriate entries for National Distribution Center on:
1. January 1, 2019, to record the sale-leaseback
2. December 31, 2018, to record necessary adjustments
Business
1 answer:
storchak [24]3 years ago
4 0

Answer:

Equipment 716,072.53 debit

  Lease payable   716,072.53 credit

interest expense 64,446.53 debit

   lease payable      64,446.53 credit

Explanation:

We record the lease payment present value:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 100,000.00

time 12

rate 0.09

100000 \times \frac{1-(1+0.09)^{-12} }{0.09} = PV\\

PV $716,072.5277

Now we solve for the interest accrued during the year

716,072.53 x 0.09 = 64.446,53

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