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Ghella [55]
3 years ago
9

To raise operating funds, Signal Aviation sold an airplane on January 1, 2018, to a finance company for $770,000. Signal immedia

tely leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $600,000. Its useful life is estimated to be 15 years. The lease requires Signal to make payments of $102,771 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 11%.
Required:
Prepare the appropriate entries for Signal on:
1. January 1, 2018, to record the transaction
2. December 31, 2018, to record necessary adjustments
Business
1 answer:
liraira [26]3 years ago
5 0

Answer:

Value of the lease = Annual lease payments * PVAD (11%, 13)

Value of the lease = $102,771 * 7.492236

Value of the lease = $770,000

Date      Account Titles and Explanation   Debit$     Credit$

Jan. 1     Leased Asset - Airplane                770000

                   Lease Liability                                            770000

Jan. 1     Lease Liability                                 102771

                    Cash                                                           102771

Dec. 31    Interest Expense                            73395

                ($770,000 - $102,771) x 11%

                     Interest  Payable                                        73395

Dec 31.   Depreciation Expenses                  40,000

               (600,000/15 years)

                       Accumulated Depreciation                     40,000

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Foxy Investigative Services is an investigative services firm that is owned and operated by Shirley Vickers. On November 30, 201
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Answer:

Foxy Investigative Services

1. Foxy Investigative Services

A. Income Statement  

For the Year Ended November 30, 20Y8

REVENUE            

Service Fees                                                         $675,500

Rent Revenue                                                             9,000

Total revenues                                                     $684,500

EXPENSES

Salaries Expense                      435,000

Rent Expense                             55,000

Supplies Expense                        11,850

Depreciation Expense-Building 10,000

Utilities Expense                          8,800

Repairs Expense                         4,250

Insurance Expense                     3,000

Miscellaneous Expense              11,100

Total expenses                                                   $539,000  

Net income                                                         $ 145,500

Retained Earnings                                                  70,300  

Dividends                                                              -30,000

Balance, November 30, 20Y8                           $185,800

Foxy Investigative Services  

B. Statement of Shareholders' Equity

November 30, 20Y8

Common Stock                                                     $40,000

Net income                                         $ 145,500

Retained Earnings                                   70,300  

Dividends                                               -30,000

Balance, November 30, 20Y8                           $185,800

Total stockholders' equity                                $225,800

Foxy Investigative Services

C. Balance Sheet

November 30, 20Y8

ASSETS

Current assets

Cash                                              27,500

Accounts Receivable                    71,800

Supplies                                         5,550

Prepaid Insurance                            750

Total Current Assets                                    $105,600

Building                                     330,500

Accumulated Depreciation      -184,100

Total property, plant, and equipment        $146,400            

Total assets                                                $252,000

LIABILITIES

Current liabilities

Accounts Payable                       16,100

Salaries Payable                          6,600

Unearned Rent                            1,500

Total Liabilities                                            $24,200

EQUITY

Common Stock                          40,000

Retained Earnings                    185,800

Total stockholders' equity                        $225,800

Total liabilities and stockholders' equity   $250,000

NB:  Liabilities + Equity side is short by $2,000 because the Trial Balance is not in balance.

2. Closing Journal Entries:

Account Title                                 Dr.               Cr.

Income Summary                     30,000

Dividends                                                          30,000

To close dividends to the income summary (Retained Earnings)

Account Title                                 Dr.               Cr.

Service Fees                             675,500

Rent Revenue                               9,000    

Income Summary                                        684,500

To close revenues to the income summary.

Account Title                                 Dr.               Cr.

Income Summary                     $539,000

Salaries Expense                                       435,000

Rent Expense                                              55,000

Supplies Expense                                         11,850

Depreciation Expense-Building                  10,000

Utilities Expense                                           8,800

Repairs Expense                                          4,250

Insurance Expense                                      3,000

Miscellaneous Expense                               11,100  

To close the expenses to the income summary.

3. Net Income remained $ 145,500.  Retained Earnings, beginning balance would have been reduced by $46,000.

Explanation:

a) Data and Calculations:

Foxy Investigative Services

End-of-Period Spreadsheet

For the Year Ended November 30, 20Y8

Adjusted Trial Balance

Account Title                                     Dr.               Cr.

Cash                                                27,500

Accounts Receivable                      71,800

Supplies                                           5,550

Prepaid Insurance                              750

Building                                       330,500

Accumulated Depreciation-Building               184,100

Accounts Payable                                              16,100

Salaries Payable                                                 6,600

Unearned Rent                                                   1,500

Common Stock                                                40,000

Retained Earnings                                           70,300

Dividends                                     30,000

Service Fees                                                 675,500

Rent Revenue                                                   9,000

Salaries Expense                      435,000

Rent Expense                             55,000

Supplies Expense                        11,850

Depreciation Expense-Building 10,000

Utilities Expense                          8,800

Repairs Expense                         4,250

Insurance Expense                     3,000

Miscellaneous Expense              11,100

Totals                                     1,003,100      1,003,100

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