To raise operating funds, North American Courier Corporation sold its building on January 1, 2016, to an insurance company for $610,000 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 $500,000 (original cost $1,000,000). The lease requires North American to make payments of $107,960 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%.

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

Balance Sheet

Assets:

Leased Building 610,000

Less: Accumulated Depreciation (40,667)

Less: Deferred gain: _________

Liabilities:

Current:

Lease Payable: 38,931

Noncurrent:

Lease payable: _________

Income Statement

Interest expense: 73,200

Depreciation expense:__________