Question
To raise operating funds, Signal Aviation sold an airplane on January 1, 2018, to a finance company for $1,090,000. Signal immediately leased the plane back
To raise operating funds, Signal Aviation sold an airplane on January 1, 2018, to a finance company for $1,090,000. Signal immediately leased the plane back for a 10-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $1,120,000. Its cost and its book value were $760,000. Its useful life is estimated to be 12 years. The lease requires Signal to make payments of $155,820 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 9%.
1. 1/1/2018 Record the cash received on sale by Signal Aviation.
2. 1/1/2018 Record the beginning of the lease by Signal Aviation.
3. 12/31/2018 Record accrued interest.
4. 12/31/2018 Record the depreciation expense.
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