To raise operating funds, Signal Aviation sold an airplane on January 1, 2018, to a finance company for $830,000. Signal immediately leased the plane back for a 12-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $860,000. Its cost and its book value were $630,000. Its useful life is estimated to be 14 years. The lease requires Signal to make payments of $110,740 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 10%.

Required:

1.&2.Prepare the appropriate entries for Signal on January 1, 2018 and December 31, 2018, to record the transaction and necessary adjustments