Prepare the appropriate entries for North American

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Question - To increase operating funds, Lawrence Corp sold its building on January 1, 2011, to an insurance company for $500,000 and immediately; leased the building back. The lease is for 10 year period ending December 31, 2017, at which time ownership of the building will revert to Lawrence. The building has a carrying amount of $400,000 (original cost $1,000,000). The lease requires North American to make Payments of $88,492 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%

Requirement: Prepare the appropriate entries for North American.

1. On January 1, 2011, to record the transaction.

2. On December 31, 2011, to record the necessary adjustments.

Reference no: EM132513299

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