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Signal immediately leased the plane back

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Reference no: EM131005287

To raise operating funds, Signal Aviation sold an airplane on January 1, 2011, to a finance company for $770,000. Signal immediately 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 $620,000. 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, 2011, to record the sale-leaseback.

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

Reference no: EM131005287

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