Homework Help is Here – Start Your Trial Now!
Business
Accounting
Assume that on January 1, 2017, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $560,000. 2. The term of the non-cancelable lease is 3 years; title will not transfer to Elmer's, and the expected residual value at the end of the lease is $410,000, all of which is unguaranteed. 3. 4. The lease agreement requires equal rental payments of $117,590 at the beginning of each year. The incremental borrowing rate for Elmer is 5%. Elmer is aware that Crane Finance Co. set the annual rental to insure a rate of return of 5%. 5. The computer has a fair value of $640,000 on January 1, 2017, and an estimated economic life of 10 years.

Assume that on January 1, 2017, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $560,000. 2. The term of the non-cancelable lease is 3 years; title will not transfer to Elmer's, and the expected residual value at the end of the lease is $410,000, all of which is unguaranteed. 3. 4. The lease agreement requires equal rental payments of $117,590 at the beginning of each year. The incremental borrowing rate for Elmer is 5%. Elmer is aware that Crane Finance Co. set the annual rental to insure a rate of return of 5%. 5. The computer has a fair value of $640,000 on January 1, 2017, and an estimated economic life of 10 years.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Please do not give solution in image format ?
Assume that on January 1, 2017, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $560,000. 2. The term of the non-cancelable lease is 3 years; title will not transfer to Elmer's, and the expected residual value at the end of the lease is $410,000, all of which is unguaranteed. The lease agreement requires equal rental payments of $117,590 at the beginning of each year. The incremental borrowing rate for Elmer is 5%. Elmer is aware that Crane Finance Co. set the annual rental to insure a rate of return of 5%. 5. The computer has a fair value of $640,000 on January 1, 2017, and an estimated economic life of 10 years. 3. 4. Prepare the journal entries for both the lessee and the lessor for 2017 to reflect the sale and leaseback agreement. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Click here to view the factor table. Date Account Titles and Explanation Elmer's Restaurants (Lessee) (To record sale of equipment) (To record the lease) (To record lease liability) Debit Credit
Transcribed Image Text:Assume that on January 1, 2017, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $560,000. 2. The term of the non-cancelable lease is 3 years; title will not transfer to Elmer's, and the expected residual value at the end of the lease is $410,000, all of which is unguaranteed. The lease agreement requires equal rental payments of $117,590 at the beginning of each year. The incremental borrowing rate for Elmer is 5%. Elmer is aware that Crane Finance Co. set the annual rental to insure a rate of return of 5%. 5. The computer has a fair value of $640,000 on January 1, 2017, and an estimated economic life of 10 years. 3. 4. Prepare the journal entries for both the lessee and the lessor for 2017 to reflect the sale and leaseback agreement. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Click here to view the factor table. Date Account Titles and Explanation Elmer's Restaurants (Lessee) (To record sale of equipment) (To record the lease) (To record lease liability) Debit Credit
Crane Finance Co. (Lessor). (To record purchase of equipment) (To record the leaseback) (To record the recognition of the revenue) (To record depreciation expense on the leased equipment)
Transcribed Image Text:Crane Finance Co. (Lessor). (To record purchase of equipment) (To record the leaseback) (To record the recognition of the revenue) (To record depreciation expense on the leased equipment)
Expert Solution
steps

Step by step

Solved in 3 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS