Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases back the computer systems. 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 5. The lease agreement requires equal rental payments of $117.590 at the beginning of each year, The incremental borrowing rate for Elmer's is 5%. Elmer's is aware that Crane Finance set the annual rental to ensure a rate of return of 5% The computer has a fair value of $640,000 on January 1, 2025, and an estimated economic life of 10 years. Prepare the journal entries for both the lessee and the lessor for 2025 to record the sale and leaseback agreement. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to O decimal places, eg 5,275. List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts Record journal entries in the order presented in the problem)
Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately leases back the computer systems. 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 5. The lease agreement requires equal rental payments of $117.590 at the beginning of each year, The incremental borrowing rate for Elmer's is 5%. Elmer's is aware that Crane Finance set the annual rental to ensure a rate of return of 5% The computer has a fair value of $640,000 on January 1, 2025, and an estimated economic life of 10 years. Prepare the journal entries for both the lessee and the lessor for 2025 to record the sale and leaseback agreement. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to O decimal places, eg 5,275. List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts Record journal entries in the order presented in the problem)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please do not give solution in image format ? And Fast answering please and explain proper steps by Step.
Transcribed Image Text:Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Crane Finance Co. for $640,000 and immediately
leases back the computer system. The relevant information is as follows.
1.
2.
3.
4,
Your answer is partially correct.
5.
The computer was carried on Eliner's books at a value of $560,000.
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's is 5%. Elmer's is aware that Crane Finance set the annual rental to ensure a rate of
return of 5%.
The computer has a fair value of $640,000 on January 1, 2025, and an estimated economic life of 10 years.
Prepare the journal entries for both the lessee and the lessor for 2025 to record the sale and leaseback agreement. (For calculation
purposes, use 5 decimal places as displayed in the factor table provided and round answers to O decimal places, eg. 5,275. List all debit entries
before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.)
Click here to view factor tables.
Date
Account Titles and Explanation
Elmer's Restaurants (Lessee)
1/1/25 4
Cash
Debit
640000
Credit
Transcribed Image Text:Click here to view factor tables
Date Account Titles and Explanation
Elmer's Restaurants (Lessee)
1/1/25
1/1/25
1/1/25 V
12/31/25 -
1/1/25
1/1/25
Cash
12/31/25
Equipment
12/31/25
Gain on Disposal of Equipment
(To record sale of equipment)
V
Right of Use Asset
Lease Liability
(To record the lease)
Lease Liability
Cash
Crane Finance Co. (Lessor)
(To record lease payment)
Show Transcribed Text
Lease Expense
Crane Finance Co. (Lessor)
Lease Lability
Right-of-Uw Asset
Equipment
Cash
(To record purchase of equipment)
Unearned Lease Revenue
(To record the leaseback)
Unearned Lease Revenue
Lease Revenue
(To record the recognition of the revenue)
Depreciation Expense
Accumulated Depreciation Equipment
(To record depreciation expense on the leased equipment)
Debit
640000
32000
117590
117590
640000
320227
117590
64000
Credit
560000
80000
32000
117590
85590
32000
640000
320227
117590
64000
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