Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Sheridan Finance Co. for $640,000 and immediately leases back the computer system. The relevant information is as follows. 1. 2. 3. 4. 5. The computer was carried on Elmer'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 $113,090 at the beginning of each year. The incremental borrowing rate for Elmer's is 5%. Elmer's is aware that Sheridan 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 yea 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
Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Sheridan Finance Co. for $640,000 and immediately leases back the computer system. The relevant information is as follows. 1. 2. 3. 4. 5. The computer was carried on Elmer'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 $113,090 at the beginning of each year. The incremental borrowing rate for Elmer's is 5%. Elmer's is aware that Sheridan 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 yea 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Sheridan Finance Co. for
$640,000 and immediately leases back the computer system. The relevant information is as follows.
1.
2.
3.
4.
5.
The computer was carried on Elmer'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 $113,090 at the beginning of each year.
The incremental borrowing rate for Elmer's is 5%. Elmer's is aware that Sheridan 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, e.g. 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.)
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