Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Sunland Finance Co. for $620,000 and immediately leases back the computer system. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $540,000. 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 $390,000, all of which is unguaranteed. 3. The lease agreement requires equal rental payments of $112,790 at the beginning of each year. 4. The incremental borrowing rate for Elmer's is 8%. Elmer's is aware that Sunland Finance set the annual rental to ensure a rate of return of 8% 5. The computer has a fair value of $620,000 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

Assume that on January 1, 2025, Elmer's Restaurants sells a computer system to Sunland Finance Co. for $620,000 and immediately leases back the computer system. The relevant information is as follows. 1. The computer was carried on Elmer's books at a value of $540,000. 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 $390,000, all of which is unguaranteed. 3. The lease agreement requires equal rental payments of $112,790 at the beginning of each year. 4. The incremental borrowing rate for Elmer's is 8%. Elmer's is aware that Sunland Finance set the annual rental to ensure a rate of return of 8% 5. The computer has a fair value of $620,000 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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