Current Attempt in Progress Assume that on January 1, 2025, Sheffield Corporation sells equipment to Sheridan Finance Co. for $1,820,000 and immediately leases back the equipment. The relevant information is as follows. 1. 2. 3. 4. 5. The equipment was carried on Sheffield's books at a value of $1,610,000. The term of the non-cancelable lease is 3 years; title will not transfer to Sheffield, and the expected residual value at the end of the lease is $120,750, all of which is unguaranteed. The lease agreement requires equal rental payments of $297,995 at the beginning of each year. The incremental borrowing rate for Sheffield is 8%. Sheffield is aware that Sheridan Finance set the annual rental to ensure a rate of return of 8%. The equipment has a fair value of $1,820,000 on January 1, 2025, an estimated economic life of 10 years and will be depreciated using the straight-line method. Click here to view factor tables. Prepare the journal entries for both the lessee and the lessor for 2025 to reflect the sale and leaseback agreement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 5,275.)
Current Attempt in Progress Assume that on January 1, 2025, Sheffield Corporation sells equipment to Sheridan Finance Co. for $1,820,000 and immediately leases back the equipment. The relevant information is as follows. 1. 2. 3. 4. 5. The equipment was carried on Sheffield's books at a value of $1,610,000. The term of the non-cancelable lease is 3 years; title will not transfer to Sheffield, and the expected residual value at the end of the lease is $120,750, all of which is unguaranteed. The lease agreement requires equal rental payments of $297,995 at the beginning of each year. The incremental borrowing rate for Sheffield is 8%. Sheffield is aware that Sheridan Finance set the annual rental to ensure a rate of return of 8%. The equipment has a fair value of $1,820,000 on January 1, 2025, an estimated economic life of 10 years and will be depreciated using the straight-line method. Click here to view factor tables. Prepare the journal entries for both the lessee and the lessor for 2025 to reflect the sale and leaseback agreement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 5,275.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A1
Transcribed Image Text:Current Attempt in Progress
Assume that on January 1, 2025, Sheffield Corporation sells equipment to Sheridan Finance Co. for $1,820,000 and immediately
leases back the equipment. The relevant information is as follows.
1.
2.
3.
4.
5.
The equipment was carried on Sheffield's books at a value of $1,610,000.
The term of the non-cancelable lease is 3 years; title will not transfer to Sheffield, and the expected residual value at the end
of the lease is $120,750, all of which is unguaranteed.
The lease agreement requires equal rental payments of $297,995 at the beginning of each year.
The incremental borrowing rate for Sheffield is 8%. Sheffield is aware that Sheridan Finance set the annual rental to ensure a
rate of return of 8%.
The equipment has a fair value of $1,820,000 on January 1, 2025, an estimated economic life of 10 years and will be
depreciated using the straight-line method.
Click here to view factor tables.
Prepare the journal entries for both the lessee and the lessor for 2025 to reflect the sale and leaseback agreement. (Credit account titles
are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required,
select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124
and the final answer to O decimal places e.g. 5,275.)
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