On January 1, 2018, Haley Corporation sold a Machine to Quick Finance for €140,000 and immediately leased it back. The machine was carried on Haley’s books at €112,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Haley at lease-end. The lease requires three equal rental payments of €34,784 at the end of each year (first payment on January 1, 2019). The appropriate rate of interest is 6%, the machine has a useful life of 5 years, and the residual value at the end of the lease term is expected to be €56,000, none of which is guaranteed. Instructions: Prepared the journal entries for both the lessee and the lessor for 2018 to reflect the sale and leaseback agreement.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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  1. On January 1, 2018, Haley Corporation sold a Machine to Quick Finance for €140,000 and immediately leased it back. The machine was carried on Haley’s books at €112,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Haley at lease-end. The lease requires three equal rental payments of €34,784 at the end of each year (first payment on January 1, 2019). The appropriate rate of interest is 6%, the machine has a useful life of 5 years, and the residual value at the end of the lease term is expected to be €56,000, none of which is guaranteed.

Instructions:

Prepared the journal entries for both the lessee and the lessor for 2018 to reflect the sale and leaseback agreement.

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