Carla Vista, Inc. leases a piece of equipment to Sunland Company on January $1,2025.$ The contract stipulates a lease term of $5$ years, with equal annual rental payments of $$6,800$ at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $$40,000,$ a book value of $$36,000,$ and a useful life of $8$ years. At the end of the lease term, Carla Vista expects the residual value of the asset to be $$12,000,$ and this amount is guaranteed by a third party.

Assuming Carla Vista wants to earn a $4\%$ return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January $1,2025.($List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select $"$No Entry" for the account titles and enter $0$ for the amounts. For calculation purposes, use $5$ decimal places as displayed in the factor table provided and round final answers to $0$ decimal places, e$.$g$.5,275.)$

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Account Titles and Explanation

Debit

Credit

Leased Asset

Unearned Profit on Sale$-$Leaseback

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