Current Attempt in Progress

Assume that on January $1,2020,$ Elmer's Restaurants sells a computer system to Oriole Finance Co$.$ for $$900,000$ and immediately

leases the computer system back. The relevant information is as follows.

The computer was carried on Elmer's books at a value of $$820,000.$

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 $$670,000,$ all of which is unguaranteed.

The lease agreement requires equal rental payments of $$116,690$ at the beginning of each year.

The incremental borrowing rate for Elmer is $8\%.$ Elmer is aware that Oriole Finance Co$.$ set the annual rental to insure a rate

of return of $8\%.$

The computer has a fair value of $$900,000$ on January $1,2020,$ and an estimated economic life of $10$ years.

Prepare the journal entries for both the lessee and the lessor for $2020$ to reflect the sale and leaseback agreement. $($For calculation

purposes, use $5$ decimal places as displayed in the factor table provided and round answers to $0$ decimal places, e$.$g$.5,275.$

Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in

the order presented in the problem.$)$

Click here to view factor tables.

Date

Account Titles and Explanation

Elmer's Restaurants $($Lessee$).$

Debit

Credit