Exercise 21-07 b-e

Sheridan Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $88,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Sheridan expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.

Prepare the journal entry at commencement of the lease for Sheridan.

4 accounts must be used

Prepare the journal entry at commencement of the lease for Sharrer.

Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Sheridans implicit rate (Sharrers incremental borrowing rate is 9%), and (2) Sharrer incurs initial directs costs of $7,500.