Exercise 21A-6 a-b

Teal Mountain Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Sandhill Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

1.		Sandhill has the option to purchase the equipment for $25,000 upon termination of the lease. It is not reasonably certain that Sandhill will exercise this option.
2.		The equipment has a cost of $300,000 and fair value of $349,000 to Teal Mountain Leasing. The useful economic life is 2 years, with a residual value of $25,000.
3.		Teal Mountain Leasing desires to earn a return of 5% on its investment.
		4. Collectibility of the payments by Teal Mountain Leasing is probable. Prepare the journal entries on the books of Teal Mountain Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. 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.) Assuming that Sandhill exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to record the sale on Teal Mountain Leasings books. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)