Question
HA21-7 (Lessee-Lessor, Sale-Leaseback) Respond to the requirements in each situation. Instructions (a) On January 1, 2020, Zarle Inc. sold computer equipment to Daniell Co.
HA21-7 (Lessee-Lessor, Sale-Leaseback) Respond to the requirements in each situation. Instructions (a) On January 1, 2020, Zarle Inc. sold computer equipment to Daniell Co. The sales price of the equipment was $520,000 and its carrying amount is $400,000. Record any journal entries necessary for Zarle from the sale of the computer equipment in 2020. (b) Use the information from part (a). Assume that, on the same day the sale occurred, Zarle enters into an agreement to lease the equipment from Daniell for 10 years with annual lease payments of $64,135.61 beginning on January 1, 2020 and then on December 31 from 2020 through the end of the lease. If Zarle has an incremental borrowing rate of 5% and the equipment has an economic useful life of 10 years, record any journal entries necessary for Zarle from the sale and leaseback of computer equipment in 2020. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. (c) Use the information from part (b). Now, instead of 10 years, the lease term is only 3 years with annual lease payments of $72,742.28 beginning on January 1, 2020 and then on December 31 from 2020 through the end of the lease. Record any journal entries necessary for Zarle from the sale and leaseback of computer equipment in 2020.
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