In your audit of a client in the leasing industry (a dealer of equipment), you were able to gather the following information from a contract with one of its major lessees:

Lease term 10 years

Economic life 10 years

Commencement date January 1, 2021

Annual lease payment (beginning December 31, 2021) 2,500,000

Residual value of the equipment at the end of lease term guaranteed by the lessee 360,000

Initial direct costs (shouldered by the lessor) 1,062,400 I

nterest rate implicit in the lease (with initial direct costs) 8.50%

Interest rate implicit in the lease (without initial direct costs) 10.00%

Fair value of the asset 15,500,200

Cost of the asset 12,000,000

Based on your audit, the lease contract transfers substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee. Required: Prepare a working paper showing computations for (a) profit on sale, (b) interest income, and (c) lease receivable (net). Provide all the journal entries for 2021

Scenario Analysis: Scenario #1: What if the client is neither a dealer nor a manufacturer of equipment, how much would be the (a) interest income and (b) lease receivable (net). Provide all the journal entries.