On January 1, 2019 the Halle Brothers, an Agricultural Irrigation Equipment dealer, leased to Vic Werloff Farming, a Peerless Turbine Hi Volume Irrigation Pump.

The term of the lease is 6 years with no renewal option, and because the turbine pump has an economic life of 6 years, it is estimated to have a zero residual value and will revert back to Halle Brothers at the conclusion of the lease.

The fair value of the turbine pump is $210,000 and cost Halle Brothers $130,000.

Halle Brothers set the annual lease payment to provide a 12% return.

The lease requires annual payments of $45,604.78 due at the beginning of each year, with the first payment due at the signing of the lease.

Vic Werloff's incremental borrowing rate is 12%.

Vic Werloff depreciates all of its equipment on a straight line basis.

Required:

Prepare all necessary journal entries for 2019 and 2020 for both Halle Brothers and Vic Werloff.

Hint:

For Halle Brothers (the Lessee), the lease on their books is to be accounted for as a "Sales Type Lease".

For Vic Werloff (the Lessor), the lease on their books is to be accounted for as a "Capital" lease.

Halle Brothers and Vic Werloff both have a December 31^st yearend.

Remember:

Depreciation expense needs to be reported on the Vic Werlloff's books.

A gain on sale needs to be reported on the Halle Brothers' books.