On January 1, 2020, Cadbury Corporation sells equipment to Denim Finance Corp. for $380,000 and immediately leases the equipment back. Both Cadbury and Denim use ASPE. Other relevant information is as follows.

1. The equipments carrying value on Cadburys books on January 1, 2020, is $340,000.

2. The term of the non-cancellable lease is 9 years. The title will transfer to Cadbury at the end of the lease.

3. The lease agreement requires equal rental payments of $63, 383.54 at the end of each year.

4. The incremental borrowing rate of Cadbury Corporation is 10%. Cadbury is aware that Denim Finance Corp. set the annual rental to ensure a rate of return of 9%.

5. The equipment has a fair value of $380,000 on January 1, 2020, and an estimated economic life of 9 years, with no residual value.

6. Cadbury pays executory costs of $6,500 per year directly to appropriate third parties.

Required

(a) Prepare the journal entries for the lessor for 2020 to reflect the sale and leaseback agreement. No uncertainties exist and collectability is reasonably certain.