Respond to the requirements in each situation.Instructionsa.    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 $67,342.42 at the end of each year, beginning on December 31, 2020. 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.c.    Use the information from part b. Now, instead of 10 years, the lease term is only 3 years with annual lease payments of $67,342.42 at the beginning of each year. Record any journal entries necessary for Zarle from the sale and leaseback of computer equipment in 2020.

Question
Asked Jan 25, 2020
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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 $67,342.42 at the end of each year, beginning on December 31, 2020. 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.

c.    Use the information from part b. Now, instead of 10 years, the lease term is only 3 years with annual lease payments of $67,342.42 at the beginning of each year. Record any journal entries necessary for Zarle from the sale and leaseback of computer equipment in 2020.

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Expert Answer

Step 1

In a sale and lease back transaction, it is to be considered if the transaction quaifies as capital or operating lease. In case thew asset has been sold by A to B and again leased by A from B for a term more than 75% of the useful life of the asset, it would qualify for capital lease.

Step 2
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Step 3
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