Seller-Lessee sells a machine to Buyer-Lessor on January 1, 19A, for $70,000 and immediately leases…

Seller-Lessee sells a machine to Buyer-Lessor on January 1, 19A, for $70,000 and immediately leases it back for a 3-year period at a 10% interest rate. Seller-Lessee’s original cost was $40,000 and the machine has no salvage value.

(a) Compute the annual rental.

(b) Prepare the entries for both parties for 19A assuming the lease does not qualify as a capital lease — i.e., it is an operating lease.

(c) Prepare the entries assuming it does qualify as a capital lease.

 

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