Assume that on January 1, 2019, JK Restaurants sells a computer system to High Finance Company for P510, 000 and immediately leases the computer system back. The relevant information is as follows: 1. The computer was carried at JK’s books at a value of P450, 000. 2. The term of the noncancelable lease is 10 years. Title will transfer to JK. 3. The lease agreement requires equal rental payments of P83, 000.11 at the end of each year. 4. The incremental borrowing rate for Elmer is at 12%. Elmer is aware that High Finance Co., set the annual rental to ensure a rate of return of 10% 5. The computer has a fair value of P680, 000 on January 1, 2019, and an estimated economic life of 10 years. 6. Elmer pays executory costs of P9, 000 a year. Instructions: Prepare the journal entries for both the lessee and the lessor for 2019 to reflect the sale-leaseback agreement. No uncertainties exist, and collectability is reasonably certain.
Assume that on January 1, 2019, JK Restaurants sells a computer system to High Finance Company for P510, 000 and immediately leases the computer system back. The relevant information is as follows:
1. The computer was carried at JK’s books at a value of P450, 000.
2. The term of the noncancelable lease is 10 years. Title will transfer to JK.
3. The lease agreement requires equal rental payments of P83, 000.11 at the end of each year.
4. The incremental borrowing rate for Elmer is at 12%. Elmer is aware that High Finance Co., set the annual rental to ensure a rate of return of 10%
5. The computer has a fair value of P680, 000 on January 1, 2019, and an estimated economic life of 10 years.
6. Elmer pays executory costs of P9, 000 a year.
Instructions:
Prepare the
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