ACCT 304 Chapter 16 QUIZ
E 21 15 Sale Leaseback Assume that on January 1 2012 Elmers Restaurants sells a computer system to
Liquidity Finance Co. for $510,000 and immediately leases the computer system back. The relevant information
is as follows.
1. The computer was carried on Elmer- books at a value of $450,000.
2. The term of the noncancelable lease is 10 years; title will transfer to Elmer.
3. The lease agreement requires equal rental payments of $83,000.11 at the end of each year.
4. The incremental borrowing rate for Elmer is 12%. Elmer is aware that Liquidity Finance Co. set the
annual rental to ensure a rate of return of 10%.
5. The computer has a fair value of $680,000 on January 1, 2012, and an estimated economic life of
10 years.
6. Elmer pays executory costs of $9,000 per year.
Instructions
Prepare the journal entries for both the lessee and the lessor for 2012 to reflect the sale-leaseback agreement.
No uncertainties exist, and collectibility is reasonably certain.
USA 
India