Current Attempt in Progress

Assume that on January $1,2025,$ Sheffield Corporation sells equipment to Sheridan Finance Co$.$ for $$1,820,000$ and immediately

leases back the equipment. The relevant information is as follows.

The equipment was carried on Sheffield's books at a value of $$1,610,000.$

The term of the non$-$cancelable lease is $3$ years; title will not transfer to Sheffield, and the expected residual value at the end

of the lease is $$120,750,$ all of which is unguaranteed.

The lease agreement requires equal rental payments of $$297,995$ at the beginning of each year.

The incremental borrowing rate for Sheffield is $8\%.$ Sheffield is aware that Sheridan Finance set the annual rental to ensure a

rate of return of $8\%.$

The equipment has a fair value of $$1,820,000$ on January $1,2025,$ an estimated economic life of $10$ years and will be

depreciated using the straight$-$line method.

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Prepare the journal entries for both the lessee and the lessor for $2025$ to reflect the sale and leaseback agreement. $($Credit account titles

are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required,

select $"$No Entry" for the account titles and enter $0$ for the amounts. Round present value factor calculations to $5$ decimal places, e$.$g$.1\mathrm{.}25124$

and the final answer to $0$ decimal places e$.$g$.5,275.)$