SheridanInc. leased a new crane to Concord Construction under a 5-year, non-cancelable contract starting January 1, 2020. Terms of the lease require payments of $46,500 each January 1, starting January 1, 2020. The crane has an estimated life of 7 years, a fair value of $230,000, and a cost to Sheridan of $230,000. The estimated fair value of the crane is expected to be $45,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and it is not a specialized asset. Both Sheridan and Concord adjust and close books annually at December 31. Collectibility of the lease payments is probable. Concord’s incremental borrowing rate is 8%, and Sheridan’s implicit interest rate of 8% is known to Concord. Click here to view factor tables.

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Identify the type of lease involved and give reasons for your classification.

The lease is classified as an

operating leasesales-type leasefinance lease.

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Prepare all the entries related to the lease contract and leased asset for the year 2020 for the lessee and lessor, assuming Concord uses straight-line amortization for all similar leased assets, and Sheridan depreciates the asset on a straight-line basis with a salvage value of $14,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually. 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. 1.25125 and the final answer to 0 decimal places e.g. 58,972.)

Date	Account Titles and Explanation	Debit	Credit
	Lessee’s Entries
1/1/20
	(To record lease.)
1/1/20
	(To record lease payment.)
12/31/20
	(To record interest and amortization expense.)
	Lessor’s Entries
1/1/20
	(To record the receipt of payment.)
12/31/20
	(To record depreciation.)
12/31/20
	(To record lease revenue.)

Answer rating: 100% (QA)

A The lease is an operating lease to the lessee and lessor because 1 it does not transfer ownership ... View the full answer