Question: The leased asset was on the books of Company Z when it entered into a sales-leaseback arrangement. The Machine cost $100,000 and had accumulated depreciation of $30,000 when the sales-leaseback contract was signed. The sales price was $120,000. Company Z is the lessee.
Instead, assume the leaseback was a capital lease and the asset has a future beneficial life of 10 years.
a. Give the sales entry for Company Z. (You only have to give the sales entry, not the resulting leaseback entries.)
b. What is the new adjusting entry that Company Z will have to do due to the sales-leaseback nature of the transaction?
c. Where does the 'new' account (Deferred Gain) go on financial statements? Be specific.