On January 1, 20X1, Merchant Co. sold a tractor to Swanson Inc. and simultaneously leased it back for five years. The tractor's fair value is $300,000, but its carrying value on Merchant's books prior to the transaction was $200,000. The tractor has a seven-year remaining estimated useful life, and Merchant and Swanson both used 8% interest in evaluating the transaction. Merchant has agreed to make five payments of $57,976 beginning January 1, 20X1. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: 1. What type of a lease is this for Merchant? 2. Compute the amount of Merchant's gain on the transaction. 3. Prepare the January 1, 20X1, entries on Merchant's books to account for the sale and leaseback. Answer is not complete. Complete this question by entering your answers in the tabs below. Prepare the January 1, 20X1, entries on Merchant's books to account for the sale and leaseback. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar amount.)
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