Provide the journal entries that SHC would make

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Question - Sad Hill Corporation (SHC), a publicly traded rail company, leased 300 railway tanker cars from Angel Finance Inc. (AFI) on December 1, 2014 for a 25-year term.  The list price for an individual tanker car is $149,000, for a total of $44.7 million. Tanker cars have an expected useful life of 30 years.  Annual lease payments were set at $4,100,000 including $300,000 for insurance, starting December 1, 2014.  The residual value of the tankers is estimated at $5 million but SHC has provided no guarantee of this value to AFI.  AFI used an 8% implicit rate in setting the lease payments, and SHC is aware of this rate.          

Required -

1. Provide the journal entries that SHC would make at the inception of the lease (including the first lease payment). Ensure that you show all your calculations!!

2. Provide the journal entries AFI would make at the inception of the lease (including the first payment).  Again, ensure that you show all your calculations.

Reference no: EM133087783

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