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PDtax, CPA firm owner
Category: Capital Gains and Losses
Satisfied Customers: 4014
Experience:  Tax professional and business consultant for 34 years
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I have a client who did the following and i need the journal

Customer Question

I have a client who did the following and i need the journal entries to record:
- Has three capital leases total obligation $134K. With these three leases, he then leases these machines to clients and they pay him a monthly lease payment for use of the machine.
-Before the lease was up, he purchased all three capital leases for $28K
-One of the clients who leases the machines from him purchased the machine (previously our capital lease) for $15KQuestions -what is the journal entry for the early capital lease buyout - is it debit lease payable/credit cash/credit GAIN?
- Do i then move the machine previously as a fixed asset and make it inventory?
- how do i record the 15K Sale of the previous capital lease to the clients client?
Submitted: 5 months ago.
Category: Capital Gains and Losses
Expert:  PDtax replied 5 months ago.
Hi from just answer. I'mCustomer I'll assist.
Customer: replied 5 months ago.
Ok. is there an eta on an answer
Expert:  PDtax replied 5 months ago.
working on response now. I'll be right with you...
Expert:  PDtax replied 5 months ago.
Your client had three capital leases. For tax purposes, title transfers in the transaction, so you should have treated those leases as purchases, and depreciable assets. Let's assume you bought out the notes remaining before the finance term was up for $28K. Let's say your client owed $36K in payments at 0% at the time. That creates an $8K gain to your client, as he satisfied a debt for less than full value. I would suggest:Note - Johnson sublease equipment 36000(cr) Cash 28000(cr) Gain on settlement of Johnson lease finance 8000
Expert:  PDtax replied 5 months ago.
Part 2 assumes these are operating leases to your clients. They pay rental income, you depreciate the assets. Let's say the equipment in question is a five year copier that was capitalized for $40,000 when you acquired them 1/1/13. Your client has been paying $900 per month rental income starting 1/1/13. On 5/1/16, your client sells it to the client for $15K. Let's also assume this was five year property in your client's hands, and only regular MACRS was claimed. (.2+.32+.192+.0576) .7696*40000=30784 total depreciation, including 2016 short period. Gain/loss on sale: Depreciation expense 2304 (2016 depr only)Accumulated depreciation 28480 ('13-'15 depr)Cash 15000 (cr) Johnson equipment 40000 (cr) Gain on sale of equipment 5784
Expert:  PDtax replied 5 months ago.
Thanks for asking at Just Answer. Positive feedback when you rate my assistance will be appreciated. Ask follow up if needed. I'mCustomer

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