Castle leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Jan Way Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement.

1.Jan Way has the option to purchase the equipment for $16,000 upon termination of the lease. It is not reasonably certain that Jan Way will exercise this option.
2.Accounting for Leases The equipment has a cost of $120,000 and fair value of $160,000 to Castle Leasing. The useful economic life is 2 years, with a residual value of $16,000.
3.Castle Leasing desires to earn a return of 5% on its investment.
4.Collectibility of the payments by Castle leasing is probable.

(a) Prepare the journal entries on the books of Castle leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018.
(b) Assuming that Jan Way exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to record the sale on Castle Leasing's books.

Selected information about income statement accounts for the reed company is presented below (the company's fiscal year ends on december 31): 2018 2017sales $ 4,400,000 $ 3,500,000cost of goods sold 2,860,000 2,000,000administrative expenses 800,000 675,000selling expenses 360,000 312,000interest revenue 150,000 140,000interest expense 200,000 200,000loss on sale of assets of discontinued component 50,000 —on july 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by gaap. the assets of the component were sold on september 30, 2018, for $50,000 less than their book value. results of operations for the component (included in the above account balances) were as follows: 1/1/18-9/30/18 2017 sales $ 400,000 $ 500,000 cost of goods sold (290,000 ) (320,000 )administrative expenses (50,000 ) (40,000 )selling expenses (20,000 ) (30,000 )operating income before taxes $ 40,000 $ 110,000 in addition to the account balances above, several events occurred during 2018 that have not yet been reflected in the above accounts: a fire caused $50,000 in uninsured damages to the main office building. the fire was considered to be an infrequent but not unusual event. inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. the inventory was sold as scrap for $5,000.income taxes have not yet been recorded. required: prepare a multiple-step income statement for the reed company for 2018, showing 2017 information in comparative format, including income taxes computed at 40% and eps disclosures assuming 300,000 shares of common stock. (amounts to be deducted should be indicated with a minus sign. round eps answers to 2 decimal places.)