Blue Industries and Kingbird Inc. enter into an agreement that requires Kingbird Inc. to build three diesel-electric engines to Blues specifications. Upon completion of the engines, Blue has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2017, and requires annual rental payments of $431,633 each January 1, starting January 1, 2017. Blues incremental borrowing rate is 10%. The implicit interest rate used by Kingbird Inc. and known to Blue is 8%. The total cost of building the three engines is $2,693,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Blue depreciates similar equipment on a straight-line basis. At the end of the lease, Blue assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.

*requires use of factor tables*

(b) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Blue Industries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

(c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Kingbird Inc. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.)

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare a lease amortization schedule for 2 years. (Round answers to 0 decimal places e.g. 58,971.)

Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2017, for both the lessee and the lessor.

List of Accounts

• Accounts Payable
• Accumulated Depreciation-Building
• Accumulated Depreciation-Capital Leases
• Accumulated Depreciation-Equipment
• Airplanes
• Buildings
• Cash
• Cost of Goods Sold
• Depreciation Expense
• Equipment
• Executory Costs
• Executory Costs Payable
• Insurance Expense
• Interest Expense
• Interest Payable
• Interest Receivable
• Interest Revenue
• Inventory
• Land
• Leased Buildings
• Leased Equipment
• Leased Land
• Lease Liability
• Lease Receivable
• Loss on Capital Lease
• Machinery
• Maintenance and Repairs Expense
• No Entry
• Prepaid Lease Executory Costs
• Property Tax Expense
• Property Tax Payable
• Rent Expense
• Rent Payable
• Rent Receivable
• Rent Revenue
• Revenue from Sale-Leaseback
• Salaries and Wages Expense
• Sales Revenue
• Selling Expenses
• Trucks
• Unearned Profit on Sale-Leaseback
• Unearned Service Revenue

PLEASE USE ONLY THE ACCOUNT TITLES PROVIDED.

INCLUDE ALL WORK.

USE FORMATS PROVIDED ABOVE FOR ALL BALANCE SHEETS, JOURNAL ENTRIES, ETC.

REQUIRES USE OF FACTOR TABLE.

Account Titles and Explanation Debit Credit Account Titles and Explanation Debit Credit BLUE INDUSTRIES Lease Amortization Schedule Annual Lease Receipt/Payment Reduction in Receivable/Liability Interest on Lease Receivable/ Liability Date Receivable/Liability hait Account Titles and Explanation Lessee (December 31, 2017) Debit Credit Lessor (December 31, 2017) Debit Credit BLUE INDUSTRIES Balance Sheet (Partial) Asset Current Liability KINGBIRD INC. Balance Sheet (Partial) Assets