(f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31st, for both the lessee and the lessor
Problem 21-3 (Part Level Submission) Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed 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 $431,293 each January 1, starting January 1, 2017. Riverbed's incremental borrowing rate is 10%. The implicit interest rate used by Marin Inc. and known to Riverbed is 9%. The total cost of building the three engines is $2,585,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. Click here to view factor tables (b), (c) and (d) Your answer is partially correct. Try again. (b) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Riverbed 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 o decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit Leased Equipment 431,293 Lease Liability 431,293 (c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Marin 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 o for the amounts. Round answers to o decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit Lease Receivable 431,293 Cost of Goods Sold 2,585,000 Sales Revenue 431,293 Inventory 2,585,000 (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 o for the amounts.) Debit Credit Account Titles and Explanation Lessee (January 1, 2017) Lease Liability 431,293 Cash 431,293 Debit Credit Lessor (January 1, 2017) Cash 431,293 Lease Receivable 431,293 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT Attempts: 2 of 2 used (el) Prepare a lease amortization schedule for 2 years. (Round answers to o decimal places e.g. 58,971.) RIVERBED INDUSTRIES Lease Amortization Schedule Annual Lease Interest on Reduction in Lease Date Receipt/Payment Receivable/Liability Receivable/Liability Receivable/ Liability 1/1/17 0 0 $ $ 3,017,000 1/1/17 431,293 0 431,293 2,585,707 1/1/18 431,293 1/1/19 431,293
