Metlock Industries and Bonita Inc. enter into an agreement that requlres Bonita Inc. to build three diesel$-$electric engines to Metlock's specifications. Upon completion of the engines, Metlock has agreed to lease them for a period of $10$ years and to assume all costs and risks of ownership. The lease is non$-$cancelable, becomes effective on Januar $1.2025,$ and requires annual rental payments of $$388,121$ each January $1,$ starting January $1,2025.$

Metlock's incremental borrowing rate is $8\%.$ The implicit interest rate used by Bonita and known to Metlock is $6\%.$ The total cost of bullding the three englnes is $$2,637,000.$ The economic life of the engines is estimated to be $10$ years, residual value set at zero. Metlockdepreciates similar equipment on a straight$-$line basis. At the end of the lease, residual value set at zero. Metlock depreciates similar equipment on a straight$-$line bast Metlock assumes title to the engines. Collectibility of the lease payments is probable Click here to view factor tables.

$($a$)$

$$ Your answer is correct

Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor.

The lease should be treated as a finance lease of by Metlock Industries.

The lease should $be$ treated $as$ a sales$-$type lease $by$ Bonita Inc.

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$($b$),($c$)$ and $($d$)$

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$$ Your answer is correct

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

$($e$2)$

Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease

at December $31,2025.($Credit account titles are automatically indented when amount is entered. Do for the amounts. List all debit entries before credit entries.$)$

Account Titles and Explanation

Debit

Lessee $($December $31,2025)$

Credit

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$($To record interes$)$

$$

$($To record amortization$)$

Lessor $($December $31,2025)$

Debit

Credit

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$$

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