Nash Industries and Crane Inc. enter into an agreement that requires Crane Inc. to build three diesel-electric engines to Nashs specifications. Upon completion of the engines, Nash 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 $392,409 each January 1, starting January 1, 2017. Nashs incremental borrowing rate is 10%. The implicit interest rate used by Crane Inc. and known to Nash is 9%. The total cost of building the three engines is $2,352,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Nash depreciates similar equipment on a straight-line basis. At the end of the lease, Nash assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.

(b) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Nash Industries.

(c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Crane Inc.

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2017.

Prepare a lease amortization schedule for 2 years.

Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2017.

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.

Account Titles and Explanation Debit Credit Leased Equipment 2744999 Lease Liability 2744999