Newton, Inc. and Jordan Corp. enter into an agreement under which Jordan Corp. will build 10 cranes to Newtons specifications. Upon completion of the cranes, Newton has agreed to lease them for a period of 9 years and to assume all costs and risks of ownership. The noncancelable lease becomes effective on January 1, 2017, and requires Newton to make annual rental payments of $533,599 each January 1, starting January 1, 2017. Newtons incremental borrowing rate is 9%. The implicit interest rate used by Jordan Corp. and known to Newton is 8%. The total cost of building the 10 cranes is $2,450,000. The fair value of the cranes is $3,600,000. The economic life of the crane is estimated to be 9 years, with residual value set at zero. Newton depreciates similar equipment on a straight-line basis. At the end of the lease, Newton assumes title to the cranes. Collectibility of the lease payments is probable.

b)Prepare the journal entry to record the transaction on January 1, 2017, on the books of Newton, Inc.

c)Assume that Newton incurs legal fees related to the execution of the lease of $40,000. In addition, assume Newton receives a lease incentive from Jordan of $65,000 to enter the lease. How will this affect your answer to part (b)?