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Sarasota Industries and Ivanhoe Inc. enter into an agreement that requires Ivanhoe Inc. to build three diesel-electric engines to Sarasota's specifications. Upon completion of the engines, Sarasota 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 January 1, 2020, and requires annual rental payments of $381,758 each January 1, starting January 1, 2020. Sarasota's incremental borrowing rate is 8%. The implicit interest rate used by Ivanhoe and known to Sarasota is 7%. The total cost of building the three engines is $2,443,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sarasota depreciates similar equipment on a straight-line basis. At the end of the lease, Sarasota assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables. Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. (b) Prepare the journal entry to record the transaction on January 1,2020 , on the books of Sarasota (the lessee). (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 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 to record the transaction on January 1, 2020, on the books of Ivanhoe (the lessor). (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 0 decimal places e.g. 58,971. (c) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Ivanhoe (the lessor). (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 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, 2020. (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.) (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2020. (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 any entries needed in connection with the lease at December 31, 2020. (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.) * Your answer is incorrect. Show the items and amounts that would be reported on the balance sheet (not notes) at December 31,2020 , for both the lessee and the lessor. Question 4 of 4 2.64/14 IVANHOE INC. Balance Sheet (Partial) Assets $ eTextbook and Media Assume that Sarasota incurs legal fees related to the execution of the lease of $30,000. In addition, assume Sarasota receives a lease incentive from Ivanhoe of $50,000 to enter the lease. How will this affect your answer to part b
