Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 21-3 Cheyenne Industries and Ayayai Inc. enter into an agreement that requires Ayayai Inc. to build three diesel-electric engines to Cheyenne's specifications. Upon completion
Problem 21-3 Cheyenne Industries and Ayayai Inc. enter into an agreement that requires Ayayai Inc. to build three diesel-electric engines to Cheyenne's specifications. Upon completion of the engines, Cheyenne has agreed to lease them for a period of 10 years and to assume all cost and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2017, and requires annual rental payments of $451,693 each January 1, starting January 1, 2017. Cheyenne's incremental borrowing rate is 11%. The implicit interest rate used by Ayaya Inc. and known to Cheyenne is 10%. The total cost of building the three engines is $2,644,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Cheyenne depreciates similar equipment on a straight-line basis. At the end of the lease, Cheyenne 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 Cheyenne Industries. (Credit account tites are automatcally 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 0 decimal places e.g. 58,971.) Account Titles and Explanation Debit (c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Ayayai 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 0 for the amounts. Round answers to O decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit Prepare he ournal entries or both he lessee and lessor to record he first rental payment on anuary , 2017 Credit account r en amounts (d tes are automat ca nden te entered. Do not indent manually. If no entry is required, select "No Entry" for the account tities and enter 0 for the amounts.) Account Titles and Explanation Lessee (January 1, 2017) Debit Lessor (January 1, 2017) Debit Credit Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2017. (Credit account tities 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.) Debit Credit Account Titles and Explanation Lessee (December 31, 2017) Lessor (December 31, 2017) Debit Credit 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. CHEYENNE INDUSTRIES Balance Sheet (Partial) Asset Current Liability AYAYAI INC. Balance Sheet (Partial) Assets Click if you would like to Show Work for this question: Open Show Work
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started