Problem 21-3

Coronado Industries and Whispering Inc. enter into an agreement that requires Whispering Inc. to build three diesel-electric engines to Coronados specifications. Upon completion of the engines, Coronado 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 $412,338 each January 1, starting January 1, 2017. Coronados incremental borrowing rate is 11%. The implicit interest rate used by Whispering Inc. and known to Coronado is 10%. The total cost of building the three engines is $2,362,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Coronado depreciates similar equipment on a straight-line basis. At the end of the lease, Coronado assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. Click here to view factor tables

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

(c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Whispering 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 0 decimal places e.g. 58,971.)

Account Titles and Explanation Debit Credit

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

Account Titles and Explanation Debit Credit Lessee (January 1, 2017) Lessor (January 1, 2017) Debit Credit

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

CORONADO INDUSTRIES Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/ Liability 1/1/17 $ $ $ $ 1/1/17 1/1/18 1/1/19

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

Account Titles and Explanation Debit Credit 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.

CORONADO INDUSTRIES Balance Sheet (Partial) December 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017 Asset Current Assets Current Liabilities Intangible Assets Long-term Investments Long-term Liabilities Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity $ Add Less : $ Current Liability Current Assets Current Liabilities Intangible Assets Long-term Investments Long-term Liabilities Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity $ Current Assets Current Liabilities Intangible Assets Long-term Investments Long-term Liabilities Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity

WHISPERING INC. Balance Sheet (Partial) December 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017 Assets Current Assets Current Liabilities Intangible Assets Long-term Investments Long-term Liabilities Noncurrent Assets Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity $ Current Assets Current Liabilities Intangible Assets Long-term Investments Long-term Liabilities Noncurrent Assets Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity $