Problem 21-3 (Part Level Submission) Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston's specifications. Upon completion of the engines, Winston 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, 2014, and requires annual rental payments of $419,076 each January 1, starting January 1 2014 Winston's incremental borrowing rate is 11%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is $2,500,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines, Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. TABLE G-S PRESENT VALUE OF AN ANNUITY DUE OF 10% 15% Periods 1.91743 2.75911 190909 1 957 262571 2.78320 3.57710 269005 3.44371 4.99271 5.02288 4.88905 5.48592 4.09590 4 60478 4.78448 5.16042 7.2408 7.71008 813896 0 99525 0.75902 7.41768 7.80619 8.88323 7.20652 7.49600 781360 8.70815 7.82017 672448 9,85137 10.12164 10.37189 7.81086 797399 811903 6.84737 0.95424 931250 837916 8.54879 9.02155 9.75663 .12797 7.19823 8.83329 10 12855 725133 11.01680 11.20074 1.3710 8.46044 8.58200 .4485 9.07507 1044243 10.58021 10.70661 7.33884 7 43377 9.42174 7.48415 10.10095 11.02658 10.30667 9,0012 9.85011 12.15041 11.19020 7.55088 .56508 12.34980