Problem 21-3 Stellar Industries and Pearl Inc, enter into an agreement that requires Pearl Inc. to build three diesel electric engines to Stellar's specifications. Upon completion of the engines, Stellar has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is no cancelable, becomes effective on January 1, 2017, and requires annual rental payments of $403,131 each January 1, starting January 1, 2017. Stellar's incremental borrowing rate is 11%. The implicat interest rate used by Pearl Inc. and known to Steari The total cost of building the three engines is $2.406,000. The economic life of the engines is estimated to be 10 years, with residual value set atero. Stellar depreciates similar equipment on a straight-line basis. At the end of the lease, Stellar assumes title to the engines. Collectibility of the lease payment is reasonably certain no uncertainties exist relative to unreimbursable lessor costs Click here to view factor tables Your answer is partially correct. Try again. (b) Prepare the journal entry or entries to record the transaction on January 1, 2017. on the books of Stellar 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 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places. 58, 971.) Account Titles and Explanation Det Credit Leased Equipment 2587157 Lease bety 2587150 (c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Pearline (creditacountries 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 for the amounts Round answers to decimal places 5.971) Account Tities and Explanation Debit Credit (c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Pearl 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 for the amounts. Round answers to O decimal places e.q. 58,971.) Account Titles and Explanation Debit Credit Lease Receivable 258715 2.406,000 Cost of Goods Sold T Sales Revenue 1 2587157 Inventory 2,406,000 (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 for the amounts.) Debit Credit Account Titles and Explanation Lessee (January 1, 2017) Lease Liability 403,1311 Cash 403,131 Lessor January 1, 2017) Debit Credit Cash x Your answer is incorrect. Try again. Prepare a lease amortization schedule for 2 years. (Round answers to o decimal places e.g. 58,971.) STELLAR INDUSTRIES Lease Amortization Schedule Annual Lease Interest on Reduction in Lease Date Receipt/Payment Receivable/Liability Receivable/Liability 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 for the amounts) Debit Credit Account Titles and Explanation Lessee (December 31, 2017) Interest Expense 196562 Interest Payable I 196562 Lessor (December 31, 2017) Debit Credit Interest Receivable Interest Revenue 196562 CALCULATOR STELLAR INDUSTRIES Balance Sheet (Partial) December 31, 2017 Asset Property, Plant and Equipment Leased Equipment Less Accumulated Depreciation-Capital Leases Current Liability Current Liabilities Interest Payable Lease Liability Total Liabilities Loss on Capital Lease PEARL INC. Balance Sheet (Partial) December 31, 2017 Assets Current Assets Interest Receivable Lease Receivable Noncurrent Assets Lease Receivable