Question 1 Ivanhoe Industries and Shamrock Inc. enter into an agreement that requires Shamrock Inc. to build three diesel-electric engines to Ivanhoes specifications. Upon completion of the engines, Ivanhoe 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, 2017, and requires annual rental payments of $397,478 each January 1, starting January 1, 2017. Ivanhoes incremental borrowing rate is 8%. The implicit interest rate used by Shamrock and known to Ivanhoe is 6%. The total cost of building the three engines is $2,700,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Ivanhoe depreciates similar equipment on a straight-line basis. At the end of the lease, Ivanhoe assumes title to the engines. Collectibility of the lease payments is probable. Click here to view the factor table. (b) Prepare the journal entry to record the transaction on January 1, 2017, on the books of Ivanhoe (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 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 Leased Equipment 3101000 Lease Liability 3101000 (c) Prepare the journal entry to record the transaction on January 1, 2017, on the books of Shamrock (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 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit Lease Receivable 3101000 Cost of Goods Sold 2700000 Sales Revenue 3101000 Inventory 2700000 (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) Lease Liability 397,478 Cash 397,478 Lessor (January 1, 2017) Debit Credit Cash 397,478 Lease Receivable 397,478 Prepare a lease amortization schedule for 2 years. (Round answers to 0 decimal places e.g. 58,971.) IVANHOE INDUSTRIES/SHAMROCK INCORPORATED Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/ Liability 1/1/17 $ 0 $ 0 $ 0 $ 3101000 1/1/17 397,478 0 397,478 2703522 1/1/18 397,478 162211 235267 2468255 1/1/19 397,478 148095 249383 2218873 Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease 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) Interest Expense 162211 Interest Payable 162211 (To record interest) Depreciation Expense 310100 Accumulated Depreciation-Leased Equipment 310100 (To record depreciation) Lessor (December 31, 2017) Debit Credit Interest Receivable 162211 Interest Revenue 162211 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. IVANHOE INDUSTRIES Balance Sheet (Partial) Asset Leased Equipment $ 3101000 Current Liability $ SHAMROCK INC. Balance Sheet (Partial) Assets $ $ Assume that Ivanhoe incurs legal fees related to the execution of the lease of $30,000. In addition, assume Ivanhoe receives a lease incentive from Shamrock of $50,000 to enter the lease. How will this affect your answer to part (b)? Account Titles and Explanation Debit Credit By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor. On Sun, Mar 11, 2018 at 9:32 PM, Odeline Valeus wrote: On Sun, Mar 11, 2018 at 8:29 PM, Kyle Payran wrote: Question 1 The books of Skysong Corporation carried the following account balances as of December 31, 2017. Cash $ 198,000 Preferred Stock (6% cumulative, nonparticipating, $50 par) 326,000 Common Stock (no-par value, 322,000 shares issued) 1,610,000 Paid-in Capital in Excess of ParPreferred Stock 153,000 Treasury Stock (common 3,000 shares at cost) 32,600 Retained Earnings 97,600 The company decided not to pay any dividends in 2017. The board of directors, at their annual meeting on December 21, 2018, declared the following: The current year dividends shall be 6% on the preferred and $0.50 per share on the common. The dividends in arrears shall be paid by issuing 1,630 shares of treasury stock. At the date of declaration, the preferred is selling at $87 per share, and the common at $12 per share. Net income for 2018 is estimated at $84,000. (a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (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. 3,487.) Account Titles and Explanation Debit Credit For preferred dividends in arrears: For preferred current year dividend: For common share dividend: (b) Could Skysong Corporation give the preferred stockholders 2 years dividends and common stockholders a 50 cents per share dividend, all in cash?