Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbeds specifications. Upon completion of the engines, Riverbed 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, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbeds incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable.

(b) Prepare the journal entry to record the transaction on January 1, 2020. on the books of Riverbed (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 for the amounts. Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer too decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit (c) Prepare the journal entry to record the transaction on January 1, 2020. on the books of Marin (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 for the amounts. Round answers to decimal places eg. 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, 2020. (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, 2020) Lessor (January 1, 2020) Debit Credit