Shamrock, Inc. and Pharoah Corp. enter into an agreement under which Pharoah Corp. will build 10 cranes to Shamrocks specifications. Upon completion of the cranes, Shamrock has agreed to lease them for a period of 9 years and to assume all costs and risks of ownership. The noncancelable lease becomes effective on January 1, 2017, and requires Shamrock to make annual rental payments of $619,757 each January 1, starting January 1, 2017. Shamrocks incremental borrowing rate is 10%. The implicit interest rate used by Pharoah Corp. and known to Shamrock is 9%. The total cost of building the 10 cranes is $2,870,000. The fair value of the cranes is $4,050,000. The economic life of the crane is estimated to be 9 years, with residual value set at zero. Shamrock depreciates similar equipment on a straight-line basis. At the end of the lease, Shamrock assumes title to the cranes. Collectibility of the lease payments is probable.

(b), (c) and (d) (b) Prepare the journal entry to record the transaction on January 1, 2017, on the books of Shamrock, Inc. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit (c) Prepare the journal entry to record the transaction on January 1, 2017, on the books of Pharoah Corp. (Credit account titles are automatically indented wenont is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275) 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, Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Lessee (January 1, 2017) Debit Credit Lessor (January 1, 2017) Debit Credit