Sunland Industries and Coronado Inc. enter into an agreement that requires Coronado Inc. to build three diesel$-$electric engines to Sunland's specifications. Upon completion of the engines, Sunland 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 $1,2025,$ and requires annual rental payments of $$413,372$ each January $1,$ starting January $1,2025.$

Sunland's incremental borrowing rate is $8\%.$ The implicit interest rate used by Coronado and known to Sunland is $6\%.$ The total cost of building the three engines is $$2,803,000.$ The economic life of the engines is estimated to be $10$ years, with residual value set at zero. Sunland depreciates similar equipment on a straight$-$line basis. At the end of the lease, Sunland assumes title to the engines. Collectibility of the lease payments is probable.

Prepare the journal entry to record the transaction on January $1,2025,$ on the books of Sunland $($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$.1\mathrm{.}25124$ and the final answer to $0$ decimal places e$.$g$.58,971.$ List debit entry before credit entry.$)$

Account Titles and Explanation

Debit

Credit

Right$-$of$-$Use Asset

Lease Liability

Prepare the journal entry to record the transaction on January $1,2025,$ on the books of Coronado $($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$.58,971.$ List all debit entries before credit entries.$)$

Account Titles and Explanation

Debit

Credit

Prepare the journal entries for both the lessee and lessor to record the first rental payment on January $1,2025.($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. List all debit entries before credit entries.$)$

Account Titles and Explanation

Debit

Credit

Lessee $($January $1,2025)$

Lessor $($January $1,2025)$

Debit

Credit