Question
Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston's specifications. Upon completion of
Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston's specifications. Upon completion of the engines, Winston 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 $384,532 each January 1, starting January 1, 2020. zero. Winston's incremental borrowing rate is 8%. The implicit interest rate used by Ewing and known to Winston is 6%. The total cost of building the three engines is $2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is probable. WINSTON INDUSTRIES Balance Sheet (Partial) December 31, 2020 Current Assets lease Current Liabilities Asset Current Liability $ $ EWING INC. Balance Sheet (Partial) December 31, 2020 Assets $ Account Titles and Explanation lease incentive from Ewing of $50,000 to enter the lease. How will this affect your answer to part b? Assume that Winston incurs legal fees related to the execution of the lease of $30,000. In addition, assume Winston receives a Credit
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