Business, 17.08.2019 22:10 ellisc7044

Cheyenne industries and ayayai inc. enter into an agreement that requires ayayai inc. to build three diesel-electric engines to cheyenne’s specifications. upon completion of the engines, cheyenne has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. the lease is noncancelable, becomes effective on january 1, 2017, and requires annual rental payments of $445,445 each january 1, starting january 1, 2017. cheyenne’s incremental borrowing rate is 10%. the implicit interest rate used by ayayai inc. and known to cheyenne is 9%. the total cost of building the three engines is $2,743,000. the economic life of the engines is estimated to be 10 years, with residual value set at zero. cheyenne depreciates similar equipment on a straight-line basis. at the end of the lease, cheyenne assumes title to the engines. collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. click here to view factor tables (b) prepare the journal entry or entries to record the transaction on january 1, 2017, on the books of cheyenne industries.

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Cheyenne industries and ayayai inc. enter into an agreement that requires ayayai inc. to build three...

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