P21-12. Please solve part e,f,g and show all workings clearly. P21.12 (LO 2, 3, 4) (Lessee-Lessor Entries, Statement of FinancialPosition Presentation, Finance and Sales-Type Lease) Winston Industriesand Ewing SA enter into an agreement that requires Ewing 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 costsand risks of ownership. The lease is non-cancelable, becomes effective on January1, 2022, and requires annual rental payments of €384,532 each January 1, startingJanuary 1, 2022.Winston's incremental borrowing rate is 8%. The implicit interest rate used byEwing 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, withresidual value set at zero. 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.Instructionsa. Discuss the nature of this lease transaction from the viewpoint of the lessor.b. Prepare the journal entry or entries to record the transaction on January 1,2022, on the books of Winston (the lessee).c. Prepare the journal entry or entries to record the transaction on January 1,2022, on the books of Ewing (the lessor).d. Prepare the journal entries for both the lessee and lessor to record the firstrental payment on January 1, 2022.e. Prepare the journal entries for both the lessee and lessor to record any entriesneeded in connection with the lease at December 31, 2022. (Prepare a leaseamortization schedule for 2 years.)f. Show the items and amounts that would be reported on the statement offinancial position (not notes) at December 31, 2022, for both the lessee andthe lessor.g. Assume that Winston incurs legal fees related to the execution of the lease of€30,000. In addition, assume Winston receives a lease incentive from Ewingof €50,000 to enter the lease. How will this affect your answer to part (b)?

Partial Balance Sheet- A partial balance sheet is a fiscal tool that is used to visualize the list…

Answered: P21-12. Please solve part e,f,g and…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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