Teal Industries and Flint Inc. enter into an agreement that requiresFlint Inc. to build three diesel-electric engines to Teal’sspecifications. Upon completion of the engines, Teal has agreed to leasethem for a period of 10 years and to assume all costs and risks ofownership. The lease is noncancelable, becomes effective on January 1,2017, and requires annual rental payments of $384,165 each January 1,starting January 1, 2017.Teal’s incremental borrowing rate is 10%. Theimplicit interest rate used by Flint Inc. and known to Teal is 8%. Thetotal cost of building the three engines is $2,395,000. The economiclife of the engines is estimated to be 10 years, with residual value setat zero. Teal depreciates similar equipment on a straight-line basis.At the end of the lease, Teal assumes title to the engines.Collectibility of the lease payments is reasonably certain; nouncertainties exist relative to unreimbursable lessor costs.show your solution in word document
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