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RhoneMetro Industries manufactures equipment that is sold or leased. On December 31, 2018, RhoneMetro leased equipment to Western Soya Co. for a noncancelable stated lease term of four years ending December 31, 2022, at which time possession of the leased asset will revert back to RhoneMetro. The equipment cost $400,000 to manufacture and has an expected useful life of six years. Its normal sales price is $457,779. The expected residual value of $28,000 at December 31, 2022, is not guaranteed. Western Soya Co. is reasonably certain to exercise a purchase option on December 30, 2021, at an option price of $12,000. Equal payments under the lease are $171,000 (including $4,000 annual maintenance costs) and are due on December 31 of each year. The first payment was made on December 31, 2018. Western Soya's incremental borrowing rate is 14%. Western Soya knows the interest rate implicit in the lease payments is 12%. Both companies use straight-line depreciation. Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO) ((FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Show how Rhone-Metro calculated the $171,000 annual lease payments. 2. How should this lease be classified (a) by Western Soya Co. (the lessee) and (b) by Rhone-Metro Industries (the lessor)? 3. Prepare the appropriate entries for both Western Soya Co. and Rhone-Metro on December 31, 2016 4. Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee and the lessor 5. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2019 (the second rent payment and depreciation). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 30, 2021, assuming the BPO is exercised on that date. Required 3 Required 3 Required 4 Required 4 Required 5 Required 5 Required 6 Lessee Required 6 Required 2 Required 1 Lessee Lessor Lessee Lessor Lessee Lessor Lessor Show how Rhone-Metro calculated the $171,000 annual lease payments. (Round your intermediate and final answers to nearest whole dollar.) BPO Price PV of $1 Table or calculator function: n = Present Value Amount to be recovered Less: Present value of the BPO price Amount to be recovered through periodic lease payments Lease Payments Table or calculator function: PVAD of $1 n = Lease Payments Lease payments at the beginning of each of three years: Add: Executory costs Lease payments including executory costs Required 4 Lessee Required 3 Required 3 Required 4 Required 5 Required 5 Required 6 Required 6 Required 1 Required 2 Lessee Lessor Lessor Lessee Lesson Lessee Lessor How should this lease be classified (a) by Western Soya Co. (the lessee) and (b) by Rhone-Metro Industries (the lessor)? (Round your intermediate and final answers to nearest whole dollar.) Financing lease Western Soya Co. Sales-type lease Rhone-Metro Industries Prepare the appropriate entries for the Western Soya Co. on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) View transaction list View journal entry worksheet General Journal No Date Debit Credit December 31, Right-of-use asset 2018 Lease payable December 31. Lease payable 2 2018 Prepaid maintenance expense Cash Required 2 Required 3 Lessor Prepare the appropriate entries for the Rhone-Metro on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) View transaction list View journal entry worksheet General Journal No Date Debit Credit December 31, 2018 1 Lease receivable Cost of goods sold Sales revenue Equipment December 31 2 Cash 2018 Maintenance fee payable Lease receivable Reauired 3 Lessee Required 4 Lessee Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Outstanding Effective Decrease in Dec.31 Interest Payments Balance Balance 2018 2018 2019 2020 2021 0 Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessor. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease in Outstanding Dec.31 Payments Interest Balance Balance 2018 2018 2019 2020 2021 C 0 Required 5 Lessee Required 4 Lessee Prepare the appropriate entries for the Western Soya Co. on December 31, 2019 (the second rent payment and depreciation). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) View journal entry worksheet View transaction list No Date General Journal Debit Credit December 31 Amortization expense 2019 Right-of-use asset December 31 Maintenance expense 2 2019 Prepaid maintenance expense December 31 Interest expense 3 2019 Lease payable Prepaid maintenance expense Cash Prepare the appropriate entries for the Rhone-Metro on December 31, 2019 (the second rent payment and depreciation). (If no required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) entry is View transaction list View journal entry worksheet General Journal No Date Debit Credit December 31, 2019 Cash 1 Maintenance fee payable Lease receivable Interest revenue Prepare the appropriate entries for the Western Soya Co. on December 30, 2021, assuming the purchase option is exercised on that date. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) View journal entry worksheet View transaction list No Date General Journal Debit Credit December 31, 2021 Amortization expense 1 Right-of-use asset December 31 Interest expense 2 2021 Lease payable Cash December 31 Maintenance expense 2021 Prepaid maintenance expense December 31. Prepaid maintenance expense 4. 2021 Cash December 31, 2021 Equipment 5 Right-of-use asset Prepare the appropriate entries for the Rhone-Metro on December 30, 2021, assuming the purchase option is exercised on that date. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) View transaction list View journal entry worksheet No Date General Journal Debit Credit December 31, 2021 1 Cash Lease receivable Interest revenue December 31, 2021 Cash Maintenance fee payable