At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,465,810 by signing a three-year lease. The lease is payable in three annual payments of $2.6 million at the end of each year. (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. What is the effective rate of interest implicit in the agreement? 2-4. Prepare the lessee's journal entries at the beginning of the lease, the first lease payment at December 31, 2018 and the second lease payment at December 31, 2019. 5. Suppose the fair value of the machine and the lessor's implicit rate were unknown at the time of the lease, but that the lessee's incremental borrowing rate of interest for notes of similar risk was 9%. Prepare the lessee's entry at the beginning of the lease. Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 4 Reg 5 What is the effective rate of interest implicit in the agreement? The implicit interest rate Each of the four independent situations below describes a sales-type lease in which annual lease payments of $11,000 are payable at the beginning of each year. Each is a finance lease for the lessee. (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.) Situation vow 11% 11% Lease term (years) Asset's useful life (years) Lessor's implicit rate (known by lessee) Residual value: Guaranteed by lessee Unguaranteed Purchase option: After (years) Exercise price Reasonably certain? 0 0 $4,400 0 $2,200 $2,200 $4,400 3 none n/a n/a 5 $ 7,200 no 6 $1,200 no $3,200 yes Determine the following amounts at the beginning of the lease: (Round your final answers to nearest whole dollar.) Situation 2 1 3 A. The lessor's: 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease B. The lessee's: 4. Lease payments 5. Right-of-use asset 6. Lease payable On December 31, 2018, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost Rhone-Metro $680,516 and has an expected useful life of six years. Its normal sales price is $680,516. The lessee-guaranteed residual value at December 31, 2022, is $27,000. Equal payments under the lease are $195,000 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 13%. Western Soya knows the interest rate implicit in the lease payments is 12%. Both companies use straight-line depreciation. Use (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 $195,000 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, 2018 4. Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee and the lessor. 5. Prepare all appropriate entries for both Western Soya and Rhone-Metro on December 31, 2019 (the second lease payment and depreciation). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2022 assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $1,000. Complete this question by entering your answers in the tabs below. Required 1 Required 3 Required 2 | lessee Required 3 lessor Required 4 lessor Required 4 Required 5 Required 5 lessee Llessee Llessor Required 6 lessee L Required 6 lessor Show how Rhone-Metro calculated the $195,000 annual lease payments. Guaranteed Residual Value Table or calculator function: Present Value Amount to be recovered Amount to be recovered through periodic lease payments Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 lessee Required 3 lessor Required 4 lessor Required 4 lessee Required 5 lessee Required 5 lessor Required 6 lessee Required 6 lessor Show how Rhone-Metro calculated the $195,000 annual lease payments. Guaranteed Residual Value Table or calculator function: n Present Value Amount to be recovered Amount to be recovered through periodic lease payments Lease Payments Table or calculator function: Lease Payments Lease payments at the beginning of each of the next four years Required 1 Required 2 > Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $600,000 to manufacture and has an expected useful life of six years. Its normal sales price is $672,747. The expected residual value of $15,000 at December 31, 2022, is not guaranteed. Equal payments under the lease are $194,000 (including $4,000 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 12%. Western Soya knows the interest rate implicit in the lease payments is 10% Both companies use straight-line depreciation. (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 $194,000 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, 2018. 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 lease payment and amortization). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2022, assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $2,000. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Lessee Required 3 Lessor Required 4 Lessee Required 4 Lessor Required 5 Lessee Required 5 Lessor Required 6 Lessee Required 6 Lessor Show how Rhone-Metro calculated the $194,000 annual lease payments. (Round your intermediate and final answers to nearest whole dollar.) Unguaranteed Residual Value Table or calculator function: Present Value Amount to be recovered Amount to be recovered through periodic lease payments RhoneMetro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone Metro 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 Rhone Metro. The equipment cost $390,000 to manufacture and has an expected useful life of six years. Its normal sales price is $449,250. The expected residual value of $25,000 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 $158,000 (including $3,000 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 8%. Western Soya knows the interest rate implicit in the lease payments is 6%. 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 $158,000 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Lessee Required 3 Lessor Required 4 Lessee Required 4 Lessor Required 5 Lessee Required 5 || Required 6 Lessor Lessee Required 6 Lessor | Show how Rhone-Metro calculated the $ 158,000 annual lease payments. (Round your intermediate and final answers to nearest whole dollar.) BPO Price Table or calculator function: i = Present Value Amount to be recovered