On December $31,2024,$ Rhone$-$Metro Industries leased equipment to Western Soya Company for a four$-$year period ending December

$31,2028,$ 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 on December $31,2028,$ 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 $31,2024.$

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 or amortization.

Note: Use tables, Excel, or a financial calculator. Use $($FV of $$1,$ PV of $$1,$ FVA of $$1,$ PVA of $$1,$ FVAD of $$1$ and PVAD of $$1)$

Required:

Show how Rhone$-$Metro calculated the $$195,000$ annual lease payments.

How should this lease be classified $($a$)$ by Western Soya Company $($the lessee$)$ and $($b$)$ by Rhone$-$Metro Industries $($the lessor$)?$

Prepare the appropriate entries for both Western Soya Company and Rhone$-$Metro on December $31,2024.$

Prepare an amortization schedule$($s$)$ describing the pattern of interest over the lease term for the lessee and the lessor.

Prepare all appropriate entries for both Western Soya and Rhone$-$Metro on December $31,2025($the second lease payment and

amortization$).$

Prepare the appropriate entries for both Western Soya and Rhone$-$Metro on December $31,2028,$ assuming the equipment is

returned to Rhone$-$Metro and the actual residual value on that date is $$1,000.$

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