On December 31, 2016, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period ending December 31, 2020, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost Rhone-Metro $556,171 and has an expected useful life of six years. Its normal sales price is $556,171. The lessee-guaranteed residual value at December 31, 2020, is $23,000. Equal payments under the lease are $155,000 and are due on December 31 of each year. The first payment was made on December 31, 2016. Collectibility of the remaining lease payments is reasonably assured, and Rhone-Metro has no material cost uncertainties. Western Soyas incremental borrowing rate is 13%. Western Soya knows the interest rate implicit in the lease payments is 10%. 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:

A.Show how Rhone-Metro calculated the $155,000 annual lease payments. (Enter your percentage answers as a whole number.)

B.Prepare the appropriate entries for both Western Soya Co. and Rhone-Metro on December 31, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Western Soya Co. : Record lease, Record cash payment. Rhone-Metro Industries : Record lease, Record cash received.

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

D.Prepare all appropriate entries for both Western Soya and Rhone-Metro on December 31, 2017 (the second lease payment and depreciation). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Western Soya Co. :Record cash payment, Record depreciation expense. Rhone-Metro Industries : Record cash received.

E. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2020 assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $2,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Western Soya Co.: Record depreciation expense, Record the end of the lease Rhone-Metro Industries: Record the end of the lease.