Question
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
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 $402,611 and has an expected useful life of six years. Its normal sales price is $402,611. The lessee-guaranteed residual value at December 31, 2022, is $20,000. Equal payments under the lease are $110,000 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 11%. Western Soya knows the interest rate implicit in the lease payments is 9%. Both companies use straight-line depreciation. Use (FV of $1,PV of $1,FVA of $1,PVA of $1,FVAD of $1andPVAD of $1)(Use appropriate factor(s) from the tables provided.)
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