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Please help me answer #4, I do not clearly see the amortization table you have provided in the solution manual for this question. On December
Please help me answer #4, I do not clearly see the amortization table you have provided in the solution manual for this question.
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 $365,760 and has an expected useful life of six years. Its normal sales price is $365,760. The lessee-guaranteed residual value at December 31, 2020, is $25,000. Equal payments under the lease are $100,000 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 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. Required: 1. Show how Rhone-Metro calculated the $100,000 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)? Why? 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 lessorStep by Step Solution
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