Problem 15-21 (Algo) Unguaranteed residual value; nonlease payments; sales-type lease [LO15-2, 15-6, 15-7] Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro 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 $450,000 to manufacture and has an expected useful life of six years. - Its normal sales price is $494,424. - The expected residual value of $40,000 on December 31,2028 , is not guaranteed. - Equal payments under the lease are $134,000 (including $4,000 maintenance costs) and are due on December 31 of each yeat: - The first payment was made on December 31, 2024. - Western Soya's incremental borrowing rate is 10%. - Western Soya knows the interest rate implicit in the lease payments is 8%. - Both companies use straight-line depreciation or amortization. Note: Use tables, Excel, or a financial calculator. (EV of \$1, PV of $1, EVA of \$1. PVA of $1, EVAD of S1 and PVAD of \$1) Required: 1. Show how Rhone-Metro calculated the $134,000 annual lease payments. 2. How should this lease be classified (a) by Western Soya Company (the lessee) and (b) by Rhone-Metro Industries (the lessor)? 3. Prepare the approptiate entries for both Western Soya Company and Rhone-Metro on December 31, 2024. 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 31,2025 (the second lease payment and amortization). 6. 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. Show how Rhone-Metro calculated the $134,000 annual lease payments. Note: Round your intermediate and final answers to nearest whole dollar. How should this lease be classified (a) by Western Soya. Company (the lessee) and (b) by Rhone-Metro Industries (the lessor)? Journal entry worksheet Note: Enter debits before credits. Journal entry worksheet 1 Note: Enter debits before credits. Journal entry worksheet Note: Enter debits before credits. Journal entry worksheet Record cash received in the books of lessor. Note: Enter debits before credits. nplete this question by entering your answers in the tabs below. pare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee. e: Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values: Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessor. Note: Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values. Journal entry worksheet Record amortization expense in the books of lessee. Note: Enter debits before credits. Journal entry worksheet 1 Record maintenance expense in the books of lessee. Note: Enter debits before credits. Journal entry worksheet 1 Record cash payment in the books of lessee. Note: Enter debits before credits. Journal entry worksheet Note: Enter debits before credits. Record maintenance expense in the books of lessee. Note: Enter debits before credits. Journal entry worksheet
