Problem 15-22 (Algo) Purchase option reasonably certain to be exercised before lease term ends; nonlease payments; sales-type lease [ LO15-3, 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 noncancelable stated lease term of four years ending December 31,2028 , at which time possession of the leased asset will revert back to Rhone-Metro. - The equipment cost $320.000 to manufacture and has an expected useful life of six years. - Its normal sales price is $391,229. - The expected residual value of $16.000 on December 31, 2028, is not guaranteed. - Western Soya Company is reasonably certain to exercise a purchase option on December 30, 2027, at an option price of $8,000. - Equal payments under the lease are $141,000 (including $4,000 annual maintenance costs) 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 10%. - Western Soya knows the interest rate implicit in the lease payments is 7%. Both companies use straight-line depreciation or amortization. [Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO).] Note: Use tables, Excel, or a financial calculator, (FV of \$1, PV of \$1, EVA of \$1, PVA of \$1, EVAD of \$1 and PVAD of \$1) Required: 1. Show how Rhone-Metro calculated the $141,000 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 appropriate 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. Show how Rhone-Metro calculated the $141,000 annual lease payments. Note: Round your intermediate and final answers to nearest whole dollar. amortization). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 30,2027 , assuming the purchase opti is exercised on that date. Complete this question by entering your answers in the tabs below. 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 Record cash payment in the books of lessee. Note: Enter debits before credits. Journal entry worksheet Record lease in the books of lessor. Note: Enter debits before credits. Record cash received in the books of lessor. Note: Enter debits before credits. Complete this question by entering your answers in the tabs belol Prepare an amortization schedule(s) describing the pattern of interest over Note: Round your intermediate and final answers to nearest whole dollar. Complete this question by entering your answers in the tabs below. Prepare an amortization schedule(s) describing the pattern of interest over t Note: Round your intermediate and final answers to nearest whole dollar. En 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 Record cash payment in the books of lessee. Note: Enter debits before credits. Journal entry worksheet Record cash received in the books of lessor. Note: Enter debits before credits. Journal entry worksheet Record amortization expense in the tooks of lessee. Note: Enter debits before credits. urnal entry worksheet 1 Record cash payment for bargain purchase option in the books of lessee. Enter debits before credits. rnal entry worksheet cord maintenance expense in the books of lessee. Enter debits before credits. urnal entry worksheet 1 Record transfer of equipment ownership in the books of lessee. e: Enter debits before credits. al entry worksheet 2 d cash received for bargain purchase in the books of lessor. ter debits before credits. nal entry worksheet the cash payment of maintenance costs in the books of the lessor. inter debits before credits. Problem 15-22 (Algo) Purchase option reasonably certain to be exercised before lease term ends; nonlease payments; sales-type lease [ LO15-3, 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 noncancelable stated lease term of four years ending December 31,2028 , at which time possession of the leased asset will revert back to Rhone-Metro. - The equipment cost $320.000 to manufacture and has an expected useful life of six years. - Its normal sales price is $391,229. - The expected residual value of $16.000 on December 31, 2028, is not guaranteed. - Western Soya Company is reasonably certain to exercise a purchase option on December 30, 2027, at an option price of $8,000. - Equal payments under the lease are $141,000 (including $4,000 annual maintenance costs) 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 10%. - Western Soya knows the interest rate implicit in the lease payments is 7%. Both companies use straight-line depreciation or amortization. [Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO).] Note: Use tables, Excel, or a financial calculator, (FV of \$1, PV of \$1, EVA of \$1, PVA of \$1, EVAD of \$1 and PVAD of \$1) Required: 1. Show how Rhone-Metro calculated the $141,000 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 appropriate 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. Show how Rhone-Metro calculated the $141,000 annual lease payments. Note: Round your intermediate and final answers to nearest whole dollar. amortization). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 30,2027 , assuming the purchase opti is exercised on that date. Complete this question by entering your answers in the tabs below. 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 Record cash payment in the books of lessee. Note: Enter debits before credits. Journal entry worksheet Record lease in the books of lessor. Note: Enter debits before credits. Record cash received in the books of lessor. Note: Enter debits before credits. Complete this question by entering your answers in the tabs belol Prepare an amortization schedule(s) describing the pattern of interest over Note: Round your intermediate and final answers to nearest whole dollar. Complete this question by entering your answers in the tabs below. Prepare an amortization schedule(s) describing the pattern of interest over t Note: Round your intermediate and final answers to nearest whole dollar. En 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 Record cash payment in the books of lessee. Note: Enter debits before credits. Journal entry worksheet Record cash received in the books of lessor. Note: Enter debits before credits. Journal entry worksheet Record amortization expense in the tooks of lessee. Note: Enter debits before credits. urnal entry worksheet 1 Record cash payment for bargain purchase option in the books of lessee. Enter debits before credits. rnal entry worksheet cord maintenance expense in the books of lessee. Enter debits before credits. urnal entry worksheet 1 Record transfer of equipment ownership in the books of lessee. e: Enter debits before credits. al entry worksheet 2 d cash received for bargain purchase in the books of lessor. ter debits before credits. nal entry worksheet the cash payment of maintenance costs in the books of the lessor. inter debits before credits
