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 $390,000 to manufacture and has an expected useful life of six years Its normal sales price is $445,490 The expected residual value of $27,000 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 $12,000 Equal payments under the lease are $166,000 (including $5,000 annual maintenance costs) and are due on December 31 of each year The first payment was made on December 31, 2024 Western Soyas incremental borrowing rate is 13 Western Soya knows the interest rate implicit in the lease payments is 11 Both companies use straight line depreciation or amortization Hint A lease term ends for accounting purposes when an option becomes exercisable if its expected to be exercised (i e , a BPO) Note Use tables, Excel, or a financial calculator (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required Show how Rhone Metro calculated the $166,000 annual lease payments How should this lease be classified (a) by Western Soya Company (the lessee) and (b) by Rhone Metro Industries (the lessor) Prepare the appropriate entries for both Western Soya Company and Rhone Metro on December 31, 2024 Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee and the lessor Prepare the appropriate entries for both Western Soya and Rhone Metro on December 31, 2025 (the second rent payment and amortization) Prepare the appropriate entries for both Western Soya and Rhone Metro on December 30, 2027, assuming the purchase option is exercised on that date 1Required BPO Price Table or calculator function n i Present Value Amount to be recovered Amount to be recovered through periodic lease payments Lease Payments Table or calculator function n i Lease Payments Lease payments at the beginning of each of three years Lease payments including nonlease components Table or calculator function chooses (FV of $1, FVA of $1, FVAD of $1, PV of $1, PVA of $1, PVAD of $1) Required 2 (a) Western Soya Company (b) Rhone Metro Industries Finance lease Operating lease Sales type lease Sub lease Required 3 Lessee A)Record lease in the books of lessee Date General Journal Debit Credit December 31, 2024 B) Record cash payment in the books of lessee Date General Journal Debit Credit December 31, 2024 Required 3 Lessor A) Record lease in the books of lessor Date General Journal Debit Credit December 31, 2024 B) Record cash received in the books of lessor Date General Journal Debit Credit December 31, 2024 Required 4 Lessee Lease Amortization Schedule December 31 Payments Effective Interest Decrease in Balance Outstanding Balance 2024 2024 2025 2026 2027 total Im posting the second part of this question seperatly Aswell, Chegg won't let me post this problem in whole, thanks

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 30, 2024

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

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 $390,000 to manufacture and has an expected useful life of six years.
Its normal sales price is $445,490.
The expected residual value of $27,000 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 $12,000.
Equal payments under the lease are $166,000 (including $5,000 annual maintenance costs) and are due on December 31 of each year.
The first payment was made on December 31, 2024.
Western Soyas incremental borrowing rate is 13%.
Western Soya knows the interest rate implicit in the lease payments is 11%. Both companies use straight-line depreciation or amortization.

[Hint: A lease term ends for accounting purposes when an option becomes exercisable if its expected to be exercised (i.e., a BPO).]

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:

Show how Rhone-Metro calculated the $166,000 annual lease payments.
How should this lease be classified (a) by Western Soya Company (the lessee) and (b) by Rhone-Metro Industries (the lessor)?
Prepare the appropriate entries for both Western Soya Company and Rhone-Metro on December 31, 2024.
Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee and the lessor.
Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2025 (the second rent payment and amortization).
Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 30, 2027, assuming the purchase option is exercised on that date

1Required

BPO Price
Table or calculator function:
n =
i =
	Present Value
Amount to be recovered

Amount to be recovered through periodic lease payments
Lease Payments
Table or calculator function:
n =
i =
	Lease Payments
Lease payments at the beginning of each of three years:

Lease payments including nonlease components