4.

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 $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Show how Rhone-Metro calculated the $110,000 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)? 3. Prepare the appropriate entries for both Western Soya Co. and Rhone-Metro on December 31, 2018 4. Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee and the lessor. 5. Prepare all appropriate entries for both Western Soya and Rhone-Metro on December 31, 2019 (the second lease payment and depreciation). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2022 assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $1,200. Show how Rhone-Metro calculated the $110,000 annual lease payments. Guaranteed Residual Value PV of S1 Table or calculator function n- 9% Present Value Amount to be recovered Less: Present value of the guaranteed residual value Amount to be recovered through periodic lease payments Lease Payments Table or calculator function PVAD of $1 9% Lease Payments Lease payments at the beginning of each of the next four years Prepare the appropriate entries for Western Soya Co. on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Date General Journal Debit Credit December 31 Right-of-use asset 2018 Lease payable December 31, Lease payable 2018 Cash Prepare the appropriate entries for Rhone-Metro on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet Credit No Date General Journal Debit December 31 Lease receivable 2018 Equipment December 31, Cash 2018 Lease receivable Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessor. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease in Outstanding Dec.31 PaymentsInterest Balance Balance 2018 2018 2019 2020 2021 2022 Prepare an amortization schedule(s) describing the pattern of interest over the lease term for the lessee. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease inOutstanding Dec.31 Payments Interest Balance Balance 2018 2018 2019 2020 2021 Required 4 lessor Prepare all appropriate entries for Western Soya on December 31, 2019 (the second lease payment and depreciation). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View journal entry worksheet View transaction list Credit Debit General Journal Date No Decembernterest expense 2019 Lease payable Cash December 31, Amortization expense Right-of-use asset Prepare all appropriate entries for Rhone-Metro on December 31, 2019 (the second lease payment and depreciation). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet Date General Journal Debit No Credit December 31 2019 Lease receivable Interest revenue Prepare the appropriate entries for both Western Soya on December 31, 2022 assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $1,200. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Date General Journal Debit Credit December 31, Amortization expense Right-of-use asset December 3 2022 Loss on residual value guarantee Cash Prepare the appropriate entries for Rhone-Metro on December 31, 2022 assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $1,200. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet Credit No Date General Journal Debit December 31. Equipment 2022 Cash Lease receivable Interest revenue