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On December 31, 2021, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period ending December 31, 2025, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost Rhone-Metro $610,523 and has an expected useful life of six years. Its normal sales price is $610,523. The lessee-guaranteed residual value at December 31, 2025, is $26,000. Equal payments under the lease are $170,000 and are due on December 31 of each year. The first payment was made on December 31, 2021. Western Soyas incremental borrowing rate is 13%. Western Soya knows the interest rate implicit in the lease payments is 10%. 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 $170,000 annual lease payments. 3. Prepare the appropriate entries for both Western Soya Co. and Rhone-Metro on December 31, 2021. 5. Prepare all appropriate entries for both Western Soya and Rhone-Metro on December 31, 2022 (the second lease payment and amortization). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2025 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 $170,000 annual lease payments.

Requirement 1

	Guaranteed Residual Value 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 the next four years

Requirement 3 lessee

Journal Entry

Record Lease

Record cash payment

Requirement 3 lessor

Record Lease

Record cash received

Requirement 5 lessee

Record cash payment

Record amortization expense

Requirement 5 lessor

Record cash received

Requirement 6 lessee

Record Amortization expense

Record the end of the lease

Required 6 lessor

Record the end of the lease

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