PLEASE ANSWER THE QUESTION, AS THIS IS MY THIRD TIMEASKING
Rhone-Metro Industries manufactures equipment that is sold orleased. On December 31, 2018, Rhone-Metro leased equipment toWestern Soya Co. for a four-year period ending December 31, 2022,at which time possession of the leased asset will revert back toRhone-Metro. The equipment cost $300,000 to manufacture and has anexpected useful life of six years. Its normal sales price is$365,760. The expected residual value of $25,000 at December 31,2022, is not guaranteed. Equal payments under the lease are$104,000 (including $4,000 maintenance costs) and are due onDecember 31 of each year. The first payment was made on December31, 2018. Western Soya’s incremental borrowing rate is 12%. WesternSoya knows the interest rate implicit in the lease payments is 10%.Both companies use straight-line depreciation.
Required:
5. Prepare the appropriate entries for both Western Soya andRhone-Metro on December 31, 2019 (the second lease payment andamortization).
6. Prepare the appropriate entries for both Western Soya andRhone-Metro on December 31, 2022, assuming the equipment isreturned to Rhone-Metro and the actual residual value on that dateis $1,500.
