Required: 1. Show how Rhone-Metro calculated the $162,000 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. 5. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2025 (the second rent payment and amortization). 6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 30, 2027, assuming the purchase option is exercised on that date. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 3 Required 4 Required 4 Required 5 Required 5 Required 6 Required 6. Lessee Lessee Lessor Lessee Lessor Lessee Lessor Lessor

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**Rhone-Metro Industries Lease Agreement Case Study**

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 the end of the lease term, the leased asset will revert back to Rhone-Metro.

**Key Details:**

- **Manufacturing Cost**: The equipment cost $390,000 to manufacture and has an expected useful life of six years.
- **Sales Price**: Its normal sales price is $445,205.
- **Expected Residual Value**: The expected residual value of $26,000 on December 31, 2028, is not guaranteed.
- **Purchase Option**: Western Soya Company is reasonably certain to exercise a purchase option on December 30, 2027, at an option price of $12,000.
- **Lease Payments**: Equal payments under the lease are $162,000 (including $4,000 annual maintenance costs) and are due on December 31 of each year.
- **Initial Payment**: The first payment was made on December 31, 2024.
- **Borrowing Rate**: Western Soya’s incremental borrowing rate is 10%.
- **Interest Rate**: Western Soya knows the interest rate implicit in the lease payments is 9%. 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](link), [PV of $1](link), [FVA of $1](link), [PVA of $1](link), [FVAD of $1](link), and [PVAD of $1](link))

**Requirements:**

1. **Payment Calculation**: Show how Rhone-Metro calculated the $162,000 annual lease payments.
2. **Lease Classification**: How should this lease be classified (a) by Western Soya Company (the lessee) and (b) by Rhone-Metro Industries (the lessor)?
3. **Initial Entries**: Prepare the appropriate entries for both Western Soya Company and Rhone-Metro on December 31,
Transcribed Image Text:**Rhone-Metro Industries Lease Agreement Case Study** 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 the end of the lease term, the leased asset will revert back to Rhone-Metro. **Key Details:** - **Manufacturing Cost**: The equipment cost $390,000 to manufacture and has an expected useful life of six years. - **Sales Price**: Its normal sales price is $445,205. - **Expected Residual Value**: The expected residual value of $26,000 on December 31, 2028, is not guaranteed. - **Purchase Option**: Western Soya Company is reasonably certain to exercise a purchase option on December 30, 2027, at an option price of $12,000. - **Lease Payments**: Equal payments under the lease are $162,000 (including $4,000 annual maintenance costs) and are due on December 31 of each year. - **Initial Payment**: The first payment was made on December 31, 2024. - **Borrowing Rate**: Western Soya’s incremental borrowing rate is 10%. - **Interest Rate**: Western Soya knows the interest rate implicit in the lease payments is 9%. 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](link), [PV of $1](link), [FVA of $1](link), [PVA of $1](link), [FVAD of $1](link), and [PVAD of $1](link)) **Requirements:** 1. **Payment Calculation**: Show how Rhone-Metro calculated the $162,000 annual lease payments. 2. **Lease Classification**: How should this lease be classified (a) by Western Soya Company (the lessee) and (b) by Rhone-Metro Industries (the lessor)? 3. **Initial Entries**: Prepare the appropriate entries for both Western Soya Company and Rhone-Metro on December 31,
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