Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment toWestern Soya Company for a four-year period ending December 31, 2028, at which time possession of the leased asset will revertback to Rhone-Metro.●●The equipment cost $550,000 to manufacture and has an expected useful life of six years.Its normal sales price is $607,484.The expected residual value of $25,000 on December 31, 2028, is not guaranteed.Equal payments under the lease are $163,000 (including $3,000 maintenance costs) and are due on December 31 of each year.The first payment was made on December 31, 2024.Western Soya's incremental borrowing rate is 8%.Western Soya knows the interest rate implicit in the lease payments is 6%.Both companies use straight-line depreciation or amortization.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:1. Show how Rhone-Metro calculated the $163,000 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 lease payment andamortization).6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2028, assuming the equipment isreturned to Rhone-Metro and the actual residual value on that date is $1,500.Complete this question by entering your answers in the tabs below.Required 1 Required 2Required 3LesseeRequired 3LessorRequired 4 Required 4LesseeLessorRequired 5LesseeRequired 5LessorRequired 6LesseeRequired 6Lessor

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Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment to Western Soya Company for a four-year period ending December 31, 2028, at which time possession of the leased asset will revert back to Rhone-Metro.

Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment to Western Soya Company for a four-year period ending December 31, 2028, at which time possession of the leased asset will revert back to Rhone-Metro.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 29CE

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Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment to Western Soya Company for a four-year period ending December 31, 2028, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $500,000 to manufacture and has an expected useful life of six years. Its normal sales price is $547,590. The expected residual value of $15,000 on December 31, 2028, is not guaranteed. Equal payments under the lease are $155.000 (including $5,000 maintenance costs) and are due on December 31 of each year. The first payment was made on December 31, 2024. Western Soya's incremental borrowing rate is 9% Western Soya knows the interest rate implicit in the lease payments is 8%. Both companies use straight-line depreciation or amortization. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1, EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Show how Rhone-Metro calculated…
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2016, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2020, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $300,000 to manufacture and has an expected useful life of six years. Its normal sales price is $365,760. The expected residual value of $25,000 at December 31, 2020, is not guaranteed. Equal payments under the lease are $104,000 (including $4,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2016. Collectibility of the remaining lease payments is reasonably assured, and Rhone-Metro has no material cost uncertainties. Western Soya’s incremental borrowing rate is 12%. Western Soya knows the interest rate implicit in the lease payments is 10%. Both companies use straight-line depreciation. Required: 1. Show how Rhone-Metro calculated the $104,000…
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 $445,205. The expected residual value of $26,000 on December 31, 2028, is not guaranteed. The first payment was made on December 31, 2024. Western Soya's incremental borrowing rate is 10%. 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, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of…
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2016, Rhone-Metroleased equipment to Western Soya Co. for a noncancelable stated lease term of four years ending December31, 2020, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost$300,000 to manufacture and has an expected useful life of six years. Its normal sales price is $365,760. Theexpected residual value of $25,000 at December 31, 2020, is not guaranteed. Western Soya Co. can exercise abargain purchase option on December 30, 2019, at an option price of $10,000. Equal payments under the leaseare $134,960 (including $4,000 annual executory costs) and are due on December 31 of each year. The first paymentwas made on December 31, 2016. Collectibility of the remaining lease payments is reasonably assured,and Rhone-Metro has no material cost uncertainties. Western Soya’s incremental borrowing rate is 12%.Western Soya knows the interest rate implicit in…
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2021, Rhone-Metro leased equipment to Western Soya Co., for a noncancelable stated lease term of four years ending December 31, 2025, 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 $449,250. The expected residual value of $25,000 at December 31,2025, is guaranteed. Western Soya Co., is reasonably certain to exercise a purchase option on December 30, 2024, at an option price of $12,000. Equal payments under the lease are $158,000 (including $3,000 annual maintenance costs) and are due on December 31 of each year. The first payment was made on December 31, 2021. Western Soya's incremental borrowing rate s 8%. Western Soya knows the interest rate implicit in the lease payments is 6%. Both companies use straight-line amortization. 1. Show how Rhone-Metro…
On January 1. 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31,2027 , at which time possession of the leased asset will revert back to Ghosh. - The equipment cost Ghosh$960,000and has an expected useful life of five years. - Ghosh expects the residual value at December 31, 2027, will be$304,000. - Negotiations led to the lessee guaranteeing a$344,000residual value - Equal payments under the finance/sales-type lease are$204,000and are due on December 31 of each year with the first payment being made on December 31, 2024. - Karrier is aware that Ghosh used a4%interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (EV of \$1. PV of \$1. EVA of$1, PVA of S1. FVAD of$1and PVAD of S1) Required: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the lease. 2. Prepare all appropriate entries for both Karrier and Ghosh on December 31, 2024,…
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 $365,760 and has an expected useful life of six years. Its normal sales, price is $365,760. The lessee-guaranteed residual value at December 31, 2025, is $25,000. Equal payments  under the lease are $ 100,000 and are due on December 31 of each year. The first payment was made on December 31, 2021. Western Soya's incremental borrowing rate is 12%. Western Soya knows the interest rate implicit in the lease payments is 10%. Both companies use straight-line depreciation or amortization. Required: 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 $1,500.
On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Ghosh The equipment cost Ghosh $957,800 and has an expected useful life of five years. . Ghosh expects the residual value at December 31, 2027, will be $301,800. . Negotiations led to the lessee guaranteeing a $341,800 residual value Equal payments under the finance/sales-type lease are $201.800 and are due on December 31 of each year with the first payment being made on December 31, 2024 • Karrier is aware that Ghosh used a 5% interest rate when calculating lease payments. . Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the lease 2. Prepare all appropriate entries for both Karrier and Ghosh on December 31,…
On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Ghosh. The equipment cost Ghosh $957,000 and has an expected useful life of five years. Ghosh expects the residual value at December 31, 2027, will be $301, 000. Negotiations led to the lessee guaranteeing a $341, 000 residual value. Equal payments under the finance/sales - type lease are $201,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Karrier is aware that Ghosh used a 4% interest rate when calculating lease payments.
On January 1, 2021, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2025, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value.Equal payments under the finance/sales-type lease are $400,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Dynamic is aware that Central used a 5% interest rate when calculating lease payments. (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.) 1. Prepare the appropriate journal entries for both Dynamic and Central on January 1, 2021, to record the lease.2. Prepare all appropriate journal entries for both Dynamic and Central…
On January 1, 2021, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2025, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value. Equal payments under the finance/sales-type lease are due on December 31 of each year with the first payment being made on December 31, 2021. Dynamic is aware that Central used a 5% interest rate when calculating lease payments.What is the amount that the lessee will record as Right-of-use-Asset and Lease Liability ?
Canada M. manufactures special equipment with an estimated economic life of 12 years and leases it to Phranka for a period of 10 years commencing January 1, 2021. The unguaranteed residual value at the end of the lease term is estimated to be $15,000. Phranka will make annual payments of $25,000 at the beginning of each year and pay for all maintenance and insurance costs. Canada M. incurred costs of $105,000 in manufacturing the equipment but is looking to make a profit on the sale of equipment. In addition, Phranka incurred $7000 in costs tied to negotiating and closing the lease. Canada M. has determined that the collectability of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Phranka has a borrowing rate of 8%. How should Canada M. classify this lease transaction? a. Classify as an operating lease. b. Classify as a capital, sales type lease. c. Classify as a capital, direct finance type lease.…