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 $302,915 and has an expected useful life of six years. Its normal sales price is $302,915. The lessee-guaranteed residual value at December 31, 2022, is $17,000. Equal payments under the lease are $80,000 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 7%. Both companies use straight-line depreciation. (Use appropriate factor(s) from the tables provided.)
Required:
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 $1,200.
Lease amortization schedule | ||||||||
Date |
Lease payment |
Interest expense |
Decrease in lease payable |
Lease payable |
||||
a |
b=(Lease payable * 7%) |
c=a-b | d=prev. balance-c | |||||
Dec 31,2018 | 302915 | |||||||
Dec 31,2018 | 80000 | 0 * | 80000 | 222915 | ||||
Dec 31,2019 | 80000 | 15604 | 64396 | 158519 | ||||
Dec 31,2020 | 80000 | 11096 | 68904 | 89615 | ||||
Dec 31,2021 | 80000 | 6273 | 73727 | 15888 | ||||
Dec 31,2022 | 17000 | 1112 | 15888 | 0 | ||||
* Since payment made at the inception of lease, no interest expense | ||||||||
Residual value=$ 17000 | ||||||||
5 | Western soya co. (Lessee) | |||||||
Date | General Journal | Debit | Credit | |||||
Dec 31,2019 | Interest expense | 15604 | ||||||
Lease payable | 64396 | |||||||
Cash | 80000 | |||||||
(Second lease payment made) | ||||||||
Depreciation expense | (Note:1) | 71479 | ||||||
Accumulated depreciation | 71479 | |||||||
(Depreciation recorded) | ||||||||
Rhone metro (Lessor) | ||||||||
Date | General Journal | Debit | Credit | |||||
Dec 31,2019 | Cash | 80000 | ||||||
Lease receivable | 64396 | |||||||
Interest revenue | 15604 | |||||||
(second lease payment received) | ||||||||
Note:1 | ||||||||
Depreciation under straight line method=(Cost-residual value)/Useful life of the asset | ||||||||
Here, useful life of asset=Lease term=4 years | ||||||||
Depreciation under straight line method=(302915-17000)/4=$ 71479 | ||||||||
6 | Western soya co. (Lessee) | |||||||
Date | General Journal | Debit | Credit | |||||
Dec 31,2022 | Depreciation expense | (Note:1) | 71479 | |||||
Accumulated depreciation | 71479 | |||||||
(Depreciation recorded) | ||||||||
Interest expense | 1112 | |||||||
Lease payable | 15888 | |||||||
Accumulated depreciation | (71479*4) | 285915 | ||||||
Loss on residual value | (17000-1200) | 15800 | ||||||
Leased equipment | 302915 | |||||||
Cash | (17000-1200) | 15800 | ||||||
(Lease account closed) | ||||||||
Rhone metro (Lessor) | ||||||||
Date | General Journal | Debit | Credit | |||||
Dec 31,2022 | Equipment | (Actual residual value) | 1200 | |||||
Cash | (17000-1200) | 15800 | ||||||
Lease receivable | 15888 | |||||||
Interest revenue | 1112 | |||||||
(Lease account closed) | ||||||||
On December 31, 2018, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period...
Rhone-Metro Industries manufactures equipment that is sold or
leased. On December 31, 2021, Rhone-Metro 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 $250,000 to manufacture and has an
expected useful life of six years. Its normal sales price is
$294,546. The expected residual value of $17,000 at December 31,
2025, is not guaranteed. Equal payments under the lease...
Rhone-Metro Industries manufactures equipment that is sold or
leased. On December 31, 2021, Rhone-Metro 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 $250,000 to manufacture and has an
expected useful life of six years. Its normal sales price is
$294,546. The expected residual value of $17,000 at December 31,
2025, is not guaranteed. Equal payments under the lease...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2013, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2017, 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, 2017, is not guaranteed. Equal payments under the lease...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2021, Rhone-Metro 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 $520,000 to manufacture and has an expected useful life of six years. Its normal sales price is $586,259. The expected residual value of $30,000 at December 31, 2025, is not guaranteed. Equal payments under the lease...
5.
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro 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 $820,000 to manufacture and has an expected useful life of six years. Its normal sales price is $875,879. The expected residual value of $40,000 at December 31, 2022, is not guaranteed. Equal payments under the...
I ONLY NEED HELP WITH PARTS 5 & 6, THANK
YOU
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 $580,000 to manufacture and has an
expected useful life of six years. Its normal sales price is
$628,656. The expected residual value of $40,000 at...
(Note: Problems 21, 22, and 23 are three variations of the same basic situation.) 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 $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, 2022, is $25,000. Equal payments under...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31,2009, Rhone-Metro leased equipment to Western Soya Co. for a four-year periodending Decemeber 31, 2013, at which time possession of the leased asset will revert back to Rhone-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 31,2013, is not guaranteed. Equalpayments under the lease are $104,000 (including $4,000 executory...
On December 31, 2021, Newton LeaseCorp. leased equipment to Worcester Construction for a four-year period ending December 31, 2025, at which time possession of the leased asset will revert back to Newton LeaseCorp. The equipment cost Newton LeaseCorp. $347,516 and has an expected useful life of six years. Its normal sales price is $347,516. The lessee-guaranteed residual value at December 31, 2025, is $17,000. Equal payments under the lease are $95,000 and are due on December 31 of each year....
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $829,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2021, will be $105,000. Negotiations led to the lessee guaranteeing a $150,000 residual value. Equal payments under the lease are $205,000 and are due on December...