Question

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 December 31, 2020, is not guaranteed. Equal payments under the lease are $174,000 (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 11%. Western Soya knows the interest rate implicit in the lease payments is 9%. Both companies use straight-line depreciation. (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.)

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Answer 1

Lessee Western Soya Co Lessor Rhone -Metro Calculation of Lease Liability Calculation of Depreciation (SLM 6 y Lease Rental | PVF @ 11% | PV of Lease Year Balance atiClosing bal 31-Dec-16 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 4000 4000 2018 2019 2020 2021 2022 580000 90000 490000 90000 400000 90000 310000 310000 102933 207067 207067 102933 104133 104133 102933 90000 400000 0.9009 170000 0.81162 170000 0.73119 137975 124302 Lease Liabilty/ROA to be recorded 200 Residual Value 578800 Total Depreciation e Bal Interest 589430 415430 291127 153151 Date Instalment Closing bal Notes: Depreclation for Year 2017-2019 174000415430 291127 153151 31-Dec-16 31-Dec-18 31-Dec-19 45697 32024 16849 After that (310000-1200)/3 ciation Schedule (Right to Use Asset) (SL Balance Closing bal 2017 2018 2019 589430 442073 294715 147358 147358 147358 147358 147358 442073 294715 147358 Entries In The Book of lessee Date 31-12-2017Le Liability Entries In The Book of lessor Date Amount Amount Amount Dr 124303 31-12-2017 Bank A/c Dr 170000 Interest on Lease Lib Dr To, Bank A/c 45697 To, Lease Rent 170000 (Being Lease liab paid and interest charged) (Being rent received.) 31-12-2017 Amortisation of RtUA Dr 147358 31-12-2017 Depreciation Dr To, Right to Use Asset (Being 147358 To, Leased Asset (Being Dep charged on leased asset) RtUA a 31-12-2017 P& La/c Dr 193055 31-12-2017 Lease Rent 170000 to, Interest on Lease Lib to, Amortisation ofRtUA (Being Expenses trf to P&L) 45697 147358 P& Lafc To, Depreciation 90000 (Being Expenses trf to P&L) 31-12-2020 Amortisation of RtUA Dr 147358 31-12-2020 Depreciation Dr 102933 To, Right to Use Asset (Being RtUA amortised) To, Leased Asset (Being Dep charged on leased asset) 147358 102933 31-12-2020 P& La/c Dr 147358 31-12-2020O P& La/c Dr 170000 To, Amortisation ofRtUA (Being Expenses trf to P&L) To, D (Being Expenses trf to P&L) 147358 102933