# On December 31, 2018, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period...

###### Question:

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. TABLE 2 Present Value of$1 PV = $1. n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 0.0% 10.0% 11.0% 12.0% 20.0% 1 0.99010 0.98522 0.98039 0.97561 0.97087 0.96618 0.96154 0.95694 0.95238 0.94787 0.94340 0.93458 2 0.98030 0.97066 0.96117 0.95181 0.94260 0.93351 0.92456 0.91573 0.90703 0.89845 0.89000 0.87344 3 0.97059 0.95632 0.94232 0.92860 0.91514 0.90194 0.88900 0.87630 0.86384 0.85161 0.83962 0.81630 4 0.96098 0.94218 0.92385 0.90595 0.88849 0.87144 0.85480 0.83856 0.82270 0.80722 0.79209 0.76290 5 0.95147 0.92826 0.90573 0.88385 0.86261 0.84197 0.82193 0.80245 0.78353 0.76513 0.74726 0.71299 0.92593 0.85734 0.79383 0.73503 0.68058 0.91743 0.909090.90090 0.89286 0.84168 0.82645 0.81162 0.79719 0.77218 0.75131 0.73119 0.71178 0.70843 0.68301 0.65873 0.63552 0.64993 0.62092 0.59345 0.56743 0.83333 0.69444 0.57870 0.48225 0.40188 6 0.94205 0.91454 0.88797 0.86230 0.83748 0.81350 0.79031 0.76790 0.74622 0.72525 0.70496 0.66634 7 0.93272 0.90103 0.87056 0.84127 0.81309 0.78599 0.75992 0.73483 0.71068 0.68744 0.66506 0.62275 8 0.92348 0.88771 0.85349 0.82075 0.78941 0.75941 0.73069 0.70319 0.67684 0.65160 0.62741 0.58201 9 0.91434 0.87459 0.83676 0.80073 0.76642 0.73373 0.70259 0.67290 0.64461 0.61763 0.59190 0.54393 10 0.90529 0.86167 0.82035 0.78120 0.74409 0.70892 0.67556 0.64393 0.61391 0.58543 0.55839 0.50835 0.63017 0.58349 0.54027 0.50025 0.46319 0.59627 0.56447 0.54703 0.51316 0.50187 0.46651 0.46043 0.42410 0.42241 0.38554 0.53464 0.48166 0.43393 0.39092 0.35218 0.50663 0.45235 0.40388 0.36061 0.32197 0.33490 0.27908 0.23257 0.19381 0.16151 11 0.89632 0.84893 0.80426 0.76214 0.72242 0.68495 0.64958 0.61620 0.58468 0.55491 0.52679 0.47509 12 0.88745 0.83639 0.78849 0.74356 0.70138 0.66178 0.62460 0.58966 0.55684 0.52598 0.49697 0.44401 13 0.87866 0.82403 0.77303 0.72542 0.68095 0.63940 0.60057 0.56427 0.53032 0.49856 0.46884 0.41496 14 0.86996 0.81185 0.75788 0.70773 0.66112 0.61778 0.57748 0.53997 0.50507 0.47257 0.44230 0.38782 15 0.86135 0.79985 0.74301 0.69047 0.64186 0.59689 0.55526 0.51672 0.48102 0.44793 0.41727 0.36245 0.42888 0.39711 0.36770 0.34046 0.31524 0.38753 0.35049 0.35553 0.31863 0.32618 0.28966 0.29925 0.26333 0.27454 0.23939 0.31728 0.28584 0.25751 0.23199 0.20900 0.28748 0.25668 0.22917 0.20462 0.18270 0.13459 0.11216 0.09346 0.07789 0.06491 16 0.85282 0.78803 0.72845 0.67362 0.62317 0.57671 0.53391 0.49447 0.45811 0.42458 0.39365 17 0.84438 0.77639 0.71416 0.65720 0.60502 0.55720 0.51337 0.47318 0.43630 0.40245 0.37136 18 0.83602 0.76491 0.70016 0.64117 0.58739 0.53836 0.49363 0.45280 0.41552 0.38147 0.35034 19 0.82774 0.75361 0.68643 0.62553 0.57029 0.52016 0.47464 0.43330 0.39573 0.36158 0.33051 20 0.81954 0.74247 0.67297 0.61027 0.55368 0.50257 0.45639 0.41464 0.37689 0.34273 0.31180 0.33873 0.31657 0.29586 0.27651 0.25842 0.29189 0.27027 0.25025 0.23171 0.21455 0.25187 0.21763 0.23107 0.19784 0.21199 0.17986 0.19449 0.16351 0.17843 0.14864 0.18829 0.16312 0.16963 0.14564 0.15282 0.13004 0.13768 0.11611 0.12403 0.10367 0.05409 0.04507 0.03756 0.03130 0.02608 21 0.81143 0.73150 0.65978 0.59539 0.53755 0.48557 0.43883 0.39679 0.35894 0.32486 0.29416 0.24151 24 0.78757 0.69954 0.62172 0.55288 0.49193 0.43796 0.39012 0.34770 0.31007 0.27666 0.24698 0.19715 25 0.77977 0.68921 0.60953 0.53939 0.47761 0.42315 0.37512 0.33273 0.29530 0.26223 0.233000.18425 28 0.75684 0.65910 0.57437 0.50088 0.43708 0.38165 0.33348 0.29157 0.25509 0.22332 0.19563 0.15040 29 0.74934 0.64936 0.56311 0.48866 0.42435 0.36875 0.32065 0.27902 0.24295 0.21168 0.18456 0.14056 0.19866 0.15770 0.14602 0.11591 0.10733 0.16370 0.13513 0.12640 0.10153 0.11597 0.09230 0.08955 0.06934 0.08215 0.06304 0.11174 0.08170 0.07361 0.05382 0.04849 0.09256 0.06588 0.05882 0.04187 0.03738 0.02174 0.01258 0.01048 0.00607 0.00506 30 0.74192 0.63976 0.55207 0.47674 0.41199 0.35628 0.30832 0.26700 0.23138 0.20064 0.17411 0.13137 31 0.73458 0.63031 0.54125 0.46511 0.39999 0.34423 0.29646 0.25550 0.22036 0.19018 0.16425 0.12277 40 0.67165 0.55126 0.45289 0.37243 0.30656 0.25257 0.20829 0.17193 0.14205 0.11746 0.09722 0.06678 0.09938 0.07537 0.09202 0.06915 0.04603 0.03184 0.05731 0.05210 0.02209 0.04368 0.03338 0.03935 0.02980 0.01538 0.01075 0.00421 0.00351 0.00068 TABLE 6 Present Value of an Annuity Due of$1 PVAD ={ 19+ if]*(1 + i) 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 20.0% n/i 1 2 3 4 5 1.0% 1.00000 1.99010 2.97040 3.94099 4.90197 1.5% 1.00000 1.98522 2.95588 3.91220 4.85438 2.0% 1.00000 1.98039 2.94156 3.88388 4.80773 2.5% 1.00000 1.97561 2.92742 3.85602 4.76197 3.0% 1.00000 1.97087 2.91347 3.82861 4.71710 3.5% 1.00000 1.96618 2.89969 3.80164 4.67308 4.0% 1.00000 1.96154 2.88609 3.77509 4.62990 4.5% 1.00000 1.95694 2.87267 3.74896 4.58753 1.00000 1.95238 2.85941 3.72325 4.54595 1.00000 1.94787 2.84632 3.69793 4.50515 1.00000 1.94340 2.83339 3.67301 4.46511 1.00000 1.00000 1.00000 1.93458 1.92593 1.91743 2.808022.78326 2.75911 3.62432 3.57710 3.53129 4.38721 4.312134.23972 1.00000 1.00000 1.00000 1.00000 1.90909 1.90090 1.89286 1.83333 2.73554 2.71252 2.69005 2.52778 3.48685 3.44371 3.40183 3.10648 4.16987 4.10245 4.03735 3.58873 6 7 8 9 10 5.85343 6.79548 7.72819 8.65168 9.56602 5.78264 5.71346 5.64583 6.69719 6.60143 6.50813 7.59821 7.471997.34939 8.48593 8.32548 8.17014 9.36052 9.16224 8.97087 5.57971 6.41719 7.23028 8.01969 8.78611 5.51505 6.32855 7.11454 7.87396 8.60769 5.45182 6.24214 7.00205 7.73274 8.43533 5.38998 5.32948 6.15787 6.07569 6.89270 6.78637 7.595897.46321 8.26879 8.10782 5.27028 5.99553 6.68297 7.33457 7.95220 5.21236 5.10020 4.99271 4.88965 5.91732 5.76654 5.62288 5.48592 6.58238 6.389296.20637 6.03295 7.20979 6.97130 6.74664 6.53482 7.80169 7.51523 7.24689 6.99525 4.79079 4.69590 4.60478 3.99061 5.35526 5.23054 5.11141 4.32551 5.86842 5.71220 5.56376 4.60459 6.33493 6.14612 5.96764 4.83716 6.75902 6.53705 6.32825 5.03097 11 10.47130 10.22218 9.98259 9.75206 9.53020 9.31661 9.11090 8.91272 8.72173 8.537638.360098.02358 12 11.36763 11.07112 10.78685 10.51421 10.25262 10.00155 9.76048 9.52892 9.30641 9.09254 8.88687 8.49867 13 12.25508 11.90751 11.57534 11.25776 10.95400 10.66333 10.38507 10.11858 9.86325 9.61852 9.38384 8.94269 14 13.13374 12.73153 12.34837 11.98318 11.63496 11.30274 10.98565 10.68285 10.39357 10.11708 9.85268 9.35765 15 14.00370 13.54338 13.10625 12.69091 12.29607 11.92052 11.56312 11.22283 10.89864 10.58965 10.29498 9.74547 7.71008 8.13896 8.53608 8.90378 9.24424 7.41766 7.80519 8.16073 8.48690 8.78615 7.14457 6.88923 6.65022 5.19247 7.49506 7.20652 6.93770 5.32706 7.81369 7.49236 7.19437 5.43922 8.10336 7.74987 7.42355 5.53268 8.36669 7.98187 7.62817 5.61057 16 14.86505 14.34323 13.84926 13.38138 12.93794 12.51741 12.11839 11.73955 11.37966 11.03758 10.71225 10.10791 9.55948 17 15.71787 15.13126 14.57771 14.05500 13.56110 13.09412 12.65230 12.23402 11.83777 11.46216 11.10590 10.44665 9.85137 18 16.56225 15.90765 15.29187 14.71220 14.16612 13.65132 13.16567 12.70719 12.27407 11.86461 11.47726 10.76322 10.12164 19 17.39827 16.67256 15.99203 15.35336 14.75351 14.18968 13.65930 13.15999 12.68959 12.24607 11.82760 11.05909 10.37189 20 18.22601 17.42617 16.67846 15.97889 15.32380 14.70984 14.13394 13.59329 13.08532 12.60765 12.15812 11.33560 10.60360 9.060698.60608 8.19087 7.81086 5.67547 9.31256 8.82371 8.37916 7.97399 5.72956 9.54363 9.02155 8.54879 8.11963 5.77463 9.75563 9.20141 8.70162 8.24967 5.81219 9.95011 9.36492 8.83929 8.36578 5.84350 21 19.04555 18.16864 17.35143 16.58916 15.87747 15.21240 14.59033 14.00794 13.46221 12.95038 12.46992 11.59401 10.81815 10.12855 9.51356 8.96333 8.46944 5.86958 25 22.24339 21.03041 19.91393 18.88499 17.93554 17.05837 16.24696 15.49548 14.79864 14.15170 13.55036 12.46933 11.52876 10.70661 9.98474 9.34814 8.78432 5.93710 30 26.06579 24.37608 22.84438 21.45355 20.18845 19.03577 17.98371 17.02189 16.14107 15.33310 14.59072 13.27767 12.15841 11.19828 10.36961 9.65011 9.02181 5.97472 40 33.16303 30.36458 27.90259 25.73034 23.80822 22.10250 20.58448 19.22966 18.01704 16.92866 15.94907 14.26493 12.87858 11.72552 10.75696 9.93567 9.23303 5.99592
Guaranteed Residual Value Table or calculator function: PV of $1$ Amount to be recovered Less: Present value of the guaranteed residual value Amount to be recovered through periodic lease payments 7% Present Value 302,915 12,969 289,946 Lease Payments Table or calculator function: n = PVAD of $1 4 7% Lease Payments 80,000 Lease payments at the beginning of each of the next four years Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 lessee Required 3 lessor Required 4 lessor Required 4 lessee Required 5 lessee Required 5 lessor Required 6 lessee Required 6 lessor Prepare all appropriate entries for Western Soya on December 31, 2019 (the second lease payment and depreciation). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No General Journal Debit Credit 1 Date December 31, 201 Lease payable Interest expense Cash 65,304 14,696 80,000 72,487 X December 31, 201 Depreciation expense Accumulated depreciation 72,487 X Required 1 Required 2 Required 3 lessee Required 3 lessor Required 4 lessor Required 4 lessee Required 5 lessee Required 5 lessor Required 6 lessee Required 6 lessor Prepare the appropriate entries for both Western Soya on December 31, 2022 assuming the equipment is returned to Rhone- Metro and the actual residual value on that date is$1,200. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Date General Journal Debit Credit 72,487 X December 31, 202 Depreciation expense Accumulated depreciation 72,487 X December 31, 202 Depreciation expense Accumulated depreciation * ®
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