P15-22 Purchase option reasonably certain to be exercised before lease term ends; nonlease payments; sales-type lease LO15-3, LO15-6, LO15-7 Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2024, Rhone-Metro leased equipment to Western Soya Co. 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 $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 on December 31, 2028, is not guaranteed. Western Soya Co. is reasonably certain to exercise a purchase option on December 30, 2027, at an option price of $10,000. Equal payments under the lease are $134,960 (including $4,000 annual 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 12%. Western Soya knows the interest rate implicit in the lease payments is 10%. 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).]