Problem $15-21($Algo$)$ Unguaranteed residual value; nonlease payments; sales$-$type lease $[$LO$15-2,15-6,15-7]$

Rhone$-$Metro Industries manufactures equipment that is sold or leased. On December $31,2024,$ Rhone$-$Metro leased equipment to Westem 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 $$370,000$ to manufacture and has an expected useful life of six years.

Its normal sales price is $$402,611.$

The expected residual value of $$20,000$ on December $31,2028,$ is not guaranteed.

Equal payments under the lease are $$115,000($including $$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 $11\%.$

Western Soya knows the interest rate implicit in the lease payments is $9\%.$

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:

Show how Rhone$-$Metro calculated the $$115,000$ annual lease payments.

How should this lease be classified $($a$)$ by Westem Soya Company $($the lessee$)$ and $($b$)$ by Rhone$-$Metro Industries $($the lessor$)?$

Prepare the appropriate entries for both Western Soya Company and Rhone$-$Metro on December $31,2024.$

Prepare an amortization schedule$($s$)$ describing the pattern of interest over the lease term for the lessee and the lessor.

Prepare the appropriate entries for both Western Soya and Rhone$-$Metro on December $31,2025($the second lease payment and amortization$).$

Prepare the appropriate entries for both Western Soya and Rhone$-$Metro on December $31,2028,$ assuming the equipment is returned to Rhone$-$Metro and the actual residual value on that date is $$1,200.$

Complete this question by entering your answers in the tabs below.

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Show how Rhone$-$Metro calculated the $$115,000$ annual lease payments.

Note: Round your intermediate and final answers to nearest whole dollar.