Problem $15-21$ On December $31,2021,$ Rhone$-$ Metro

Industries 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 Rhone Metro $$365,760$ and has an expected

useful life of $6$ years. Its normal sales price is $$365,760.$ The

Lessee guaranteed residual value at December $31,2025$ is

$$25,000.$ Equal payments under the lease are $$100,000$ and are

due on December $31$ of each year. The first payment was made

on December $31,2021.$ 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.

Required:

Show how Rhone$-$ Metro calculated the $$100,000$ annual

lease payments.

How should this lease be classified $($a$)$ by Western Soya

Co$.($the lessee$)$ and $($b$)$ by Rhone$-$Metro Industries $($the

lessor$)?$ Why?

Prepare the appropriate entries for both Western Soya Co$.$

and Rhone Metro on December $31,2021.$

Prepare an amortization schedule$($s$)$ describing the pattern

of interest over the lease term for the lessee and the lessor.

Prepare all appropriate entries for both Western Soya and

Rhone$-$Metro on December $31,2022[$ the second lease

payment and amortization$]$

Prepare the appropriate entries for both Western Soya and

Rhone$-$Metro on December $31,2025,$ assuming the

equipment is returned to Rhone$-$Metro and the actual

residual value on that date is $$1,500.$