Problem $15-22($Algo$)$ Purchase option reasonably certain to be exercised before lease term ends; nonlease payments; sales$-$type lease $[$LO$15-3,15-6,15-7]$

Rhone$-$Metro Industries manufactures equipment that is sold or leased. On December $31,2024,$ Rhone$-$Metro leased equipment to Western Soya Company 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 $\backslash (\backslash$$ $320,000\backslash )$ to manufacture and has an expected useful life of six years.

$-$ Its normal sales price is $\backslash (\backslash$$ $391,229\backslash ).$

$-$ The expected residual value of $\backslash (\backslash$$ $16,000\backslash )$ on December $31,2028,$ is not guaranteed.

$-$ Western Soya Company is reasonably certain to exercise a purchase option on December $30,2027,$ at an option price of $\backslash (\backslash$$ $8,000\backslash ).$

$-$ Equal payments under the lease are $\backslash (\backslash$$ $141,000\backslash )($including $\backslash (\backslash$$ $4,000\backslash )$ 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 $\backslash (10\backslash \%\backslash ).$

$-$ Western Soya knows the interest rate implicit in the lease payments is $7\backslash \%.$ 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$).]$

Note: Use tables, Excel, or a financial calculator. $($FV of $\backslash$$$1,$ PV of $\backslash$$$1,$ FVA of $\backslash$$$1,$ PVA of $\backslash$$$1,$ FVAD of $\backslash$$$1$ and PVAD of $\backslash$$$1)$

Required:

$1.$ Show how Rhone$-$Metro calculated the $\backslash (\backslash$$ $141,000\backslash )$ annual lease payments.

$2.$ How should this lease be classified $($a$)$ by Western Soya Company $($the lessee$)$ and $($b$)$ by Rhone$-$Metro Industries $($the lessor$)?$

$3.$ Prepare the appropriate entries for both Western Soya Company and Rhone$-$Metro on December $31,2024.$

$4.$ Prepare an amortization schedule$($s$)$ describing the pattern of interest over the lease term for the lessee and the lessor.

$5.$ Prepare the appropriate entries for both Western Soya and Rhone$-$Metro on December $31,2025($the second rent payment and amortization$).$

$6.$ Prepare the appropriate entries for both Western Soya and Rhone$-$Metro on December $30,2027,$ assuming the purchase option is exercised on that date. Journal entry worksheet

Record lease in the books of lessee.

Note: Enter debits before credits. Show how Rhone$-$Metro calculated the $\backslash (\backslash$$ $141,000\backslash )$ annual lease payments.

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

Record lease in the books of lessee.

Note: Enter debits before credits. Journal entry worksheet

$1$

$2$

Record lease in the books of lessor.

Note: Enter debits before credits.

Required $4$

Required $5$

Requir Lessee Lessor Lessee Lessor Lessee

Prepare an amortization schedule$($s$)$ describing the pattern of interest over the lease term for Note: Round your intermediate and final answers to nearest whole dollar. Enter all amounts as