Reference no: EM131795676

Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2013, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2017, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $750,000 to manufacture and has an expected useful life of six years. Its normal sales price is $826,899. The expected residual value of $30,000 at December 31, 2017, is not guaranteed. Equal payments under the lease are $228,000 (including $3,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2013. Collectibility of the remaining lease payments is reasonably assured, and Rhone-Metro has no material cost uncertainties. Western Soya's incremental borrowing rate is 10%. Western Soya knows the interest rate implicit in the lease payments is 8%. Both companies use straight-line depreciation. (FV of $1 PV of $1 FVA of $1 PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

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Show how Rhone-Metro calculated the $228,000 annual lease payments