How should this lease be classified by western soya

Assignment Help Financial Accounting
Reference no: EM13140903

Unguaranteed residual value; executory costs; sales-type lease LO6 LO8 LO9

Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2011, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2015, 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 at December 31, 2015, is not guaranteed. Equal payments under the lease are $104,000 (including $4,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2011. Collectibility of the remaining lease payments is reasonably assured, and Rhone-Metro has no material cost uncertainties. 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.

Required:

1. Show how Rhone-Metro calculated the $104,000 annual lease payments.

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

3. Prepare the appropriate entries for both Western Soya Co. and Rhone-Metro on December 31, 2011.

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, 2012 (the second lease payment and depreciation).

6. Prepare the appropriate entries for both Western Soya and Rhone-Metro on December 31, 2015, assuming the equipment is returned to Rhone-Metro and the actual residual value on that date is $1,500.

Reference no: EM13140903

Questions Cloud

Explain transformer having a single secondary winding : A full-wave bridge rectifier circuit with a 1-kohms load operates from a 120-V (rms) 60-Hz household supply through a 10-to-1 step-down transformer having a single secondary winding
Calculate the ph : Calculate the pH of the following aqueus solution: 0.61 M NH4Cl (pKb for NH3=4.74)
Gain or loss of the transaction : A bond issued with a face value of 200000 and a carrying amount of 195500 is paid off at 98 1/2 and retired. The gain or loss on this transaction is:
Sheldon''s annual sale : Sheldon's Annual sale also came to the attention of the Auckland Law Library in New Zealand which had for some years been seeking a Persian print version of the Code of Hammurabi. Therefore, with the aid of several donors, it sought to secure the sta..
How should this lease be classified by western soya : 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, 2011.
Determining amount of fixed manufacturing overhead : Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used. Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is u..
How many grams of oxygen are needed : when ethane (C2H6) is burned, how many grams of oxygen are needed to react with 477 grams of ethane?
What is the molarity of the h3po4 solution : A 26.0mL sample of phosphoric acid (H3PO4) is neutralized by 32.7mL of 2.46M NaOH. A) Balance the equation: NaOH + H3PO4 ? Na3PO4 + H2O B) What is the molarity of the H3PO4 solution?
The relationship between the charging current : A battery is charged. The relationship between the charging current, i amperes and the time, t hours passed, is given by the formula:

Reviews

Write a Review

 

Financial Accounting Questions & Answers

  Preparing an income statement for forgetful company

Determine each of the following ratios using the "unadjusted" data as provided in column "F". For additional practice, recompute the ratios using the data you generate for the other columns.

  Evaluate optimal capital structure

Which of the following statements best describes the optimal capital structure and Which of the following SHOULD NOT influence a firm's dividend policy decision

  How much would its accounts receivable decline

How much would its accounts receivable decline and what cash flow from sales is expected in March

  Advantages of activity-based costing

What are three advantages of activity-based costing over traditional volume-based allocation methods and which of the following manufacturing costs are assigned to products

  Illustrate what does arnold record as the cost of new truck

The truck's annual license is $120. The truck undergoes safety testing for $220. Illustrate what does Arnold record as the cost of the new truck?

  Elucidate how liability and related accounts appear

Provide the journal entry that Master should make on December 31, 2003 assuming the effective interest method. Elucidate how the bond liability and the related accounts will appear on the Balance Sheet of Master on December 31, 2003.

  What could be the expected operating income per week

What could be the expected Operating Income per week? When both machines are working how many of each unit should OSC produce?

  Explain how is the computation for personal taxable income

Explain how is the computation for personal taxable income different from this income statement concept? Why do you think these differences exist?

  Determine the partnership''s adjusted basis

Evaluate the Daniel's adjusted tax basis for his partnership interest instantly after the partnership is formed? Determine the partnership's adjusted basis for the property contributed by Daniel?

  Find the immediate dilution potential

Find the immediate dilution potential for this new stock issue and Should the new issue be undertaken based on earnings per share?

  Illustrate at what amount would the purchase on february

Assuming that Castro uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method. Illustrate at what amount would the purchase on February 1 be recorded if the net method were use..

  How you report equipment that cost with accumulated

how you report equipment that cost $27,000 with accumulated depreciation ot $25,000 sold at a gain of $10,600 on a indirect cash flows statement?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd