Chap015 - Student Name: Instructor Class: McGraw-Hill/Irwin...

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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 RHONE-METRO INDUSTRIES Annual Lease Payments Requirement 1: Lessor's Calculation of Lease Payments Amount to be recovered (fair value) $365,760 Less: Present value of the guaranteed residual value (17,075) Amount to be recovered through periodic lease payments $348,685 Lease payment at the beginning of each of four years $100,000 Correct! Requirement 2: Present Value of Minimum Lease Payments Present value of periodic Lease payments $348,685 Plus: Present value of the lessee-guaranteed residual value 17,075 Present value of minimum lease payments $365,760 Correct! (a) By Western Soya Co. (the lessee) Since at least one criterion is met, this is a capital lease to the lessee. Western Soya records the present value of minimum lease payments as a leased asset and a lease liability. (b) By Rhone-Metro (the lessor) Since the fair value equals the lessor's carrying value, there is no dealer's profit, making this a direct financing lease. Requirement 3: Journal entries on December 31, 2011 General Journal Account Debit Credit Western Soya Co. (Lessee) Leased equipment 365,760 Lease payable 365,760 «- Correct! Lease payable 100,000 Cash 100,000 «- Correct! Rhone-Metro (Lessor) Lease receivable 365,760 Inventory of equipment 365,760 «- Correct! Cash 100,000 Lease receivable 100,000 «- Correct!
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 Requirement 4: Lease Amortization Schedule Effective Dec. Interest Decrease Outstanding 31 Payments 10% in Balance Balance 2011 365,760 2011 100,000 100,000 265,760 2012 100,000 26,576 73,424 192,336 2013 100,000 19,234 80,766 111,570 2014 100,000 11,157 88,843 22,727 2015 25,000 2,273 22,727 - 425,000 59,240 365,760 Correct! Correct! Correct! Requirement 5: Journal entries on December 31, 2012 General Journal Account Debit Credit Western Soya Co. (Lessee) Interest expense 26,576 Lease payable 73,424 Cash 100,000 «- Correct! Depreciation expense 85,190 Accumulated depreciation 85,190 «- Correct! Rhone-Metro (Lessor) Cash 100,000 «- Correct! Lease receivable 73,424 Interest revenue 26,576 Requirement 6: Journal entries on December 31, 2015 General Journal Account Debit Credit Western Soya Co. (Lessee) Depreciation expense 85,190 Accumulated depreciation 85,190 «- Correct! Interest expense 2,273 Lease payable 22,727 Accumulated depreciation 340,760 Loss on residual value guarantee 23,500 Leased equipment 365,760
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 Cash 23,500 «- Correct! Rhone-Metro (Lessor) Inventory of equipment 1,500 Cash 23,500 Lease receivable 22,727 Interest revenue 2,273 «- Correct!
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Given Data P15-08: RHONE-METRO INDUSTRIES Lease length 4 years Equipment cost $365,760 Expected useful life 6 years Lessee-guaranteed residual value $25,000 Lease payments $100,000 Incremental borrowing rate 12% Implicit interest rate 10%
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-09 RHONE-METRO INDUSTRIES
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This note was uploaded on 12/02/2010 for the course ACCT 211 taught by Professor Frech during the Spring '10 term at Benedictine IL.

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Chap015 - Student Name: Instructor Class: McGraw-Hill/Irwin...

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