Companies use straight-line depreciation

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Reference no: EM13322245

On December 31, 2013, Rhone-Metro Industries 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 Rhone-Metro $672,747 and has an expected useful life of six years. Its normal sales price is $672,747. The lessee-guaranteed residual value at December 31, 2017, is $15,000. Equal payments under the lease are $190,000 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 12%. Western Soya knows the interest rate implicit in the lease payments is 10%. Both companies use straight-line depreciation

Reference no: EM13322245

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