Question

On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 13% rate of return for providing long-term financing. The lease agreement specified: a. Ten annual payments of $60,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026. b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $321912 c. The lease qualifies as a finance lease/sales type lease. d. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $7,500 per year are specified, beginning January 1 2018. NRC was to pay this cost as incurred, but lease payments reflect this expenditure. e. A partial amortization schedule, appropriate for both the lessee and lessor, follows: (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Decrease in Balance outstanding Payments Effective Interest (13Outstanding balance) 1/1/2018 52,500 12/31/2018 52,5ee 12/31/281952, see 321,912 269,412 251,916 232,188 52,50 17, 476 19,748 0.13 (269,412) = 35,024 0.13 (251,936) = 32,752 Required: 1. Prepare the appropriate entries for the lessee related to the lease on January 1, 2018 and December 31, 2018 2. Prepare the appropriate entries for the lessor related to the lease on January 1, 2018 and December 31, 2018, Complete this question by entering your answers in the tabs below.

Answer 1

Answer 1

	Entries for Lessee:
Date	Account Title & Explanation	Debit	Credit
2018
Jan-01	Right-of-use asset	321912
	Lease payable		321912
	(To record the lease payment)
Jan-01	Lease payable	52500
	Maintenance fee	7500
	Cash		60000
	(Payment of lease rent)
Dec-31	Interest expense	35024
	Lease payable (difference)	17476
	Maintenance Expenses	7500
	Cash (Lease payment)		60000
Dec-31	Amortization Expense	32191
	Right-of-use asset		32191
	(To record amortization expenses)

Answer 2

	Entries for Lessor:
Date (2018)	Account Title & Explanation	Debit	Credit
Jan-01	Lease receivable	321912
	Equipment		321912
	(To record the equipment on lease)
Jan-01	Cash (Lease payment)	60000
	Lease receivable		52500
	Maintenance fees payable		7500
	(To record the lease payment)
Dec-31	Cash (Lease Payment)	60000
	Maintenance fee payable		7500
	Interest revenue		35024
	Lease receivable		17476