Question

Exercise 15-31 Nonlease payments; lessor and lessee (LO15-2, 15-7] On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified: a. Ten annual payments of $66,000 beginning January 1, 2016, 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 $398,760. 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 $5,000 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. FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Decrease in Balance Outstanding Balance Payments Effective Interest (11% Outstanding balance) 1/1/2018 12/31/2018 12/31/2019 61.ees 61.888 61,000 0.11 (337,760) = 37.154 .11 (313.914) = 34.531 61,080 23, 846 26.469 398,760 337,760 313,914 287, 445 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. Required 1 Required 2 Prepare the appropriate entries for the lessee related to the lease on January 1, 2018 and December 31, 2018. (Round your intermediate and final answers to the nearest whole dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record lease by lessee.

Answer 1

1. In the books of Lessee:

Date	Explanation	Debit	Credit
1/1/2018	Lease Equipment	$ 398,760.00
	Lease Payable		$           398,760.00
	(To record lease by lesse)
1/1/2018	Lease Payable	$   61,000.00
	Maintenance Expense	$     5,000.00
	Cash		$             66,000.00
	(To record cash payment)
31/12/18	Interest Expense	$   37,154.00
	Lease Payable	$   23,846.00
	Prepaid Maintenance	$     5,000.00
	Cash		$             66,000.00
	(To record cash payment)
31/12/18	Depreciation Expense	$   39,876.00
	Accumulated Depreciation		$             39,876.00
	(To record amortization)

2. In the books of Lessor:

Date	Explanation	Debit	Credit
1/1/2018	Lease Receivable	$ 398,760.00
	Inventory of equipment		$           398,760.00
	(To record lease by lessor)
1/1/2018	Cash	$   66,000.00
	Maintenance fee payable		$               5,000.00
	Lease receivable		$             61,000.00
	(To record cash received by lessor)
31/12/18	Cash	$   66,000.00
	Lease receivable		$             23,846.00
	Maintenance fee payable		$               5,000.00
	Interest Revenue		$             37,154.00
	(To record cash received by lessor)