Question

On January 1, 2021, 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 the following:

1. Ten annual payments of $64,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029.
2. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $392,223.
3. The lease qualifies as a finance lease/sales-type lease.
4. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $4,000 per year are specified, beginning January 1, 2021. NRC was to pay this cost as incurred, but lease payments reflect this expenditure.
5. 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.)

	Payments	Effective Interest	Decrease in Balance	Outstanding Balance
		(11% × Outstanding balance)
				392,223
1/1/2021	60,000		60,000	332,223
12/31/2021	60,000	0.11 (332,223) = 36,545	23,455	308,768
12/31/2022	60,000	0.11 (308,768) = 33,964	26,036	282,732

Required:
1. Prepare the appropriate entries for the lessee related to the lease on January 1, 2021 and December 31, 2021.
2. Prepare the appropriate entries for the lessor related to the lease on January 1, 2021 and December 31, 2021.

Answer 1

Answer page.com Required O appropriate entries for the lesee related january 1, goal and December 31, 2011, to the lease on Date accounts title and explanation Debitch) | credit 14). jon-1,2021| Right-of-use. Asset_ 399,123 - teose_trability pon. -1,2021. lease liability | 60,000 392923 I cash 60,000 DCC-31, 2021l lease lia 23455 interest expense (0.11 X 339023) 36545 cosh ( 23455+ 36545) 60,000 DEC 31,2021.-Amortization Expense ( 10 3929& Right -04-lese --Asset (to record amortization) 39222

page: oa @ appropriate entries for the lesson related to the lease on january 1, 2041 and December 31, 2001 Date Accounts Title and explanation Debit 1 credit fan 12021 lease receivable $ 600,000 Sales revenue 600,000 fan 1, 2021 cash 60,000 Ilease receivable $60,000 Dec 31, 200 cash * 60,000 lease receivable (to record cash received) $60,000