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Branif Leasing leases mechanical equipment to industrialconsumers under sales-type leases that earn Branif a 10% rate ofreturn for providing long-term financing. A lease agreement withBranson Construction specified 20 annual payments beginningDecember 31, 2018, the beginning of the lease. The estimated usefullife of the leased equipment is 20 years with no residual value.Its cost to Branif was $936,492. The lease qualifies as a financelease to Branson. Maintenance of the equipment was contracted forthrough a 20-year service agreement with Midway Service Companyrequiring 20 annual payments of $3,000 beginning December 31, 2018.Progressive Insurance Company charges Branif $3,000 annually forhazard insurance coverage on the equipment. Both companies usestraightline depreciation or amortization. (FV of $1, PV of $1, FVAof $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.)

Required:

Prepare the appropriate entries for both the lessee and lessorto record the second lease payment and depreciation on December 31,2019, under each of three independent assumptions:

1. The lessee pays maintenance costs asincurred. The lessor pays insurance premiums as incurred. The leaseagreement requires annual payments of $100,000.
2. The contract specifies that the lessor paysmaintenance costs as incurred. The lessee’s lease payments wereincreased to $103,000 to include an amount sufficient to reimbursethese costs.
3. The lessee’s lease payments of $103,000included $3,000 for hazard insurance on the equipment rather thanmaintenance.