70.2K

Verified Solution

Link Copied!

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: a. Ten annual payments of $73,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029 b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $421,640. 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 $8,500 per year are specified, beginning January 1 2021. 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 S1. PVA of S1 FVAD of S1 and PVAD of S1 (Use appropriate factor(s) from the tables provided.) outstanding Payments Effective Interest Balance (11% * Outstanding balance) 421,640 1/1/2021 64,500 357,140 12/11/2021 64,500 0.11 (357,140) - 39,285 25,215 1,500 0.11 (331,925) - 36,512 27,988 303,917 Decrease in Balance 64,500 12/01/2022 331,925 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 & Explanation Solved by verified expert

See Answer