On January 1, 2011, NRC Credit Corporation leased equipment to Brand Services under a direct financing lease

Question:

On January 1, 2011, NRC Credit Corporation leased equipment to Brand Services under a direct financing lease designed to earn NRC a 12% rate of return for providing long-term financing. The lease agreement specified:

a. Ten annual payments of $55,000 (including executory costs) beginning January 1, 2011, the inception of the lease and each December 31 thereafter through 2019.

b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $316,412.

c. The lease qualifies as a capital lease to Brand.

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, 2011. NRC was to pay this executory cost as incurred, but lease payments reflect this expenditure.

e. A partial amortization schedule, appropriate for both the lessee and lessor, follows:


On January 1, 2011, NRC Credit Corporation leased equipment to


Required:
Prepare the appropriate entries for both the lessee and lessor to record:
1. The lease at its inception.
2. The second lease payment and depreciation (straight line) on December 31,2011.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 978-0077400163

6th edition

Authors: J. David Spiceland, James Sepe, Mark Nelson

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