On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type 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 beginning January 1, 2018, 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 $316,412.
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:

Required:
Prepare the appropriate entries for both the lessee and lessor related to the lease on:
1. January 1, 2018
2. December 31, 2018?

Transcribed Image Text:

Outstanding Balance se in Payments Effective Interest Balance (12% x Outstanding balance) 50,000 12/31/2018 50,000 0.12 (266,412) 31,969 18,031 12/31/2019 50,000 0.12 (248,381)- 29,806 20,194 316,412 266,412 248,381 228,187 1/1/2018 50,000