A 10-year service agreement with quality maintenance

Assignment Help Accounting Basics

Reference no: EM13482530

On January 1, 2013, 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, 2013, the inception of the lease and each December 31 thereafter through 2021.
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, 2013. 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:

	Payments	Effective Interest	Decrease in Balance	Outstanding Balance
(12% × Outstanding balance)
				316,412
1/1/13	50,000		50,000	266,412
12/31/13	50,000	.12 (266,412) = 31,969	18,031	248,381
12/31/14	50,000	.12 (248,381) = 29,806	20,194	228,187

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 on December 31, 2013.

Reference no: EM13482530

Questions Cloud

Prepare the adjusting entries at march 31 assuming that : the ledger of piper rental agency on march 31 of the current year includes the following selected accounts before

The payments are 20500 the first year and increase by 800 : on january 1 2013 sweetwater furniture company leased office space under a 21-year operating lease agreement. the

What are the advantages and disadvantages of setting a : spruce enterprises operates a chain of lumber stores. in 2008 corporate management examined industry-level data

You compare the cancelled checks with the entries in the : the malamura company deposits all receipts in the bank and makes all payments by check. on november 30 its cash account

A 10-year service agreement with quality maintenance : on january 1 2013 nrc credit corporation leased equipment to brand services under a direct financing lease designed to

Assuming that the books have not been closed what are the : a partial trial balance of julie hartsack corporation is as follows on december 312008.dr. cr.supplies on hand

Indicate with reasons what the level of production and the : zimmerman manufacturing limited produces and sells one product a three foot canadian flag. during 20x6 the

Being a marketing manager of a pharmaceutical company at : being a marketing manager of a pharmaceutical company at domestic scale list down the core competencies of your firm

Calculate i ending inventory ii cost of goods sold iii : you have the following information for company xyz for themonth ended june 30 2007. company xyz uses a periodic method

User Account

All Pages