On January 1, 2021, 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 the following:a. Ten annual payments of $55,000 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 $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, 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:

Required:Prepare the appropriate entries for both the lessee and lessor related to the lease on the following dates:1. January 1, 20212. December 31, 2021

Transcribed Image Text:

Decrease in Balance Outstanding Balance Payments Effective Interest (12% x Outstanding balance) 316,412 1/1/2021 50,000 50,000 266,412 0.12 (266,412) = 31,969 0.12 (248,381) = 29,806 12/31/2021 12/31/2022 50,000 18,031 248,381 50,000 20,194 228,187