On January 1, 2018, 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:

1. Ten annual payments of $70,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026.
2. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $411,834.
3. The lease qualifies as a finance lease/sales-type lease.
4. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $7,000 per year are specified, beginning January 1, 2018. NRC was to pay this cost as incurred, but lease payments reflect this expenditure.
5. A partial amortization schedule, appropriate for both the lessee and lessor, follows:

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

• 01/01/2018: Record lease by lessee.
• 01/01/2018: Record the cash payment.
• 12/31/2018: Record the cash payment.
• 12/31/2018: Record the amortization of Right-of-use asset.

2. Prepare the appropriate entries for the lessor related to the lease on January 1, 2018 and December 31, 2018.

• 01/01/2018: Record lease by lessor (include maintenance fee accrual).
• 01/01/2018: Record the cash received (include maintenance fee accrual).
• 12/31/2018: Record cash received by lessor.

Decrease in Outstanding Effective Interest Balance Balance Payments (118 Outstanding balance) 411,834 63,000 24,628 27,337 1/1/2018 63,000 348,834 0.11 (348,834) 0.11 (324,206) 12/31/2018 12/31/2019 38,372 35,663 63,000 63,000 324,206 296,869