[altosal]

Thomas Inc. agrees to lease equipment from Smith Inc. for 10 years for $50,000 at the end of the year and $10,000 per year for maintenance. The equipment has a fair value of $ 350,000 and useful life of 10 years. The lease includes a residual value of $20,000. Thomas can finance this lease for at a 12% rate. The lessor's implicit interest rate is 10%. At the end of the first year, Thomas makes a payment of $60,000. How should this payment be recorded?

Debit Obligation under capital lease 50,000
Debit Maintenance expense 10,000
Credit Cash 60,000

[altosal]

Thomas Corporation leases a building from Smith Corporation for 10 years for $50,000 and pay $10,000 for maintenance at the end of each year. The building has a fair value of $350,000 and an estimated life of 25 years. Thomas can finance this lease at a 12% rate. The lessor's implicit rate is 10%. Is the Thomas lease an operating lease because the asset reverts to the lessor or the lease value is less than 90% of the faitr value of the asset?

[Just Looking]

Thomas Inc. agrees to lease equipment from Smith Inc. for 10 years for $50,000 at the end of the year and $10,000 per year for maintenance. The equipment has a fair value of $ 350,000 and useful life of 10 years. The lease includes a residual value of $20,000. Thomas can finance this lease for at a 12% rate. The lessor's implicit interest rate is 10%. At the end of the first year, Thomas makes a payment of $60,000. How should this payment be recorded?

Debit Obligation under capital lease 50,000
Debit Maintenance expense 10,000
Credit Cash 60,000

There should be an interest expense and the obligation payment - similar to a mortgage or note payable. They don't necessarily ask about this, but there will also be a depreciation charge for the year.

[altosal]

Debit Obligation under capital lease 18,506
Debit Maintenance expense 10,000
Debit Interest Expense 31,494
Credit Cash 60,000

[Just Looking]

I'm not quite getting your numbers, but close. If you look at the present value of the lease liability (50,000 for 10 years at 10%), you get $307,250. Interest at 10% of this is 30,725 - with the balance of the 50,000 payment being a debt reduction.