Farewell Inc. leases equipment to its customers under noncancelable leases. On January 1, 2011, Farewell leased equipment costing $400,000 to Norman Co., for nine years. The rental cost was $44,000 payable in advance semiannually (January 1 and July 1), plus $2,000 semiannually for executory costs. The equipment had an estimated life of 15 years and sold for $533,025 with an estimated unguaranteed residual value of $80,000. The implicit interest rate is 12 percent.
Prepare all journal entries for 2011 on Farewell's and Norman's books. Round all calculations to the nearest dollar. Use straight-line depreciation.

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The Answer of Farewell Inc. leases equipment to its customers under noncancelable leases. On January 1, 2011, Farewell leased equipment costing $400,000 to Norman Co., for nine years. The rental cost was $44,000 payable in advance semiannually (January 1 and July 1), plus $2,000 semiannually for executory costs. The equipment had an estimated life of 15 years and sold for $533,025 with an estimated unguaranteed residual value of $80,000. The implicit interest rate is 12 percent.
Prepare all journal entries for 2011 on Farewell's and Norman's books. Round all calculations to the nearest dollar. Use straight-line depreciation.