Lessor accounting-direct-financing lease.

E Leasing purchased a machine for $500,000 and leased it to IGA, Inc. on January 1, 2011.

Lease Description:

1. Quarterly rental payments: 32,629- Begining of each period

2. Lease term: 5 years (20 quarters)

3. No residual value: no BBP

4. Economic Life of machine 5 years

5. Implicit interest rate and lessee's incremental borrowing rate 12%

6. Fair Valu of Asset: $500,000

Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required:

Prepare appropriate entries for both IGA and E Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year.