Penn Company leased a production machine to its 80%-owned subsidiary, Smith Company. The lease agreement, dated January 1, 2011, requires Smith to pay $18,000 each January 1 for three years. There is an unguaranteed residual value of $5,000. The machine cost $50,098. The present value of the machine at Penn€™s 16% implicit interest rate was $50,098 on January 1, 2011. Smith also uses the 16% lessor implicit rate to record the lease. The machine is being depreciated over three years on a straight-line basis with a $5,000 salvage value. Lease payment amortization schedules are as follows:

Required
1. Prepare the eliminations and adjustments required for this lease on the December 31, 2011, consolidated worksheet.
2. Prepare the eliminations and adjustments for the December 31, 2012, consolidated worksheet.

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Penn Interest at 1 6% on Previous Balance Reduction of Princi Principal Balance Date Payment Jan. 1, 2011 Jan. 1, 2011 Jan. 1, 2012 Jan. 1, 2013 Jan. 1, 2014 $18,000 18,000 18,000 5,000 $59,000 $5,136 3,077 689 $8,902 $18,000 12,864 14,923 4,311 $50,098 32,098 19,234 4,311 Totals $50,098 mi Interest at 16% on Previous Balance Reduction of Principal Principal Balance Date ment Jan. 1, 2011 Jan. 1, 2011 Jan. 1, 2012 Jan. 1, 2013 $18,000 18,000 18,000 $54,000 $4,623 2,483 $7,106 $18,000 13,377 15,517 $46,894 $46,894 28,894 15,517 Totals