Required:

Make the elimination entries to eliminate the intracompany lease. (don’t do one big entry, separate them. Again, you are not doing a large, consolidated worksheet, just make the journal entries for the leases.)

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On January 1, 2011, Pelzer purchased equipment for $385,000 and immediately leased it to Selvin, one of its subsidiaries. The terms of the lease are for six years, annual payments of $85,895 are due January 1st with an implied interest rate of 9%. The equipment automatically becomes the property of Selvin at the end of the lease, the equipment has a useful life of seven years with no salvage value. The net present value of the payments is $420,000 and the first payment was made at the time of the signing. Below is an amortization schedule for the lease payments: Payment/Date Cash interest Expense $85,895 1/January 2011 December 31, 2011 2/January 2012 December 31, 2012 3/January 2013 December 31, 2013 4/January 2014 December 31, 2014 $85,895 $85,895 $85,895 $85,895 Minimum Lease Receivable Unearned Interest Interest Revenue $30,069 Equipment under Capital Lease A/D-Equip under Capital Lease Obligation under Capital Lease $25,045 $19,569 $13,599 5/January 2015 December 31, 2015 6/January 2016 $85,895 $-0- You are doing the consolidation at the end of YEAR 3, December 31, 2013. The following balances appear on the two companies' respective financial statements: $ 7,092 Obligation balance $334,105 Parent $257,685 $ 20,687 $ 19,569 $278,279 $217,429 $151,103 $ 78,807 Sub $420,000 (180,000) $217,429 Interest Payable $ 19,569 Interest Expense $ 19,569 Depreciation Expense - Equipment under Capital Lease $ 60,000 Make the journal entries to eliminate the intercompany lease (don't do one big entry, separate them) On January 1, 2011, Pelzer purchased equipment for $385,000 and immediately leased it to Selvin, one of its subsidiaries. The terms of the lease are for six years, annual payments of $85,895 are due January 1st with an implied interest rate of 9%. The equipment automatically becomes the property of Selvin at the end of the lease, the equipment has a useful life of seven years with no salvage value. The net present value of the payments is $420,000 and the first payment was made at the time of the signing. Below is an amortization schedule for the lease payments: Payment/Date Cash interest Expense $85,895 1/January 2011 December 31, 2011 2/January 2012 December 31, 2012 3/January 2013 December 31, 2013 4/January 2014 December 31, 2014 $85,895 $85,895 $85,895 $85,895 Minimum Lease Receivable Unearned Interest Interest Revenue $30,069 Equipment under Capital Lease A/D-Equip under Capital Lease Obligation under Capital Lease $25,045 $19,569 $13,599 5/January 2015 December 31, 2015 6/January 2016 $85,895 $-0- You are doing the consolidation at the end of YEAR 3, December 31, 2013. The following balances appear on the two companies' respective financial statements: $ 7,092 Obligation balance $334,105 Parent $257,685 $ 20,687 $ 19,569 $278,279 $217,429 $151,103 $ 78,807 Sub $420,000 (180,000) $217,429 Interest Payable $ 19,569 Interest Expense $ 19,569 Depreciation Expense - Equipment under Capital Lease $ 60,000 Make the journal entries to eliminate the intercompany lease (don't do one big entry, separate them)