Johnson Company owns 75 percent of the voting shares of Hall Leasing Corporation. On January 1. 20X3, Hall Leasing Corporation purchased a fleet of small delivery trucks with an expected economic life of six years and no anticipated residual value. Hall Leasing Corporation leased the trucks to Chech Corporation for two years and on January 1, 20X5, leased the fleet to Johnson Company. The vehicles had a remaining estimated economic life of four years at the time they were leased to Johnson Company. Both Johnson Company and Hall Leasing record depreciation on a straight-line basis.

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Give the eliminating entries needed to remove the effects of the intercorporate lease in preparing the consolidated financial statements for 20X5 in each of the following situations:

a. Assume Hall purchased the trucks for \(\$ 220,000\) and leases them to Johnson under an operating lease at an annual rental of \(\$ 175,000\).

b. Assume Hall purchased the trucks for \(\$ 696,000\) and leases them to Johnson for their remaining four-year life under a direct financing lease. An annual payment of \(\$ 146,400\) is made at the end of each year. The lease with Johnson provides approximately a 10 percent return on the unrecovered investment balance.

c. Assume Hall purchased the trucks for \(\$ 600,000\) and leases them to Johnson for their remaining four-year life on a sales-type lease. An annual payment of \(\$ 146,400\) is made at the end of each year. The present value of the lease payments on January 1, 20X5, using a 10 percent discount rate was approximately \(\$ 464,000\).