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 Obligation balance 1/January 2011 $85,895 $334,105 December 31, 2011 $30,069

2/January 2012 $85,895 $278,279 December 31, 2012 $25,045

3/January 2013 $85,895 $217,429 December 31, 2013 $19,569 4/January 2014 $85,895 $151,103 December 31, 2014 $13,599

5/January 2015 $85,895 $78,807 December 31, 2015 $7,092

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: Parent Sub Minimum Lease Receivable $257,685 Unearned Interest $20,687 Interest Revenue $19,569 Equipment under Capital Lease $420,000 A/D Equip under Capital Lease (180,000) Obligation under Capital Lease $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 inter company lease (dont do one big entry, separate them. Again, you are not doing a large, consolidated worksheet, just make the journal entries for the leases.)