Eliminations only, sales-type lease with unguaranteed residual value. Penn Company leased a production machine to its 80%-owned subsidiary, Smith Company. The lease agreement, dated January 1, 2015,...

Eliminations only, sales-type lease with unguaranteed residual value. Penn Company leased a production machine to its 80%-owned subsidiary, Smith Company. The lease agreement, dated January 1, 2015, 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, 2015. 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:

1. Prepare the eliminations and adjustments required for this lease on the December 31, 2015, consolidated worksheet.

2. Prepare the eliminations and adjustments for the December 31, 2016, consolidated worksheet.