Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 8

Operating lease, entries, and eliminations. Grande Machinery Company purchased, for cash, a $60,000 custom machine on January 1, 2011. The machine has an estimated 5-year life and will be straight-line depreciated with no salvage value. The machine was then leased to Sunshine Engineering Company, an 80%-owned subsidiary, under a 5-year operating lease for $15,000 per year, payable each January.
1. Record the 2011 entries for the purchase of the machine and the lease to Sunshine Engineering Company on the books of Grande Machinery Company.
2. Record the 2011 entries for the transaction on the books of Sunshine Engineering Company.
3. Provide the elimination entries that would be made on the 2011 consolidated worksheet.