On December 31, 2006, Procus Corporation entered into a three-year sales-type lease with its…

On December 31, 2006, Procus Corporation entered into a three-year sales-type lease with its 90%-owned subsidiary, Stoffer Company, for equipment having an economic life of six years, no residual value, and a cost in Procus’s Inventories ledger account of $32,000. The lease required Stoffer to pay Procus $20,000 on December 31, 2006, 2007, and 2008, and $5,000 (a bargain purchase option) on December 31, 2009. Procus’s implicit interest rate (known to Stoffer and less than Stoffer’s incremental borrowing rate) was 7%, and Stoffer uses the straight-line method of depreciation. The present value of the minimum lease payments was $60,242.


a. Set up three-column ledger accounts for Procus Corporation’s Intercompany Lease Receivables, Unearned Intercompany Interest Revenue, and Intercompany Interest Revenue ledger accounts and for Stoffer Company’s Leased Equipment—Capital Lease, Intercompany Liability under Capital Lease, and Intercompany Interest Expense accounts; record in the accounts all transactions and events related to the leased property for the six years ended December 31, 2012. (Round all amounts to the nearest dollar; disregard income taxes.)

b. Prepare working paper eliminations (in journal entry format) for Procus Corporation and subsidiary on December 31, 2006, and December 31, 2007. (Disregard income taxes.)

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