Smart Corporation is a 90%-owned subsidiary of Phan Inc.On January 2 20X6 Smart

Smart Corporation is a 90%-owned subsidiary of Phan Inc.On January 2 20X6 Smart agreed to lease $400000 of constructionequipment from Phan for $3000 a month on an operating lease. Theequipment has a 10-year life and is being depreciated using thestraight-line method.Phan Inc. and Smart Corp. Trial Balance For the Year Ended December31 20X8Phan SmartEquipment 987000 40000Accumulated Depr Equipment (212500) (8000)Equipment Under Operating Lease 400000Accumulated Depr Operating Lease (120000)Rent Receivable 3000Rent Payable (3000)Rental Income 50000Rent Expense 36000Depreciation Expense 138700 2000Required: Prepare the eliminations and adjustments required by theintercompany lease. Key and explain all eliminations andadjustments.