Assume that on January $1,2025,$ Elmer's Restaurants sells a computer system to Sunland Finance Co$.$ for $$620,000$ and immediately leases back the computer system. The relevant information is as follows.

The computer was carried on Elmer's books at a value of $$540,000.$

The term of the non$-$cancelable lease is $3$ years; title will not transfer to Elmer's, and the expected residual value at the end of the lease is $$390,000,$ all of which is unguaranteed.

The lease agreement requires equal rental payments of $$112,790$ at the beginning of each year.

The incremental borrowing rate for Elmer's is $8\%.$ Elmer's is aware that Sunland Finance set the annual rental to ensure a rate of return of $8\%.$

The computer has a fair value of $$620,000$ on January $1,2025,$ and an estimated economic life of $10$ years.

Prepare the journal entries for both the lessee and the lessor for $2025$ to record the sale and leaseback agreement. $($For calculation purposes, use $5$ decimal places as displayed in the factor table provided and round answers to $0$ decimal places, es$.5,275.$ List all debit entries before credit entries. Credit account titles are autonatically indented when amount is entered. Do not indent manually. If no entry is required, select $"$No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.$)$

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Date Account Titles and Explanation

ler's Restaurants $($Lessee$)$

H$/125,$ Y

Cesh

Gain on Dlsposal of Equlpment

Debit

Credit

$($To record sale of equipment$)$