Assume that on January 1, 2017, Elmer's Restaurants sells a computer system to Pharoah Finance Co. for $780,000 and immediately leases the computer system back. The relevant information is as follows 1. The computer was carried on Elmer's books at a value of $700,000 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 $550,000, all of which is unguaranteed The lease agreement requires equal rental payments of $115,490 at the beginning of each year The incremental borrowing rate for Elmer is 5%. Elmer is aware that Pharoah Finance Co. set the annual rental to insure a 2. 3. 4. rate of return of 5% 5. The computer has a fair value of $780,000 on January 1, 2017, and an estimated economic life of 10 years Prepare the journal entries for both the lessee and the lessor for 2017 to reflect 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, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually.) er iew Date Account Titles and Explanation Debit Credit Elmer's Restaurants (Lessee) Cash 780000 Gain on Sale of Equipment 80000 Equipment 700000 (To record sale of equipment) Right-of-Use Asset 330233 Lease Liability 330233 (To record the lease) Lease Liability 115490 Cash 115490 (To record lease liability) 12/31/17 Lease Expense 115490 Lease Liability Right-of-Use Asset