Crest Industries leased store furnishings from Santa Fe Leasing on January 1 of the current year. Santa Fe had purchased the furnishings from Steelman Enterprises for $700,000.

Other information:

Lease term	5 years
Annual Payments	$173,381 at the beginning of each year
Life of Asset	5 years
Fair value of Asset	$700,000
Implicit annual interest rate	12%
Incremental rate	12%

There is no expected residual value or bargain purchase option. Assume that depreciation expense is computed at December 31 of each year.

Required:

1. Prepare the appropriate entries for Santa Fe Leasing through the second payment of the lease.
2. Prepare the appropriate entries for Crest Industries through the second payment of the lease.