Exercise 21A-23 Assume that on January 1, 2017, Elmers Restaurants sells a computer system to Carla Vista Finance Co. for $880,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmers books at a value of $800,000. 2. The term of the non-cancelable lease is 3 years; title will not transfer to Elmers, and the expected residual value at the end of the lease is $650,000, all of which is unguaranteed. 3. The lease agreement requires equal rental payments of $113,090 at the beginning of each year. 4. The incremental borrowing rate for Elmer is 9%. Elmer is aware that Carla Vista Finance Co. set the annual rental to insure a rate of return of 9%. 5. The computer has a fair value of $880,000 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.)

Debit Credit Date Account Titles and Explanation Elmer's Restaurants (Lessee) (To record sale of equipment) (To record the lease) (To record lease liability) Carla Vista Finance Co. (Lessor) (To record purchase of equipment) (To record the leaseback) (To record the recognition of the revenue) (To record depreciation expense on the leased equipment)