.1.

2. Lessee Inc. entered into a 4-year lease agreement of equipment requiring $8,000 annual payments, with the first payment due immediately. The lease does not contain a renewal or purchase option, and the asset reverts to the lessor at the end of the four-year period. The lessees incremental borrowing rate is 7% and the implicit rate of the lease is 8%, known by the lessee. Just prior to the lease commencement, the lessee (a) incurred legal fees to execute the lease of $800, (b) received $2,500 from the lessor as a lease incentive to sign the new lease, and (c) made the first annual payment of $8,000. What is the amount of the lease liability recognized by Lessee Inc. at the commencement of the lease?

Select one:

a. $28,566

b. $28,764

c. $26,917

How would Lessee Inc. classify Lease One and Lease Two? How would Lessee Inc. classify Lease One and Lease Two