1. Lincoln Co. leased equipment from Julio Co. on December 31, 2017. The lease is a 10 year lease with annual payments of $150,000 due on December 31 of each year beginning December 31, 2017. The present value of the lease is $1,020,000. Lincoln's incremental borrowing rate is 12% for this type of lease. The lessor's implicit rate of 10% is known by the lessee. What should be the balance in Lincoln's lease liability at December 31, 2018? a. $824,400 b. $807,000 C. $806,400 d. $792,000 2. ABC Company leased equipment to Best Company under a lease agreement that qualifies as a financing lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is 5 years. The asset is expected to have a residual value of $2,000 at ble end of 10 years. Using the straight line method, what would Best record as annual depreciation? a. $23,600 b. $12,200 C. $12,000 d. $11,800 3. Costs incurred by the lessor that are associated directly with originating a lease and are essential to acquire that lease are called initial direct costs. Initial direct costs are expensed at the inception of the lease in: An operating lease b. Any type of lease A double financing lease A sales type lease a. d