At the beginning of the year, Bob Christian signed a lease for commercial kitchen equipment to use in his new diner, Bobs Diner. Bob decided to lease after learning that buying the equipment would cost him $134,400. Generally, commercial kitchen equipment should last approximately 10 years. Bobs lease commits him to make annual payments of $18,200 for ten years. Since Bob is tight on cash, he was able to negotiate that the lease payments will not be due until the end of each year of the lease. The implicit rate of interest is 6 percent.

1. What is the present value of the lease? Round answer to the nearest whole number. $Answer

2. Should the lease be categorized as an operating or a finance lease? AnswerFinance leaseOperating lease

3. How much would Bob recognize as interest expense in the first year if the lease is categorized as a finance lease? What is the reduction of the lease liability in the first year in that case? Round answers to the nearest whole number.

Interest expense for first year	Answer
Reduction of lease liability	Answer

4. What would the lease expense be in the first year if the lease is categorized as an operating lease? Round answer to the nearest whole number. $Answer