BrazilCos Restaurant Lease On 1/1/X1, Prestos Brazilian subsidiary, BrazilCo, leases a vacant restaurant in Brasilia for a 5-year term with fixed payments amounting to the equivalent of $100,000 USD per year in year 1, $150,000 in years 2 and 3, and $200,000 in years 4 and 5. BrazilCos incremental borrowing rate is 6%. Assume the restaurants useful life is 20 years. Please answer the following questions:

(a) Describe the classification of this lease on BrazilCos subsidiary-level financial statements.

(b). Show how this lease would be initially reported on the balance sheet, and show how the lease would flow through the income statement on 12/31/X1 and 12/31/X2 in BrazilCos subsidiary-level financial statements.

(c). Next, identify differences in this reporting compared to U.S. GAAP, as Presto will need to reconcile this report- ing to GAAP for its consolidated financial statements.