Consider each of the following scenarios and express an opinion about the proper treatment of the transactions. Support your conclusions with Topic 842 in the Codification and provide appropriate citations.

Butler Enterprises enters into an agreement with Hart Industries to lease warehouses with a current market value of $350,000. The space is currently occupied by another tenant who has been reluctant to leave. As a condition of the lease contract between Butler and Hart, Butler agrees to pay the current tenant $5,000 to vacate the property. Butler Enterprises agrees to make lease payments of $40,000 at the beginning of each year for the 5-year term of the lease. The lease does not contain a bargain purchase option and the warehouse space is not specialized. It is expected that the remaining useful life of the warehouse is 25 years. Butler Enterprises recently entered into a similar term loan at a rate of 7%.

a. How should Butler treat the $5,000 incentive payment to the current tenant? (Please be sure to provide a citation for your answer.)

b. Should Butler classify this as an operating or finance lease? (Where do you find the guidelines for classification in the codification?)

c. On the date that the lease commences, what is the amount of the right-of-use asset and the lease liability (before making the first $40,000 payment)?

d. At the end of the first year, what is the journal entry to record the lease expense and amortization of the right-of-use asset?