Flanigans Company leases a building to Wellington, Inc. on January 1, 2020. The following facts pertain to the lease agreement.1. The lease term is 6 years, with equal annual rental payments of $7,652 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a2. specialized nature.3. The building has a fair value of $42,000, a book value to Flanigans of $37,000, and a useful life of 7 years.4. At the end of the lease term, Flanigans and Wellington expect there to be an unguaranteed residual value of $3,000.5. Flanigans wants to earn a return of 6% on the lease, and collectibility of the payments is probable. Wellington was unaware of the implicit rate used in the lease by Flanigans and has an incremental borrowing rate of 8%.

Lease Liability/Right-of-Use Asset