he following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Ivanhoe Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $118,626 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $641,000 Lessors implicit rate 7 % Lessees incremental borrowing rate 7 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

Suppose Ivanhoe received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset 636000 Lease Liability 641000 What if Ivanhoe prepaid rent of $5,000 to Faldo? Right-of-use asset 646000 Lease Liability 641000