Lease Accounting $($ASC $842$ and IFRS $16)$

On January Year $1,$ Zelman entered a contract to lease equipment from ABC Inc.

for two years and will make an annual lease payment $$20,000$ at the end of each

year of the lease. Zelman's borrowing rate is $8\%.$ The present value of the lease

payment is $$35,666($$$20,\frac{000}{1\mathrm{.}08}+$$$20,\frac{000}{1\mathrm{.}082})$

a$)$ Prepare the journal entries for the lease liability at the beginning of Year $1$

under $(1)$ U$.$S$.$ GAAP and $(2)$ IFRS.

b$)$ Prepare the journal entries for the expenses that Zelman recognizes for

the lease in Year $1$ under $(1)$ U$.$S$.$ GAAP and $(2)$ IFRS.

c$)$ Assume that Zelman classifies interest paid as a financing flow in its

statement of cash flows. Discuss the lease's impact on the operating cash

flow under $(1)$ U$.$S$.$ GAAP and $(2)$ IFRS.