Lessee enters into a three-year lease for retail space and concludes that the agreement is an operating lease. Lessee pays initial direct costs of $3,000. The agreement provides the following:

Lease term	Three years
Annual payments, beginning at the end of year one and annually thereafter	Year 1 $20,000 Year 2 $24,000 Year 3 $28,000
Discount rate	4.235%
PV of lease payments	$66,000

• Complete the following schedule to show the impact on the income statement and balance sheet.

	Initial	Year 1	Year 2	Year 3
Cash lease payments
Income statement:
Periodic lease expense (straight line)
(Accrued) prepaid rent for period
Balance sheet:
ROU asset:
Lease liability
Adjust: accrued rent (cumulative)
Unamortized initial direct costs
Lease liability

Prepare the journal entries at the time of the lease commencement and for Year 1 of the lease term.