On 1/1/21, Prestos Brazilian subsidiary, BrazilCo, leases a vacant restaurant in Brasilia for a 5-year term with fixed payments amounting to the equivalent of $100,000 USD per year in year 1, $150,000 in years 2 and 3, and $200,000 in years 4 and 5. BrazilCos incremental borrowing rate is 6%. Assume the restaurants useful life is 20 years.

1. Describe the classification of this lease on BrazilCos subsidiary-level financial statements.
2. Show how this lease would be initially reported on the balance sheet and show how the lease would flow through the income statement on 12/31/2021 and 13/31/2022 in BrazilCos subsidiary-level financial statements.
3. Next, identify differences in this reporting compared to U.S. GAAP, as Presto will need to reconcile this reporting to GAAP for its consolidated financial statements.