On 1/1/X1, Presto's 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. BrazilCo's incremental borrowing rate is 6%. Assume the

restaurant's useful life is 20 years.

a. Describe the classification of this lease on BrazilCo's subsidiary-level financial statements.

b. 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/X1 and 12/31/X2 in BrazilCo's subsidiary-level financial statements.

c. Next, identify differences in this reporting compared to U.S. GAAP, as Presto will need to reconcile this report-

ing to GAAP for its consolidated financial statements.