On January 1, Year 2015, a lessee enters into an eight-year asset finance lease with an option to extend for four years, which the lessee is unlikely to exercise. Initial lease payments are $35,000 per year for the first eight years (with payments on January 1 each year, beginning in Year 2015 and then $40,000 if the lease is extended. Initial direct costs

incurred by the lessee are $12,000. The interest rate implicit in the lease is 4.5 percent, and the lessee's incremental borrowing rate is 5.0 percent.On January 1, Year 2015, a lessee enters into an eight-year asset finance lease with an option to extend for four years, which the lessee is unlikely to exercise. Initial lease payments are $35,000 per year for the first eight years (with payments on January 1 each year, beginning in Year 2015 and then $40,000 if the lease is extended. Initial direct costs

incurred by the lessee are $12,000. The interest rate implicit in the lease is 4.5 percent, and the lessee's incremental borrowing rate is 5.0 percent.

Required: Calculate interest expense, the amortization of the liability, the amortization of the asset (assuming straight-line), and total lease expense for Year 2016. (When the first lease payment of $35,000 is made January 1, Year 2015, the lease liability is immediately reduced from $241,245 to $206,245.)