Problem 21A-1 a-c

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee.

Commencement date January 1, 2017 Annual lease payment due at the beginning of each year, beginning with January 1, 2017 $96,097 Residual value of equipment at end of lease term, guaranteed by the lessee $52,000 Expected residual value of equipment at end of lease term $47,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2017 $565,000 Lessors implicit rate 4 % Lessees incremental borrowing rate 4 %

The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

LEASE LIABILITY WAS CALCULATED TO BE $527,855 AND WAS MARKED CORRECT

Questions:

Suppose Splish received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $

What if Splish prepaid rent of $5,000 to Faldo? Right-of-use asset $