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

Commencement date		January 1,
Annual lease payment due at the beginning of each year, beginning with January 1,		$126,840
Residual value of equipment at end of lease term, guaranteed by the lessee		$55,000
Expected residual value of equipment at end of lease term		$50,000
Lease term		6	years
Economic life of leased equipment		6	years
Fair value of asset at January 1,		$653,000
Lessors implicit rate		9	%
Lessees incremental borrowing rate		9	%

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.

Suppose Sandhill 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
Lease Liability

What if Sandhill prepaid rent of $5,000 to Faldo?

Right-of-use asset
Lease Liability

Right-of-use asset		$enter a dollar amount
Lease Liability		$enter a dollar amount