The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Larkspur Company, a lessee. January 1, 2017 $119,345 Commencement date Annual lease payment due at the beginning of each year, beginning with January 1, 2017 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2017 Lessor's implicit rate Lessee's incremental borrowing rate $50,000 $45,000 6 years 6 years $642,000 7 % 7 % 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 Larkspur 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 Larkspur prepaid rent of $5,000 to Faldo? Right-of-use asset $