How the lease would flow through the income statement

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Question - BrazilCo's Restaurant Lease 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 reporting to GAAP for its consolidated financial statements.

Reference no: EM132438321

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