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 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.

Answer rating: 100% (QA)

a The lease described is a finance lease as it meets the criteria for a finance lease under IFRS 16 ... View the full answer