Baker Corp (lessee) and Able Corp (lessor) execute a 10-year lease of a building with the following
Question:
Baker Corp (lessee) and Able Corp (lessor) execute a 10-year lease of a building with the following terms on January 1, 2019: • The lease commencement date is February 1, 2019. • Baker Corp must pay Able Corp the first monthly rental payment of $15,000 upon execution of the lease. • Able Corp will pay Baker Corp $50,000 as a cash incentive to enter into the lease payable upon lease execution. • Baker Corp incurred $2,000 of initial direct costs, which are payable on February 1, 2019. • Baker Corp calculated the initial lease liability as the present value of the remaining unpaid lease payments discounted using its incremental borrowing rate because the rate implicit in the lease could not be readily determined; • The initial lease liability is $1,100,000.
Required: How Should Baker Corp measure and record this lease?
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