Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. 

Required: 

For each situation, determine: a. The amount of the annual lease payments as calculated by the lessor. b. The amount the lessee would record as a right-of-use asset and a lease liability

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Situation 1 2 3 20 Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate 10 4 11% 9% 12% 12% 10% 10% Fair value of lease asset $600,000 $980,000 $185,000