Your data for problem #$6$:

$-$ It$$s a $4$ year lease

$-$ With the following lease payments at the end of each year:

Year $1-$ $$15,500$

Year $2-$ $$20,500$

Year $3$ $$25,500$

Year $4-$ $$30,500$

It has a discount rate of $7\%,$ yielding a present value of $$76,475$

This problem deals with the proper accounting procedures to be used when dealing with an operating lease vs a finance $($capital$)$ lease. Both have an effect on the income statement, but they differ in the effect.

To answer your $$a$$ questions $($which assumes this is an operating lease$),$ use the left side of the exhibit above and the paragraph provided below to answer your questions.

Looking on page $522$ of the text book under the paragraph titled $($Income Statement Effect$)$:

$$Both operating and finance leases call for presenting a $$right$-$of$-$use$$ asset on the balance sheet. THE ASSET$$S INITIAL VALUE IS EQUAL TO THE PRESENT VALUE OF THE LEASE PAYMENTS $($this value is provided to you in the context of the problem$).$ A lease liability EQUAL TO THE $$RIGHT$-$OF$-$USE$$ ASSET VALUE IS ALSO RECORDED. Operating Leases require the lessee to record a series of identical lease expense deductions during each year of the lease. For example $,$ if a lease calls for $$100,000$ in total over five years, the lease expense is $$20,000($$$100,000/5)$ per year. This is true even when actual lease payments vary from year to year $($as is the case in this problem$).$ In contrast $$ under a finance lease, no lease expense is recorded. Instead, straight$-$line amortization expense is recorded on the $$right$-$of$-$use$$ asset. Also, the lessee records interest expense based on any remaining outstanding lease liability.

Questions a$-1,$ a$-2,$and a$-3$ : The answers can be determined by reading the paragraph above.

Question a$-4$ and a$-5$: Check out the exhibit above $($left side$)$

Questions b$-1$ and b$-2$ : Again $$ the answers can be determined reading the paragraph above.

Question b$-3$: check out the exhibit or paragraph above $($the answer is in both$).$

Question b$-4$ and b$-5$: read the last $3$ sentences in the paragraph above. For b$-4$ use the discount rate provided. For b$-5($use straight $$ line amortization on the $$right of use$$ value.

QUESTIONS:

a$-1$: If the lease is an operating lease, what will be the initial value of the right$-$of$-$use asset?

a$-2$: If the lease is an operating lease, what will be the initial value of the lease liability?

a$-3$: If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year $1?$

a$-4$: If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year $1?$

a$-5$: If the lease is an operating lease, what will be the amortization expense shown on the income statement at the end of year $1?$

b$-1$: If the lease is a finance lease, what will be the initial value of the right$-$of$-$use asset?

b$-2$: If the lease is a finance lease, what will be the initial value of the lease liability?

b$-3$: If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year $1?$

b$-4$: If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year $1?$

b$-5$: If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year $1?$