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On January 1, Year1 Finale Trucking Company leased a semitractor and trailer for five years. Annual payments of $26588 are to be made every December 31, beginning December 31, Year1. Total cash paid for the lease is 26588 x 5 or 132940. Interest expense is based on a rate of 6%. The present value of the lease payments is 112000. Finale does not yet know if this is an operating lease or a finance lease. Answer these question based on logic- without doing a complete amortization table. 1. Assume this is a financing lease. A. What is the initial right-of-use asset and lease liability at the inception of the lease. B. How much total interest expense will Finale record over the 5 years? C. How much total amortization expense (on the ROU asset) will Finale record over the 5 years? D. How much total expense will Finale record with respect to this lease over the 5 years? 2. Assume this is an operating lease. A. What is the initial right-of-use asset and lease liability at the inception of the lease. B. How much total interest expense will Finale record over the 5 years? C. How much total amortization expense (on the ROU asset) will Finale record over the 5 years? D. How much total expense will Finale record with respect to this lease over the 5 years? Please review the feedback carefully for this one.

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