1.Riley, LLC, (lessee) entered into a 5-year operating lease on January

1, Year 1. Annual lease payments of $40,000 are due on December 31 each year. Initial direct costs related to the lease incurred by Riley are $20,000. The rate implicit in the lease is 8%. The present value of an ordinary annuity at 8% for 5 years is 3.9927.
What is the annual lease expense for Riley, LLC?
$35,942
$40,000
$31,942
$44,000

2.Summer, Inc., (lessee) entered into an 8-year operating lease on January 1, Year 1. Annual lease payments begin December 31, Year 1. They are $55,000 for Years 1-7 with a final payment in Year 8 of $100,000. The rate implicit in the lease of 8% is known to Summer.
The present value of 1 at 8% for 8 years is 0.540.
The present value of an ordinary annuity at 8% for 8 years is 5.747.

What is the amortization amount of the right-of-use asset in Year 1 for Summer, Inc.? $33,394
$60,625
$27,231
$27,769

3.A lease is classified as a finance lease because it contains a purchase option that the lessee is reasonably certain to exercise. Over what period of time should the lessee amortize the right-of-use asset?
The lease term or the economic life of the asset, whichever is shorter.
The economic life of the asset, not to exceed 40 years.
The economic life of the asset.
The term of the lease.