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ASC 842 requires lessees to record nearly all leases on the balance sheet by recording a lease liability with a corresponding debit to the right-of-use, or R.O.U., asset. The lease liability is equal to the present value of the remaining lease payments. To determine this amount, we first need to determine the lease term on the commencement date. Then we determine the total lease payments over the lease term. Finally, we discount those payments back to the commencement date, using an appropriate discount rate. In this video, weamp;#39;ll focus on the discount rate. The discount rate is really important in applying ASC 842. Why? Because itamp;#39;s used to determine the lease classification, calculate the present value of the remaining lease payments, and measure a lessoramp;#39;s net investment in the lease for sales-type and direct-financing leases. But which rate should we use? The rate implicit in the lease, or the incremental borrowing rate? Lessors are required to use the rate i