Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.

Question

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000 and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

a.

The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years.

b.

The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years.

c.

The aircraft would be recorded as an asset with a cost of $8,756,000.

d.

The aircraft would be recorded as an asset with a cost of $9,129,000.

a.

The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years.

b.

The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years.

c.

The aircraft would be recorded as an asset with a cost of $8,756,000.

d.

The aircraft would be recorded as an asset with a cost of $9,129,000.

Explanation / Answer

AS THE LEASE TER COVER MORE THAN 75% OF THE LIFE OF THE ASET THE LEASE CAN BE CLASSIFIED AS THE CAPITAL LEASE OR FINANCE LEASE.

SO THE ACCUSITION SHOULBE RECORDED AS PRESENT VALUE OF ALL LEASE PAYMENT,

= ANNUAL LEASE PAYMENT * PVIFA 9%,18YEARS

= $1000000 * 8.756

= $8756000

SO SHUTTLE MASTER AIRLINE SHOULD RECORD $8756000 AS AN ASSET.

ANSWER OPTION C

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.