An Airline Has the Following Data About an Airplane: Annual

question 118

Multiple Choice

An airline has the following data about an airplane: Annual lease cost $8,000,000
Lease term: 8 years
Useful life of airplane: 35 years
Fair market value of leased asset: $83 million
Present value of lease payments: $78 million
Bargain purchase option: None
Transfer to lessor at end of lease? Yes
Is this a capital or operating lease? Why?

• A)This is an operating lease. It fails all of the capital lease criteria.
• B)This is a capital lease because the substance of the transaction is a capital lease.
• C)This is a capital lease because it meets at least one of the four capital lease criteria.
• D)This is a capital lease because the leased asset cost exceeds $5 million.

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Definitions:

Deadbolt Locks

A locking mechanism distinct from spring bolt lock, offering more security by requiring a key or knob to move the lock into the locked and unlocked positions.

Materials Quantity Variance

The difference between the actual and standard quantity of materials used times the standard price.

Materials Price Variance

The difference between the actual price and standard price of raw materials times the actual quantity used or purchased.

Direct Materials Price Variance

The difference between the actual cost and standard cost of materials used in production.