An Airline Has the Following Data About an Airplane: Annual

question 76

Multiple Choice

An airline has the following data about an airplane: Annual lease cost $11,000,000
Lease term: 12 years
Useful life of airplane: 15 years
Fair market value of leased asset: $85 million
Present value of lease payments: $75 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 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:

Voluntary Non-Insurance

A decision by individuals or entities to not purchase insurance coverage for potential risks, relying instead on self-funding for losses.

Retirement Income

The funds or revenue an individual receives after retiring from employment, often from savings, pensions, or government programs.

Substance Abuse

The harmful or hazardous use of psychoactive substances, including alcohol and illicit drugs.

Employee Assistance

Services provided by an employer to help employees deal with personal problems that might adversely impact their work performance or well-being.