Presented Below Are Three Different Aircraft Lease Transactions That Occurred

question 5

Essay

Presented below are three different aircraft lease transactions that occurred for Northwest Airways in 2017. All the leases start on January 1 2017. In no case does Northern receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option. $$\begin{array} { l r r r } && { \text { Lessor } } \\& \text { Yale Insurance } & \text { Nexcs Leasing } & \text { Banner Leasing } \\\hline \text { Type of property } & 747 \text { Aircraft } & 727 \text { Aircraft } & \text { L-1011 Aircraft } \\\text { Yearly rental } & \$ 8,508,645 & \$ 6,357,660 & \$ 2,851,861 \\\text { Lease term } & 15 \text { years } & 20 \text { years } & 15 \text { years } \\\text { Estimated economic life } & 25 \text { years } & 25 \text { years } & 25 \text { years } \\\text { Fair value of } & & & \\\quad \text { leased asset } & \$ 80,000,000 & \$ 63,000,000 & \$ 32,000,000 \\\text { Present value of lease } & & & \\\quad \text { rental payments } & \$ 73,000,000 & \$ 54,000,000 & \$ 28,000,000\end{array}$$ Instructions
(a) Which of the above leases are operating leases and which are capital leases? Explain your answer.
(b) How should the lease transaction with Yale Insurance be recorded in 2017?
(c) How should the lease transaction with Banner Leasing be recorded in 2017?

Identify components of property, plant, and equipment, and calculate their totals.

Determine investment classifications on the balance sheet.

Understand the structure and presentation of a balance sheet, including the order of assets and liabilities.

Analyze owner's equity calculations and changes within an accounting period.

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Definitions:

Wage

The amount of money paid to an employee by an employer for work performed, typically expressed on an hourly, daily, or piecework basis.

Oligopoly Industry

A market structure dominated by a small number of companies, leading to limited competition and potentially higher prices for consumers.

Firms

Business organizations, such as corporations, partnerships, or sole proprietorships, that are engaged in commercial, industrial, or professional activities.

Market

A platform or area where buyers and sellers come together to exchange goods, services, or information.