East-West Airlines Is Planning on Leasing an Aircraft

question 165

Essay

East-West Airlines is planning on leasing an aircraft. East-West does not receive title to the aircraft during or at the end of the lease period. Also, the lease does not contain a bargain purchase option. Using the lease information shown below indicate whether the lease is a capital lease or an operating lease and explain why.
Type of property - Aircraft
Yearly rental - $9,500,000
Lease term - 20 years
Estimated economic life - 25 years
Fair market value of the leased asset - $85,000,000
Present value of lease rental payments - $75,000,000

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Definitions:

Emergency Room

A hospital unit where immediate and urgent medical care is provided to patients with a broad spectrum of illnesses and injuries.

Family Health History

A record of the diseases and health conditions present in your family, which can indicate potential health risks for you.

Significant Risk Factor

A characteristic or condition that greatly increases the likelihood of developing a disease or injury.

Conditions

Circumstances affecting the way in which people live or work, especially with regard to their safety or well-being.