An Airline Has the Following Data About an Airplane: Annual

question 82

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 finance or operating lease? Why?

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

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Definitions:

Underapplied Manufacturing Overhead

The condition where the estimated manufacturing overhead costs are less than the actual overhead incurred, resulting in a shortfall that needs to be adjusted.

Finished Goods

Items that are ready after production but still await sale or delivery to consumers.

Underapplied Manufacturing Overhead

Occurs when the allocated manufacturing overhead costs are less than the actual overhead costs.

Overapplied Manufacturing Overhead

A situation where the allocated manufacturing overhead costs exceed the actual overhead costs incurred during a period.