On January 1, 2019, the Okanagan Flight Institute, which reports its financial results in accordance with ASPE, entered into a contract to lease a flight simulator, details of which follow: Lease term Economic life of equipment Lease payment Fair value of asset Implicit rate in the lease (not known by lessee) Incremental borrowing rate Option to purchase Guaranteed residual value Year end is December 31 Expected payout under guarantee 5 years 7 years $7,800, first due January 1, 2019 $40,000 6% 7% No $5,000 $0 Required: a) Evaluate this term from the perspective of Okanagan Flight Institute using the four primaryASPE criteria. Should it classify the lease as a finance lease or an operating lease? b) Using Excel, prepare an asset depreciation schedule that covers the useful life of the equipment using straight-line depreciation. c) Prepare a lease liability amortization schedule for the life of the lease using Excel. d) Prepare all journal entries for Okanagan Flight Institute related to the lease for its year ended December 31, 2019, including the entry at the inception of the lease, the lease payment, and any adjusting journal entries at year end. e) Prepare the journal entry to record the lease payment on January 1, 2020.
On January 1, 2019, the Okanagan Flight Institute, which reports its financial results in accordance with ASPE, entered into a contract to lease a flight simulator, details of which follow: Lease term Economic life of equipment Lease payment Fair value of asset Implicit rate in the lease (not known by lessee) Incremental borrowing rate Option to purchase Guaranteed residual value Year end is December 31 Expected payout under guarantee 5 years 7 years $7,800, first due January 1, 2019 $40,000 6% 7% No $5,000 $0 Required: a) Evaluate this term from the perspective of Okanagan Flight Institute using the four primaryASPE criteria. Should it classify the lease as a finance lease or an operating lease? b) Using Excel, prepare an asset depreciation schedule that covers the useful life of the equipment using straight-line depreciation. c) Prepare a lease liability amortization schedule for the life of the lease using Excel. d) Prepare all journal entries for Okanagan Flight Institute related to the lease for its year ended December 31, 2019, including the entry at the inception of the lease, the lease payment, and any adjusting journal entries at year end. e) Prepare the journal entry to record the lease payment on January 1, 2020.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 3E: Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning