Answered: eight years and payments are required…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lucas, Inc. enters into a lease agreement as lessor on January 1, 2018, to lease an airplane to National Airlines. The term of the noncancelable lease is eight years and payments are required at the beginning of each year. The following information relates to this agreement: 1. National Airlines has the option to purchase the airplane for $16,000,000 when the lease expires at which time the fair value is expected to be $27,000,000 2. The airplane has a cost of $68,000,000 to Lucas, an estimated useful life of fourteen years, and a salvage value of zero at the end of that time (due to technological obsolescence). 3. National Airlines will pay all executory costs related to the leased airplane. 4. Annual beginning of year lease payments of $9,563,671 allow Lucas to earn an 8% return on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Lucas. Instructions (a) What type of lease is this? (b) Prepare a lease amortization schedule for the lessor for the first two years (2018-2019). (Round all amounts to nearest dollar.)

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