On January 1, 2015,Company XYZ leased a DASH-8 from a leasing company (4-year lease). The lease agreement specifies four annual payments of $2.0 million beginning January 1, 2015, the inception of the lease, and then on each January 1 through 2018. The useful life of the aircraft is estimated to be seven years. Before deciding to lease, XYZ considered purchasing the aircraft for its cash price of $8,400,000. How should this lease be classified? Why? Explain your answer.
On January 1, 2015,Company XYZ leased a DASH-8 from a leasing company (4-year lease). The lease agreement specifies four annual payments of $2.0 million beginning January 1, 2015, the inception of the lease, and then on each January 1 through 2018. The useful life of the aircraft is estimated to be seven years. Before deciding to lease, XYZ considered purchasing the aircraft for its cash price of $8,400,000. How should this lease be classified? Why? Explain your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2015,Company XYZ leased a DASH-8 from a leasing company (4-year lease). The lease agreement specifies four annual payments of $2.0 million beginning January 1, 2015, the inception of the lease, and then on each January 1 through 2018. The useful life of the aircraft is estimated to be seven years. Before deciding to lease, XYZ considered purchasing the aircraft for its cash price of $8,400,000. How should this lease be classified? Why? Explain your answer.
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