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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 4
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.
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