Ex. 35
Presented below are three different aircraft lease transactions that occurred for Western Airways in 2014. All the leases start on January 1, 2014. In no case does Western receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option.
Lessor
Utah InsuranceLaine Leasing Howard Leasing
Type of property747 Aircraft727 AircraftMD-11 Aircraft
Yearly rental$8,272,293$4,954,021$2,851,861
Lease term15 years15 years20 years
Estimated economic life25 years25 years25 years
Fair value of
leased asset$77,000,000$49,000,000$32,000,000
Present value of lease
rental payments$70,000,000$42,000,000$28,000,000
Instructions
(a)Which of the above leases are operating leases and which are finance leases? Explain your answer.
(b)How should the lease transaction with Utah Insurance be recorded in 2014?
(c)How should the lease transaction with Laine Leasing be recorded in 2014?
Ex. 36
Ryan Corporation entered into the following transactions:
1.Hewitt Car Rental leased a car to Ryan Corporation for one year. Terms of the operating lease call for monthly payments of $750.
2.On January 1, 2014, Ryan Corporation entered into an agreement to lease 20 machines from Meeks Corporation. The terms of the lease agreement require an initial payment of $210,000 and then three annual rental payments of $210,000 beginning on December 31, 2014. The present value of the three rental payments is $522,238. The lease is a finance lease.
Instructions
Prepare the appropriate journal entries to be made by Ryan Corporation in January related to the lease transactions.