Reference no: EM132493185
On February 1, 2020, Regal Air Inc. enters into an 8-year, non cancellable lease agreement to lease an airplane to Atlantic Airlines, with payments required at the end of each lease year, starting February 1, 2021. The following information relates to this agreement: 1. Atlantic Airlines has the option to purchase the airplane at the end of the lease period: Price to exercise purchase option $7,952,000 Leased asset's estimated fair value at end of lease period $11,360,000 2. Other key figures from the lease agreement are as follows: Cost to Regal Air to manufacture aircraft $31,331,250 Estimated useful life of aircraft (in years) 16 3. Atlantic will pay all executory costs related to the leased airplane. 4. Regal Air wants to generate the following rate of return on the lease of this aircraft: 6% 5. Fair market value of leased aircraft on February 1, 2020 $41,775,000
Required:
Question a) What type of lease is this for the lessor? Justify your answer. Assume Regal Air adheres to Ifrs, and has a December 31 year end.
Question b) Calculate the amount of each annual year-end lease payment.
Question c) create a lease amortization schedule for Regal Air for the first 2 years of the lease.
Question d) Prepare the journal entries on Regal Air's books for the 2020 and 2021 fiscal years.
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