Leases}

Overland Airlines leased an aircraft from JRL Aircraft Company. Overland believes it may have been able to purchase an aircraft at a cost lower than the cost of leasing the aircraft; however, Overland does not want the obligation of including an aircraft as an asset in its financial statements. The annual payments of the lease are \(\$ 1,250,000\), and the life of the lease is 15 years. It is estimated that the useful life of the aircraft is 18 years. The present value of the future lease payments is \(\$ 9,235,730\).

\section*{Required:}

CONCEPTUAL CONNECTION Would Overland Aircraft record the lease as an operating or finance lease? Why?

7 Brief Exercise