Aircraft Operator enters into lease contract with owner of the aircrafts for the use of explicitly specified aircraft for a 6-year period. In accordance with the lease contract, Aircraft Operator determines flights direction and dates. Also Aircraft Operator is able to choose which passengers and cargo will be transported on this aircraft.

The contract is as of 1st of January 2021 with annual rental payments of $70 000 due at the beginning of each year. At the end of the contract term the aircraft will be returned back to the owner.

The lessor having longlasting partnership relations with Aircraft Operator provided lease incentives of $10 000. The economic life of this aircraft is 15 years. Aircraft Operator incurred aircraft transportation related costs of $30 000. Discount rate is 5%.

Required: How shall lessee treat the contract?

a) Provide journal entry/entries to recognize lease contract on 1^st of January 2021. (4.5 points)

b) Provide journal entry/entries required at the end of the year 2021. (3 points)