Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2021, Delta Air Lines, Inc. (NYSE: DAL) leases a Boeing 787 aircraft from The Boeing Company (NYSE: BA) under a 20-year noncancelable

On January 1, 2021, Delta Air Lines, Inc. (NYSE: DAL) leases a Boeing 787 aircraft from The Boeing Company (NYSE: BA) under a 20-year noncancelable lease agreement. The following information about the lease and the aircraft is provided: Annual lease payment of $12 million is due January 1 each year, with the first payment made on January 1, 2021. The interest rate used by Boeing in structuring the lease is 3%, which is known to Delta. The aircraft has a useful life of 30 years and will revert back to Boeing at the end of the lease term, with a guaranteed residual value of $25 million. It is probable that the aircraft will have a residual value greater than $25 million. Delta uses the straight-line method for depreciation of similar aircrafts. The fair value of the aircraft is $200 million. The cost of the aircraft to Boeing is $160 million. Collectibility of the lease payments is probable.

Requirements: What type of lease is this for Delta, the lessee? Explain and show your work. Round all amounts to the nearest dollar. Prepare all the journal entries Delta needs to record during 2021 in relation to the lease. Round all amounts to the nearest dollar. Prepare the journal entries the lessor, Boeing, needs to record on January 1, 2021 in relation to this sales-type lease, assume the use of a perpetual inventory method. Round all amounts to the nearest dollar.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting

Authors: John Burns, Martin Quinn, Liz Warren, João Oliveira

1st Edition

0077121619, 978-0077121617

More Books

Students also viewed these Accounting questions

Question

=+a. Consumer-Focused show benefits.

Answered: 1 week ago