Vanessa Smith, Founder, and operator of Smith Air Freight Inc located in Fairbanks, Alaska. The business offers air freight for local commercial businesses requiring quick transportation. Vanessa recently entered into the following lease agreement.

Annual lease payments: $500 000 payable at the beginning of the lease year

First payment date: January 1, 2020

Term of lease 5 years plus one renewal term of 5 years; renewal term is at lessee's option, at an annual rate of $250,000 per year,

when 5-year-old aircraft normally would lease for $350,000

Additional Costs $50 000 for insurance payable each year

Guaranteed residual value $ 2 000 000

Ownership at end of lease Reverts back to lessor

Implicit rate of interest 8%

Economic life of aircraft 10 years

1. Using the classification approach, determine whether this is an operating or capital lease and why.
2. Prepare an amortization schedule for the first two years of the lease payments. Hint: Columns for your amortization schedule Date, Annual lease payment, Interest on unpaid obligation 8%, reduction of lease obligation, balance of lease obligations.
3. C. Make the necessary entries to record the lease and the payments for the first two years of the lease, assuming a fiscal year end date of March 31.

D. Identify differences between IFRS and ASPE for lease accounting