Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.The annual payments are $1,000,000,and the life of the lease is 18 years.It is estimated that the useful life of the aircraft is 20 years.How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.
A)The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years.
B)The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years.
C)The aircraft would be recorded as an asset with a cost of $8,756,000.
D)The aircraft would be recorded as an asset with a cost of $9,129,000.

Question

Quizplus · Accepted Answer

The present value of lease payments is calculated using the effective interest rate of 9% over 18 years, resulting in an asset cost of $8,756,000.

Shuttle Master Airlines Has Leased an Aircraft from Streamline Aircraft