On January 1, 2012, Versachi Industries, a calendar-year corporation, leased an airplane under a 7-year, noncancelable lease agreement that requires Versachi to pay the lessor $30,000 at the end of each year. The first payment is due December 31, 2012. The present value of the lease payments is $150,990, assuming an interest rate of 9 percent. At the end of the 7-year lease term, the airplane will be returned to the lessor unless Versachi Corporation chooses to purchase the airplane at its appraised market value. At January 1, 2012, the airplane has an estimated economic life of 10 years and a fair market value of $190,000.
1.Determine whether the airplane lease is an operating or a capital lease and explain your classification.
2.Without regard to your answer to (1), assume the lease is a capital lease and interest for 2012 is $13,600. Give the journal entries to record the lease at January 1 and the first payment at December 31, 2012.

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The Answer of On January 1, 2012, Versachi Industries, a calendar-year corporation, leased an airplane under a 7-year, noncancelable lease agreement that requires Versachi to pay the lessor $30,000 at the end of each year. The first payment is due December 31, 2012. The present value of the lease payments is $150,990, assuming an interest rate of 9 percent. At the end of the 7-year lease term, the airplane will be returned to the lessor unless Versachi Corporation chooses to purchase the airplane at its appraised market value. At January 1, 2012, the airplane has an estimated economic life of 10 years and a fair market value of $190,000.
1.Determine whether the airplane lease is an operating or a capital lease and explain your classification.
2.Without regard to your answer to (1), assume the lease is a capital lease and interest for 2012 is $13,600. Give the journal entries to record the lease at January 1 and the first payment at December 31, 2012.

On January 1, 2012, Versachi Industries, a Calendar-Year Corporation, Leased