Sprinter Airlines (Sprinter) needs additional aircraft to expand internationally, and it could borrow the needed funds and purchase the aircraft.This arrangement places additional debt on the balance sheet.Instead, Sprinter signs an lease agreement in which it agrees to pay the owner of the aircraft certain amounts each year for 12 years.The aircraft has an estimated service life of 18 years.Sprinter paints its name on the aircraft, uses the aircraft in operations, and makes the required lease payments.Which of the following is not true?

Question

Quizplus · Accepted Answer

Sprinter has entered into a financing lease that is recorded as an asset purchase and financing transaction, which means that the leased aircraft is recorded on Sprinter's balance sheet as a non-current asset and the lease payments are divided between an interest expense and a reduction in the outstanding lease liability, which is also recorded on the balance sheet. Therefore, financing for its flight equipment is shown as a liability on the balance sheet, and not obtaining financing would have prevented Sprinter from expanding internationally. The other statements are true, as Sprinter receives benefits from using the aircraft, has future benefits, and has entered into an operating lease that is an executory contract.

Sprinter Airlines (Sprinter) Needs Additional Aircraft to Expand Internationally, and It