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/are true?

Question

Quizplus · Accepted Answer

A) True – Sprinter receives benefits when it uses the aircraft, not when it initially signs the lease.
B) True – Sprinter has future benefits, not past or current benefits.
C) True – Sprinter obtains financing for its flight equipment without showing a liability on the balance sheet.
D) True – Sprinter has entered into an operating lease that is an executory contract.

All of the statements are true. Sprinter benefits from the use of the aircraft during the lease term and does not show the leased aircraft as a long-term liability on its balance sheet. As it is an operating lease, the lease agreement is an executory contract, meaning that both parties still have performance obligations remaining. Sprinter only has future lease payments as benefits from the agreement.

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