Question $4$

On January $1,2019,$ the Okanagan Flight institute, which reports its financial results in accordance with ASPE, entered into a contract to lease a fight simulator, details of which follow

Lease term

Economic life of equipment

Lease payment

Fair value of asset

Implict rate in the lease $($not known by lessee$)$

Incremental borowing rate

Option to purchase

Guaranteed resicual value

Year end is December $31$

Expected payout under guarantee

$5$ years

$7$ years

$$7,B00$

$$40,000$

$6\%$

$7\%$

No

$$5,000$

$$0$

Required:

a$)$ Evaluate this term from the perspective of Okanagan Flight Institute using the four primaryASPE criteria. Should it classify the lease as a finance lease or an operating lease?

b$)$ Using Excel prepare an asset depreciation schexiule that covers the useful life of the equipment using straight$-$line depreciation.

c$)$ Prepare a lease liability amortization schedule for the life of the lease using Excel

d$)$ Prepare all joumal entries for Okanagan Flight Institute related to the lease for its year ended December $31,2019,$ including the entry at the inception of the lease, the lease payment, and any adjusting journal entries al year end.

e$)$ Prepare the joumal entry to record the lease payment on January $1,2020.$