Would southern aircraft record the lease as an operating or, Financial Accounting

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Would southern aircraft record the lease as an operating or

Southern Airlines has leased an aircraft from BAL Aircraft Company. The annual pay- ments 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. The present value of the future lease payments is $8,755,630.

1. Would Southern Aircraft record the lease as an operating or capital lease? Why?

2. Provide the journal entry to record the acquisition.

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