Asked by
Emmylu Cantu
on Nov 07, 2024
Verified
Which one of the following statements concerning operating and financial leases is correct?
A) A firm that is restricted from issuing more debt by a bond covenant, should enter a financial lease rather than an operating lease.
B) An operating lease increases the debt-equity ratio of a firm.
C) An operating lease must be reported on the balance sheet of the lessee.
D) A financial lease reduces the net equity in a firm.
E) A financial lease increases the total debt of a firm.
Operating Lease
A lease agreement allowing a company to use an asset without owning it, typically with shorter terms than a finance lease.
Financial Lease
A type of lease in which the lessee has use of the asset for a significant portion of its useful life, and the lease payments are designed to cover the lessor's initial costs.
Debt-Equity Ratio
A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
- Differentiate between the properties of operating leases and those of financial leases and assimilate their features.
- Pinpoint crucial vocabulary and ideas in lease accounting, encompassing sale and leaseback, leveraged leases, along with the contrast between operating and financial leases.
Verified Answer
BG
Learning Objectives
- Differentiate between the properties of operating leases and those of financial leases and assimilate their features.
- Pinpoint crucial vocabulary and ideas in lease accounting, encompassing sale and leaseback, leveraged leases, along with the contrast between operating and financial leases.