If a Firm Capitalizes a Lease Instead of Treating the Lease

question 9

Multiple Choice

If a firm capitalizes a lease instead of treating the lease as an operating lease, the effect on the current ratio and the debt-to-equity ratio will be: $$\begin{array} { l c c } & \text { Current ratio } & \text { Debt-to-equity ratio } \\\text { A) } & \text { Increase } & \text { Increase } \\\text { B) } & \text { No effect } & \text { Increase } \\\text { C) } & \text { No effect } & \text { Decrease } \\\text { D) } & \text { Decrease } & \text { Increase }\end{array}$$

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Disposable Income

Households' financial resources for expenditure and savings following income tax deductions.

Savings

Money set aside for future use rather than spent immediately.

Savings

The portion of income not spent on current consumption or taxes, instead set aside for future use or investment.

Disposable Income

The money households have for spending and saving after subtracting income taxes.