If a Company That Leases Equipment from Another Company Records

question 31

Multiple Choice

If a company that leases equipment from another company records these leases as operating leases rather than capital leases, its:

I. recorded liabilities will be lower.
II. recorded assets will be higher.
III. total cash flows will be higher.
IV. leverage ratios will be higher.

• A)I and III
• B)II and IV
• C)I only
• D)II, III, and IV

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Definitions:

Materials Cost

The cost associated with the raw materials and components required for the manufacture of products.

Processing Department

A specific section within a manufacturing facility where goods undergo a particular type of processing.

Ending Work

The inventory of products or materials that are still in the process of manufacturing at the end of an accounting period but not yet completed.

Process Inventory

Goods in various stages of production within a factory, not yet completed to be classified as finished goods.