Which of the Following Statements Best Describes Leases

question 37

Multiple Choice

Which of the following statements best describes leases?

• A) Firms that use "off-balance sheet" financing, such as leasing, would show lower debt ratios if the effects of their leases were reflected in their financial statements.
• B) Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation.
• C) The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.
• D) A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment.

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Definitions:

Periodic System

An inventory valuation method where inventory counting and valuation are performed at specific intervals.

Ending Inventory

The total cost of all the inventory a business has in stock at the end of an accounting period.

Inventory Costing Methods

These are accounting approaches to determine the value of inventory on hand and the cost of goods sold, including methods like FIFO (First-In, First-Out) and LIFO (Last-In, First-Out).

Weighted-average

A calculation that takes into account both the quantity and the significance of the items being averaged.