Which One of the Following Statements Concerning Operating and fiNancial

question 214

Multiple Choice

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.

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Definitions:

Operating Cash Flow

Operating Cash Flow is a financial indicator showing the cash generated from the normal operating activities of a company in a specific period.

Depreciation Expense

The methodical distribution of an asset's depreciation value throughout its lifespan.

Accounts Payable

Short-term liabilities of a company representing money owed to suppliers and creditors for goods and services received but not yet paid for.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating its short-term liquidity.