When the Federal Reserve Purchases a U

question 96

Multiple Choice

When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

• A) an increase in assets and a decrease in liabilities of $1 million.
• B) only an increase in assets of $1 million.
• C) only an increase in liabilities of $1million.
• D) an increase in assets and liabilities of $1 million.

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Definitions:

Capital Lease

A capital lease is a lease classified by the lessee as an asset on its balance sheet, indicating that it effectively has the economic ownership of the asset, even though legally it may not own the asset.

Lease Liability

An obligation representing future lease payments a lessee is required to make under a lease agreement.

Discount Rate

The discount rate applied in calculating the present value of future cash flows during discounted cash flow analysis.

Lessor's Income Recognition

The process by which lessors report income earned from leasing out assets, typically recognized over the lease term.