Debt-Rating Agencies Take Financial and Operating Leases into Account Because

question 87

Multiple Choice

Debt-rating agencies take financial and operating leases into account because:

• A)They realize that lessees need that information for their records
• B)The agencies are required by law to do so
• C)The book income of the lessee is improved by including lease obligations
• D)The book income will be lower, all things equal, if lease obligations show as a balance sheet item

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Definitions:

Purchase Price

The amount paid to buy a good, service, or financial asset.

Off-Balance Sheet Lease Financing

Off-balance sheet lease financing involves leasing arrangements that are not recorded on a company's balance sheet, potentially making a company's financial condition appear stronger than it actually is.

Debt Ratio

A metric assessing a firm's leverage, determined by dividing its total liabilities by its total assets.

Lessee

A lessee is an individual or entity that leases an asset from another party, called the lessor, under the terms of a lease agreement.