Which Statement Best Describes Leases

question 10

Multiple Choice

Which statement 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 on the investment.