Why Must Some Debt Be Eliminated When a Firm Enters

question 39

Multiple Choice

Why must some debt be eliminated when a firm enters a lease agreement?

• A)FAS 13 requires an increase in equity equal to the present value of the lease agreement.
• B)Lessors require lessees to reduce their debt to demonstrate an ability to make the lease payments.
• C)FAS 13 requires a debt offset equal to the present value of the lease payments.
• D)Leases are all debt which causes an imbalance in the firm's debt-equity ratio.
• E)FAS 13 requires lease payments be offset by an equal decrease in debt payments.