Firms Account for Leases Using Either the Operating Lease Method

question 77

Multiple Choice

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is not true?

• A)The operating lease method treats leases as executory contracts.
• B)The operating lease method does not recognize a leased asset on the lessee's balance sheet.
• C)The operating lease method does not recognize a lease liability on the lessee's balance sheet.
• D)Under the operating lease method, the lessor does not recognize rent revenue as the lessee uses the leased asset over time.
• E)Under the operating lease method, the lessee recognizes rent expense as the lessee uses the leased asset over time.

---

Definitions:

Compounded Annually

Interest calculation where the interest is added to the principal sum so that the added interest also earns interest from then on, done once a year.

Compounded Monthly

A method of calculating interest where the accumulated interest is added to the principal sum each month, leading to an increase in the amount of future interest earned.

Perpetuity

An annuity whose payments continue forever.

Compounded Monthly

A method of calculating interest where the interest earned each month is added to the principal, increasing the amount on which future interest is computed.