Firms Account for Leases Using Either the Operating Lease Method

question 237

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 capital, or finance, lease method treats leases equivalent to installment purchases or sales, where the lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale.
• B)The lessee records the leased asset and the lease liability on the balance sheet at the present value of the contractual cash flows at the time of signing the lease.
• C)The lessee amortizes the leased asset, similar to recognizing depreciation on buildings and equipment.
• D)The lessee recognizes interest expense on the lease liability, similar to recognizing interest expense on long-term notes or bonds.
• E)The lessor records the signing of a capital lease differently than if the lessor sold the leased asset for an installment note receivable.

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Definitions:

Absentmindedness

A state of preoccupation where one is so lost in thought that they become unaware of their immediate surroundings or actions.

Shallow Encoding

The process of encoding memory based on superficial features like the sound or appearance of words rather than their meanings.

Proactive Interference

The difficulty in learning new information because of the interference of existing similar knowledge or memories.

Retroactive Interference

A phenomenon where newly acquired information interferes with the retention of previously learned information.