Firms Account for Leases Using Either the Operating Lease Method

question 217

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 lessor borrows funds from the lessee to purchase the asset and the lessee 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 the same as if the lessor sold the leased asset for an installment note receivable.

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Definitions:

Truth Table

A tabular representation used in logic to show the truth value of a compound statement for all possible truth values of its components.

Truth Value

The truth or falsity of a proposition.

Disjunction

A logical operation that combines two statements in such a way that the compound statement is true if at least one of the statements is true.

Contradictory Statements

Statements that cannot both be true at the same time and under the same conditions because they assert opposing propositions.