Which Statement Best Describes Leases

question 35

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 of and on the investment.

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Definitions:

Gas Mileage

A measure of a vehicle's fuel efficiency, commonly expressed in miles per gallon (MPG) or liters per 100 kilometers (L/100km).

Truck Speed

The rate at which a truck travels, typically measured in miles per hour (mph) or kilometers per hour (km/h).

Gas Mileage

The distance a vehicle can travel per unit volume of fuel.

Confidence

The feeling of trust in one's abilities, qualities, and judgment.