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:

Focal Issues

The central or primary points of concern, discussion, or attention in a given situation, especially those that are contentious or significant.

Interests

The stakes or concerns that individuals or groups have in a particular situation or outcome.

Deeply Rooted

Describes beliefs, values, or situations that are firmly established and not easily changed.

Intangibles

Assets or values that cannot be physically touched, such as goodwill, brand recognition, or intellectual property.