A lessee reported a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in yea...
- A lessee reported a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal
a) the current liability shown for the lease at the end of year 1.
b) the current liability shown for the lease at the end of year 2.
c) the reduction of the lease obligation in year 1.
d) one-tenth of the original lease liability.
- Which statement is correct in comparing capital leases to operating leases?
a) A capital lease will have a higher asset turnover compared to an operating lease.
b) A capital lease will increase the return on total assets compared to an operating lease.
c) A capital lease will have a lower debt-to-equity ratio compared to an operating lease.
d) A capital lease will have a higher debt-to-equity ratio compared to an operating lease.
Homework Answers
Solution 1:
A lessee reported a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal "the current liability shown for the lease at the end of year 1"
Hence option a is correct.
Solution 2:
The correct statement in comparing capital leases to operating leases is "A capital lease will have a higher debt-to-equity ratio compared to an operating lease."
Hence option d is correct.
Add Answer to:
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