Question

All leases are classified as eithera. capital leases or long-term leases.b. capital leases or operating leases.c. operating leases or current leases,d. long-term leases or current leases.

Answer 1

Answer: B

Explanation:

Leases can be classified as either operating leases or financing leases(also called capital leases). ITo know the difference of the two, one must be aware whether the risks and rewards associated with ownership of the asset have been fully transferred to the lessee from the lessor.

If these risks and rewards have been fully transferred, it is called a financing lease (financing leases are known as capital leases). Otherwise, it is an operating lease, which is basically the same as a landlord and tenant contract.