Question

Which of the following statements concerning the accounting for leases is not true?

A. At the inception of a financing lease, the lessee's total assets and total stockholders' equity are both increased for the present value of the lease payments to be made over the life of the lease.
B. A financing lease results in the lessee assuming virtually all the benefits and risks of ownership of the leased asset.
C. Assets rented under a short-term operating lease are not reflected on the lessee's balance sheet, and the rent expense (or lease expense) involved is reported in the income statement as an operating expense.
D. The economic impact of a financing lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset.

Answer 1

The correct answer is D. The statement that the economic impact of a financing lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset is not true.

Step-by-step explanation:

The correct answer is D. The statement that the economic impact of a financing lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset is not true.

When a company enters into a financing lease, it is essentially borrowing money to purchase an asset and using the asset as collateral. In this case, the lessee's total assets and total stockholders' equity are increased by the present value of the lease payments over the life of the lease. This is because the lease is treated similar to a loan and the lessee acquires the benefits and risks of ownership.

For operating leases, the leased assets and the related rental expenses are not recorded on the lessee's balance sheet. Instead, the rental expenses are reported in the income statement as operating expenses.

In summary, all of the other statements are true with regards to the accounting for leases, but the statement in option D is not true.