Final answer:
A capital lease is a lease that functions like the purchase of an asset with debt financing, allowing the lessee to treat the lease as an asset and associated liability on their balance sheet.
Step-by-step explanation:
The lease that is essentially the purchase of an asset with debt financing is a capital lease. A capital lease is a long-term lease agreement that provides the lessee with rights similar to ownership. Under a capital lease, also known as a finance lease, the lessee recognizes the leased asset as an asset on their balance sheet, and the lease obligation as a liability. This type of lease typically involves the lessee assuming the risks and rewards of ownership, and the lease term tends to cover a significant portion of the asset’s useful life.
In contrast, an operating lease is a short-term lease agreement where the risks and rewards of ownership stay with the lessor. The lessee simply uses the asset for some time and returns it at the end of the lease term without the option to purchase. Therefore, the correct answer to the question is b. a capital lease.