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Points out of 1.00 Not flaggedFlag question Question text From the lessee's perspective, in the first year of a lease,

a. a finance lease will cause debt to increase, compared to an operating lease
b. a finance lease will enable the lessee to report higher income, compared to an operating lease
c. an operating lease will cause debt to increase, compared to a finance lease
d. an operating lease will cause net income to be higher, compared to a finance lease

User Yash Dayal
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2 Answers

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Answer:

A) a finance lease will cause debt to increase, compared to an operating lease

Step-by-step explanation:

In a financial lease, the lessee assumes the ownership of the leased asset, and must depreciate it in the same way it would depreciate other similar assets held. While the lessee depreciates the leased asset, the lessor must amortize it. That is why the lessee must record the value of the financial lease as a liability.

On the other hand, an operating lease doesn't transfer ownership, so the lessee only has to record the lease as an expense in the income statement.

User Smartobelix
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3 votes

Answer:

A) a finance lease will cause debt to increase, compared to an operating lease

Step-by-step explanation:

User Tofiq
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