Question

A 20 year property lease classified as an operting lease provides a 10% increase in annual payments every 5 years. In the 6th year compared to the 5th year the lease will cause the following expenses to increase

rent interest
a no yes
b yes no
c yes yes
d no no
d. no no

Answer 1

Answer: d. no no

Step-by-step explanation:

When using operating leases, the rent is paid on a straight line basis meaning that rent will not increase and uses an even figure over the entire term of the lease.

The even figure already accounts for the increase in rent and incorporates it so there is no need to increase the rent figure in the 6th year.

Interest payment is not part of an Operating lease as this kind of lease involves on rental payments.