Effects of leasing on financial statements Leasing is often referred to as off-balance-sheet financing because of the way that the transaction is treated and reported in financial statements. According to the FASB-issued Statement 13, which of the following statements is true? Leased assets should be reported as current assets on the balance sheet. Assets leased under financial or capital leases should be reported as fixed assets on the balance sheet. The present value of all future lease payments should be reported as assets on the balance sheet. The present value of all past lease payments should be reported as a liability on the balance sheet. Consider the following statement on capital leases: If a lease term is more than 80% of the asset's life and the leased property is transferred from the lessor to the lessee, then the lease must be capitalized and disclosed on a firm's balance sheet. Is the preceding statement true or false? False True To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Mitata Company Mitata Company needs equipment that will cost the company $800. Mitata Company is considering to either purchase the equipment by borrowing $800 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease. Some data from Mitata Company's current balance sheet prior to the lease or purchase of the equipment are: 1. The company's current debt ratio is _____ 2. If the company purchases the equipment by taking a loan, the total debt in the balance sheet will _____, and the debt ratio will change to _____ 3. If the company leases the equipment, the company's debt ratio will _____ because the lease is not capitalized. 4. In this case, the company's financial risk will be _____ under a lease agreement as compared to the financial risk in purchasing the equipment by taking a loan. 5. However, if the lease is capitalized, the financial risk under the lease agreement will be _____ as compared to the risk in buying the equipment