Effects of leasing on financial statements

Sunny Company needs equipment that will cost the company $400. Sunny Company is considering to either purchase the equipment by borrowing $400 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease. Some data from Sunny Company's current balance sheet prior to the lease or purchase of the equipment are: Current assets Net fixed assets Total assets Balance Sheet Data (Dollars) $1,200 Debt Equity $2,000 Total claims 800 $1,000 1,000 $2,000 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