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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
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? The present value of all past lease payments should be reported as a liability on the balance sheet. Leased assets should be reported as current assets on the balance sheet. Assets leased under financial or capital teases 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 Consider the following statement on capital leases: transferred om the lessor the lessee, then the lease If a tease term is more than 80% of the asset's life and the leased property must be capitalized and disclosed on a firm's balance sheet. Is the preceding statement true or false? True False Tools To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company Hack Wellington Company needs equipment that will cost the company $300. Hack Welington Company is considering to either purchase the equipment by borrowing $300 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease Some data from Hack Wertington Company's current balance sheet prior to the lease or purchase of the equipment are! "Ips ps Balance Sheet Data (Dollars) Current assets Net fixed assets Total assets $900 600 Dett $750 Equity 750 Total claims $1.500 51,500 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 wil because the face 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 compared to the risk in buying the equipment
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