Suppose an airline company is trying to decide on a five-year airplane lease.

They have two options:

1. Lease an airplane through a capital lease. This means that at the end of the contract, they own the airplane, or they have the option to purchase it at a discounted price, or the lease covers 75% or more of the useful life of the airplane, or the present value of the leases payment is greater than or equal to 90% of the airplane market value

2. Lease an airplane through an operating lease. This means that they will have a short-term lease, somehow similar to a rental, they would be able to replace the airplane under different conditions, and at the end of the contract they do not own or acquire the airplane at a discounted rate.

How does each option enter the balance sheet?

A. Option 1 - the airplane does not enter the balance sheet in any way. Option 2 - the airplane enters as a right of use asset on the balance sheet and the lease payments enter as a liability

B. Option 1 and Option 2 - the airplane does not enter the balance sheet in any way

C. Option 1 - the airplane enters as a right of use asset on the balance sheet and the lease payments enter as a liability. Option 2 - the airplane does not enter the balance sheet in any way

D. Option 1 and Option 2 - the airplane enters as a right of use asset on the balance sheet and the lease payments enter as a liability

Which statement should be analyzed to check a business's liquidity

A. income statement

B. Balance sheet

C. Cash Flow

D. Financial Statement