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Which of the following statements is true about accounting for leases? In financial accounting, the future payments on a finance lease are viewed as a
- Which of the following statements is true about accounting for leases?
- In financial accounting, the future payments on a finance lease are viewed as a commitment rather than a liability
- Reporting under a finance lease is equivalent to buying the leased asset.
- Under an operating lease, no liability is recorded.
- Under a finance lease, only the initial payment is recorded as a liability.
- Under an operating lease, no right-of-use asset is recorded.
- Under an operating lease:
- the lessee does not obtain substantially all the benefits and risks of ownership.
- the lease transaction is reported more like a purchase.
- No liability is reported on the balance sheet
- All criteria need to be met to qualify for this classification
- Only one criteria needs to be met to qualify for this classification
- On December 31, 20X5, Edward Inc. leases equipment from Big House Company for six years requiring an annual payment of $30,000 on December 31 of each year. The first payment was made immediately. Edwards incremental borrowing rate is 6 percent and uses straight-line method of depreciation. Which of the following statement is true?
- If the lease is recorded as an operating lease, Edward will report an initial lease liability of $1,800,000.
- Amortization expense will be same irrespective of the lease being recorded as operating or capital.
- If the lease is recorded as a finance lease, Edward will initially report the leased asset at an amount equal to the present value of all the lease payments.
- Edward will not report any amount related to the lease as it is considered off-balance sheet.
- The lease agreement will need to meet all five criteria to be reported as a finance leas
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