generate answers in 2 steps with an explanations in each step and each step by step and make some good headings, explanation, and final solutions also A lease versus purchase analysis should compare the cost of leasing to the cost of owning, assuming that the asset purchaa. is financed with short-term debt.Ob. is financed with retained earnings.Oc. is financed with long-term debt.Od. is financed with a mix of debt and equity based on the firm's target capital structure, i.e., at the WOe. is financed with debt whose maturity matches the term of the lease.

ExplanationIn a lease against purchase study, it is crucial to compare the cost of leasing with the…

Answered: A lease versus purchase analysis should…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 4QTD

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The following statements relate to the impact on the financial statements for operating vs. finance leases. Indicate all statements that are correct. Select one or more: a. Net Income is higher at first when a lease is classified as a finance lease. b. The right of use asset is shown at a higher amount for a finance lease. c. Operating Income is lower when a lease is classified as an operating lease. d. The lease liability is measured as the present value of future cash flows for both operating and finance leases. PreviousSave AnswersNext
Which of the following statements is most CORRECT? Oa. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. Ob. Finance leases usually have a cancelation feature. Oc. Capital, or financial, leases generally provide for maintenance by the lessor. Od. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. Oe. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.
1. Which statement is incorrect about initial direct costs? a. Initial direct costs incurred by the lessee in finance lase are added to the amount recognized as an asset and to the finance lease liability. b. In a direct financing lease, initial direct costs are added to the net investment in the lease. c. In a sales type lease, initial direct costs are expensed as component of cost of goods sold. d. For operating leases, initial direct costs are deferred and allocated over the lease term. 2. If the lessor and lessee use different interest rates to account for a finance lease, then a. The lessor will use different account titles to record the leasing transactions b. Total expenses and revenues will be equal c. Total expenses and revenues will be different d. The lessee and the lessor cannot use different interest rates 3. In the case of a lease of land and building where title to the land is not transferred, the lease is generally treated as if: a. Both land and building are finance…
How would you compare the results between the lease assets vs total assets and the lease liabilties vs total liabilities visualization? a. lease assets are higher than lease liabilites for both albertson and kroger. b. operating lease assets and lease liabilties values are similar between albertson and kroger. c. total assets and total liabilities values are similar between albertson and kroger. d. finance lease assets are higher than finance lease liabilities for both albertson and kroger.
Which of the following statements is true about initial direct costs? A. Initial direct costs of a sales-type lease should be expensed at the commencement of the lease only if no selling profit or loss has been incurred. B. Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes. C. Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset. D. Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.
What should be the discount rate for capitalizing the operating leases?A. If possible, the implied internal rate of return (IRR) that equates the sum of thediscounted capital lease payments with the reported PV of the payments.B. The effective interest rate (EIR) that represents the average interest rate thatthe company pays on its debt.C. The effective tax rate (ETR) that represents the average tax rate that thecompany pays on its earnings.D. None of the above.
2. Lease Liabilities vs Total Liabilities $0.78 2019 $6.08 Albertson $22.5B $0.68 2020 $6.28 $23.78 $0.88 2019 $7.18 Kroger $36.78 $1.08 2020 $7,28 $39.18 Finance Lease Liabilities Operating Lease Liabilities. Total Liabilities
The following statements relate to the impact on the financial statements for operating vs. finance leases. Indicate all statements that are correct. Select one or more: a. The right of use asset is shown at a higher amount for a finance lease. b. The lease liability is measured as the present value of future cash flows for both operating and finance leases. c. Net Income is higher at first when a lease is classified as a finance lease. d. Operating Income is lower when a lease is classified as an operating lease.
Which of the following cash flows is classified as an investing cash flow? A. interest portion of payment received under a direct financing lease B. reduction of a direct financing lease receivable C. purchase of an asset leased under a sales-type lease D. payment received under an operating lease
To better evaluate the solvency of a company, an analyst would most likely add to totalliabilitiesA . the present value of future capital lease payments.B . the total amount of future operating lease payments.C . the present value of future operating lease payments.
Variable lease payments based on an index are? A. Included using initial index B. Excluded from lease liability C. Recognized as expense when incurred D. Added to equity
Variable lease payments based on an index are? A. Included using initial index B. Excluded from lease liability C. Recognized as expense when incurred D. Added to equity answer

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