At the beginning of a lease agreement, a lessee's debt to equity ratio and rate of return on assets are both affected regardless ofwhether the lease is classified as a finance lease or as an operating lease.O TrueO False

Answered: lassified as a finance lease or as an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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At the beginning of a lease agreement, a lessee's debt to equity ratio and rate of return on assets are both affected regardless of
whether the lease is classified as a finance lease or as an operating lease.
O True
O False

Expert Solution

Step 1

In case of a financial lease only, assets or liabilities are created. In case of operating lease agreement, the expenses incurred as lease rentals are debited as expenses in the income and expenditure account. So, only the financial lease transactions affect the Lessee’s debt to equity ratio.

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