Asked by Omarie Harrison on May 07, 2024
Verified
If a lessee mistakenly treats a capital lease as an operating lease,both assets and liabilities would be understated at the inception of the lease.
Capital Lease
A lease agreement in which the lessee essentially buys an asset and pays for it over time, classifying the lease as a financial transaction in the balance sheet.
Operating Lease
A contract that allows for the use of an asset but does not convey rights of ownership of the asset.
Assets And Liabilities
Represent the resources a company owns or controls (assets) and the obligations it owes to outsiders (liabilities).
- Contrast capital and operating leases and their influences on financial statement outcomes.
- Understand the financial impacts on depreciation, expense recognition, and balance sheet entries for leases as per GAAP guidelines.
Verified Answer
SN
Sogol NoroozijamaliMay 09, 2024
Final Answer :
True
Explanation :
When a lessee mistakenly treats a capital lease as an operating lease, the lessee fails to recognize the leased asset and related lease liability on the balance sheet. As a result, both assets and liabilities would be understated at the inception of the lease.
Learning Objectives
- Contrast capital and operating leases and their influences on financial statement outcomes.
- Understand the financial impacts on depreciation, expense recognition, and balance sheet entries for leases as per GAAP guidelines.