Asked by Sayuri Yamane on May 26, 2024
Verified
Which of the following statements concerning leases is true?
A) Capital leases are favored by lessees.
B) The appearance of the account Leased Asset on the balance sheet signifies an operating lease.
C) The portion of a lease liability expected to be paid in the next year is reported as a current liability.
D) Present value is irrelevant in accounting for leases.
Lease Liability
An obligation representing the present value of future lease payments that a lessee is committed to making under a lease agreement.
Capital Leases
Lease agreements that involve the lessee effectively owning the asset and accruing its benefits and drawbacks, subject to certain criteria.
Operating Lease
A contractual arrangement giving the lessee temporary use of the property, with continued ownership of the property by the lessor.
- Understand the treatment and impact of leases in financial accounting.
Verified Answer
MS
Melissa SearsMay 27, 2024
Final Answer :
C
Explanation :
The portion of a lease liability expected to be paid in the next year is reported as a current liability. This is required by GAAP in order to provide users of financial statements with information about a company's upcoming cash obligations related to leases. Choices A, B, and D are all incorrect. Capital leases and operating leases have their own advantages and disadvantages, and the appearance of a Leased Asset on the balance sheet can indicate either type of lease. Finally, present value is crucial in accounting for leases, as it is used to calculate the present value of lease payments and determine whether a lease should be classified as an operating lease or capital lease.
Learning Objectives
- Understand the treatment and impact of leases in financial accounting.