Asked by Akarshna Premanand on Jul 04, 2024
Verified
Which one of the following statements about financial leases is correct?
A) Financial leases are fully amortized.
B) Financial leases are NOT capitalized.
C) Financial leases are NOT recorded on the balance sheet.
D) Financial leases are generally short-term leases.
E) Financial leases may be cancelable by the lessee on short notice.
Financial Leases
Long-term leases that effectively transfer the risks and rewards of ownership from the lessor to the lessee, almost like a loan arrangement.
Amortized
Refers to the process of gradually writing off the initial cost of an asset over a period.
Capitalized
Expenses or costs that are recorded as an asset on a balance sheet rather than an expense, to be amortized or depreciated over time.
- Segregate the types of leases and fathom their implications for both parties involved: the lessor and the lessee.
Verified Answer
ES
Ethakota SriramJul 07, 2024
Final Answer :
A
Explanation :
Financial leases are typically fully amortized over the lease term, meaning the lessee pays off the entire cost of the asset, including interest, over the lease period. This distinguishes them from operating leases, which may not be fully amortized and have different accounting treatments.
Learning Objectives
- Segregate the types of leases and fathom their implications for both parties involved: the lessor and the lessee.