Reading 40: Leases and Off-Balance-Sheet Debt - LOS a ～ Q

答案和详解如下：

11.Which of the following statements about leases is least accurate?

A)   All else equal, when a lease is capitalized income will rise over time.

B)   In the first years of a capital lease the firm's current ratio will be greater than it would have been had the firm used an operating lease.

C)   If a lease term is equal to or exceeds 75% of the estimated economic life of the asset it must be capitalized.

D)   In the first years of a capital lease the firm's debt to equity ratio will be greater than if the firm had used an operating lease.

The correct answer was B)

From the lessee perspective, if a lease is considered to be a capital lease instead of an operating lease, then the firm's current liabilities will be greater until the lease has expired. This will result in a lower current ratio (larger denominator).

Explanations for TRUE choices:

A lease is a capital lease if just one of the following criteria hold:

§ The title is transferred to the lessee at the end of lease period.

§ A bargain purchase option exists.

§ The lease period is at least 75% of the asset’s life.

§ The present value of the lease payments is at least 90 percent of the fair value of the asset using the minimum of the lessee's incremental borrowing rate or the rate implicit in the lease.

In the early years, the capitalized lease expense (interest plus depreciation) is greater than in the later years because interest expense decreases over time. Less expenses = more income.

In the first years of a capital lease the firm's debt to equity ratio will be greater than if the firm had used an operating lease because in the case of the capital lease, the numerator is comprised of (Debt + Lease), while the numerator in the case of the operating lease is (Debt) only. In addition, the greater capitalized lease expense flows through to decrease shareholder's equity (the denominator).

12.If a firm chooses a capital lease over an operating lease, it can expect to have a:

A)   lower debt-to-equity ratio.

B)   higher debt-to-equity ratio.

C)   higher return on assets.

D)   lower deprecation expense.

The correct answer was B)

Leasing the asset with an operating lease avoids recognition of the debt on the lessee’s balance sheet. Having fewer assets and liabilities on the balance sheet than would exist if the assets were purchased increases profitability ratios (e.g., return on assets) and decreases leverage ratios (e.g., debt-to-equity ratio). In the case of a capital lease, the assets are reported on the balance sheet and are depreciated.

13.Opal Company manufactures sophisticated machines and then leases them to its customers. If the leases are structured in such a way that they are treated as capital leases for accounting purposes, the impact on Opal’s financial statements and ratios will be that all of the following will be higher EXCEPT:

A)the total asset turnover ratio.

B)return on equity (ROE).

C)net cash flow.

D)sales.

The correct answer was C)

From the lessor’s standpoint, sales and revenue recognition occur earlier when leases are treated as capital, and not operating leases, which enhances profitability and turnover ratios. Net cash flow is the same under either method.

14.What is an advantage of an operating lease over a capital lease? An operating lease:

A)   does not appear on the balance sheet.

B)   has payments that are less than a capital lease's payments.

C)   is depreciated on the income statement.

D)   has no risk involved because the lessor assumes all risk.

The correct answer was A)

Having less assets and liabilities on the balance sheet than would exist if the asset were purchased increases profitability ratios (e.g., return on assets) and decreases leverage ratios (e.g., the debt to equity ratio).

15.Tax benefits from an operating lease will be realized if the lessor is:

A)   in a higher tax bracket and the lessee is in a lower tax bracket.

B)   in a lower tax bracket and the lessee is in a higher tax bracket.

C)   in the same tax bracket as the lessee.

D)   a tax-exempt entity.

The correct answer was A)

Tax benefits are realized if the lessee is in a lower tax bracket and the lessor is in higher tax bracket. The lessor will be able to retain greater tax benefits (depreciation) from owning the assets.