1215

Compared to an operating lease, a lessee using a finance lease is least likely to have:

A) higher cash flow from financing during the lease period.

B) a lower current ratio.

C) lower net income in the earlier years of the lease.

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Since a portion of the lease payment is treated as repayment of principal under a finance lease, cash flow from financing will be lower.

1215

In a direct-financing lease, the implicit rate is such that the present value of the minimum lease payments:

A) equals the cost of the leased asset.

B) equals the sale price of the leased asset.

C) is lower than the cost of the leased asset.

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In a direct-financing lease, the implicit rate is such that the present value of the MLPs equals the cost of the leased asset. Thus, at lease inception the total assets do not change and no gain is recognized.