Reading 38: Long-Term Liabilities and Leases - LOS g ～ Q13 following, finance, higher, versus, black

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Q13. Under an operating lease (versus a finance lease) which of the following is higher for the lessee?

A)   Cash flow from operations.

B)   Assets.

C)   Cash flow from financing.

Q14. Under a finance lease (versus an operating lease) which of the lessee's financial ratios will be higher?

A)   Debt/equity.

B)   Asset turnover.

C)   Return on equity.

Q15. 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.

Q16. Classifying a lease as an operating lease for a lessee, as opposed to a finance lease, will result in:

              Current Ratio                      Debt/Equity Ratio                  Asset Turnover Ratio

 

A)       Higher                                  Lower                                            Lower

B)       Higher                                 Lower                                             Higher

C)       Lower                                  Lower                                             Higher

Q17. An analyst compares two companies that are identical except that Company X uses finance leases and Company Y uses operating leases. The analyst would expect Company X’s debt-to-equity ratio, relative to Company Y’s, to be:

A)   higher.

B)   lower.

C)   the same.

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