In general as compared to companies with operatin
In general, as compared to companies with operating leases, companies with finance leases report:
A.lower working capital and asset turnover.
B.higher debt to equity and return on equity ratios (in the early years).
C.higher expenses in the early years and over the life of the lease.
参考解答
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2024-10-27 11:36:47
Ans:A.
Working capital equals current assets minus current liabilities and is lower under a finance lease because the current portion of the finance lease increases current liabilities.Total asset turnover is lower because total assets are higher under a finance lease.
B is incorrect.Companies with finance leases report higher debt-to-equity ratios because liabilities increase and equity is unchanged at lease inception and lower in the early years of the lease.Return on equity is lower with a finance lease because the numerator, net income, is decreased proportionally more than the denominator, equity, from the greater expense of a fiancé lease in its early years.
C is incorrect.Over the life of the lease, the expenses are equal.
Reference: Question 15.
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