11. Should operating leases and capital leases be treated as debt? Why?
11. Should operating leases and capital leases be treated as debt? Why?
Homework Answers
First, we need to understand the difference between operating lease and capital lease.
Operating lease is where the ownership of the asset is retained by the lessor whereas in case of capital lease the ownership of the asset might be transferred to the lessee at the end of lease term.
Capital lease is treated as debt. In case of capital lease, the assets needs to be recognized and claim depreciation and interest on lease amount. At the same time, the debt also needs to be recognizes as a liability for the outstanding lease payment installment.
In case of operating lease, as the ownership is not transferred, so only periodic lease payment is considered as an expense
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11. Should operating leases and capital leases be treated as
debt? Why?
Exercise 9-3 Compare operating and capital leases (LO9-3, 9-8) Coney Island enters into a lease agreement...
Exercise 9-3 Compare operating and capital leases (LO9-3, 9-8) Coney Island enters into a lease agreement for a new ride valued at $3.7 million. Prior to this agreement, the company's total assets are $30.1 million and its total liabilities are $16.7 million Required 1. Calculate total stockholders' equity prior to the lease agreement. (Enter your answer in millions not in dollars, rounded to 2 decimal places. (i.e. $5,500,000 should be entered as 5.5).) Stockholders' equitymillion 2. & 3. Calculate the...
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