#1
Which of the following best describes lease financing?
A method of obtaining equipment or vehicles in which the purchaser makes periodic payments to the seller, but does not own the asset at the end of the lease.
ExplanationLease financing involves periodic payments without ownership at the end.
#2
What is residual value in lease financing?
The value of the leased asset at the end of the lease term.
ExplanationResidual value is the leased asset's value at lease end.
#3
What is a lease term?
The duration of the lease agreement.
ExplanationLease term is the agreement's duration.
#4
What is a finance lease also known as?
Capital lease
ExplanationFinance lease is also called a capital lease.
#5
What is the purpose of a lease agreement?
To provide a legal framework for the leasing arrangement between the lessor and the lessee.
ExplanationLease agreement provides a legal framework for lessor-lessee leasing.
#6
What is the primary advantage of lease financing for businesses?
It provides tax benefits through deductions for lease payments.
ExplanationLease financing offers tax benefits via deductions for payments.
#7
Which of the following is NOT a type of lease?
Long-term lease
ExplanationLong-term lease is not a type of lease.
#8
In a finance lease, who typically bears the risks and rewards associated with ownership of the leased asset?
Lessee
ExplanationLessee typically bears risks and rewards in a finance lease.
#9
What is a sale-and-leaseback transaction?
A transaction where a company sells an asset and simultaneously leases it back from the buyer.
ExplanationSale-and-leaseback involves selling an asset then leasing it back.
#10
What is the impact of a capital lease on a company's debt-to-equity ratio?
It increases the debt-to-equity ratio.
ExplanationCapital lease increases the debt-to-equity ratio.
#11
Which financial statement is most directly affected by lease financing?
Balance sheet
ExplanationLease financing directly affects the balance sheet.
#12
What is the difference between an operating lease and a capital lease?
Operating leases are treated as off-balance sheet financing, while capital leases are recorded on the balance sheet.
ExplanationOperating leases are off-balance sheet; capital leases are on the balance sheet.
#13
What is the concept of lease capitalization?
The process of converting a lease payment stream into an asset and liability on the balance sheet.
ExplanationLease capitalization turns payments into balance sheet assets/liabilities.
#14
Which financial ratio is impacted by lease financing?
Current ratio
ExplanationLease financing affects the current ratio.
#15
Which of the following is true regarding off-balance sheet financing?
It allows companies to keep certain liabilities off the balance sheet, such as operating leases.
ExplanationOff-balance sheet financing keeps certain liabilities off balance sheet.