When compared with a company recording an asset as a capital lease, the return-on-assets (ROA) and debt-to-equity for a company using an operating lease are: $$\begin{array} { l l l }
& \text { ROA } & \text { Debt-to-equity } \
\hline\text { A) } & \text { Higher } & \text { Higher } \
\text { B) } & \text { Higher } & \text { Lower } \
\text { C) } & \text { Lower } & \text { Higher } \
\text { D) } & \text { Lower } & \text { Lower }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Question

When compared with a company recording an asset as a capital lease, the return-on-assets (ROA) and debt-to-equity for a company using an operating lease are: $$\begin{array} { l l l } 
& \text { ROA } & \text { Debt-to-equity } \
\hline\text { A) } & \text { Higher } & \text { Higher } \
\text { B) } & \text { Higher } & \text { Lower } \
\text { C) } & \text { Lower } & \text { Higher } \
\text { D) } & \text { Lower } & \text { Lower }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

When a company uses an operating lease, the asset is not recorded on the balance sheet, leading to a higher ROA since assets are lower. Debt-to-equity is lower because there is less (or no) debt recorded related to the lease.

When Compared with a Company Recording an Asset as a Capital