Which statement is correct in comparing capital leases to operating leases?
A) A capital lease will have a higher asset turnover compared to an operating lease.
B) A capital lease will increase the return on total assets compared to an operating lease.
C) A capital lease will have a lower debt-to-equity ratio compared to an operating lease.
D) A capital lease will have a higher debt-to-equity ratio compared to an operating lease.

Question

Quizplus · Accepted Answer

A capital lease is treated like debt on a company's balance sheet, which means it will increase the debt-to-equity ratio. On the other hand, an operating lease is not recorded as debt and therefore does not affect the debt-to-equity ratio.

Which Statement Is Correct in Comparing Capital Leases to Operating