If, as part of the accounting for a lease, the company debits an asset and credits a liability, then the lease must be a(n):
A) purchased lease.
B) operating lease.
C) cancelable lease.
D) capital lease.

Question

Quizplus · Accepted Answer

When a company debits an asset and credits a liability as part of lease accounting, it indicates that the lease is a capital lease. In a capital lease, the asset is recorded on the company's balance sheet, and the liability represents the company's obligation to make lease payments. This is done because a capital lease is treated similarly to a purchase of the asset, whereas an operating lease is treated like a rental agreement and does not involve the recording of an asset or liability on the balance sheet.

If, as Part of the Accounting for a Lease, the Company