Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is true?
A)The operating lease method treats leases as executory contracts.
B)The operating lease method recognizes a leased asset on the lessee's statement of cash flows.
C)The operating lease method recognizes a lease liability on the lessee's balance sheet.
D)Under the operating lease method, the lessor does not recognize rent revenue as the lessee uses the leased asset over time.
E)Under the operating lease method, the lessee does not recognize rent expense as the lessee uses the leased asset over time.

Question

Quizplus · Accepted Answer

The operating lease method treats leases as executory contracts, meaning that the lessee does not recognize the leased asset or lease liability on their balance sheet. Rent payments are recognized as rent expense on the income statement over the term of the lease. The lessor recognizes rent revenue as earned during the period in which the lessee uses the leased asset.

Firms Account for Leases Using Either the Operating Lease Method