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

Question

Quizplus · Accepted Answer

The operating lease method does not recognize a lease liability on the lessee's balance sheet. Rather, it treats the lease as an executory contract and expenses the periodic lease payments as rent over the term of the lease. The capital (finance) lease method, on the other hand, recognizes a leased asset and lease liability on the lessee's balance sheet, as well as rent expense and interest expense over the term of the lease. The lessor recognizes rent revenue as the lessee uses the leased asset over time.

Firms Account for Leases Using Either the Operating Lease Method