On the statement of cash flows, the total lease payment reduces cash flow from operating activities for the operating lease. Only the ________ reduces operating cash flows under the ________ lease. Therefore, cash flows from operating activities are ________ under the finance lease each year and in total.
A) liability portion; finance; lower
B) interest portion; finance; higher
C) liability portion; operating; lower
D) interest portion; operating; higher

Question

Quizplus · Accepted Answer

Under a finance lease, only the interest portion of the lease payment reduces operating cash flows, making cash flows from operating activities higher compared to an operating lease where the total lease payment reduces operating cash flows.

On the Statement of Cash Flows, the Total Lease Payment