A lessee is usually motivated to report a lease liability as a finance lease because the lessee can capitalize the "cost" of the leased asset.

Question

Quizplus · Accepted Answer

A lessee might prefer to report a lease as an operating lease rather than a finance lease because, under an operating lease, the leased asset and associated liability do not appear on the lessee's balance sheet, potentially making the lessee's financial position appear stronger. Reporting a lease as a finance lease results in recognizing both the asset and liability on the balance sheet, which might not be the preferred outcome for the lessee's financial reporting.

A Lessee Is Usually Motivated to Report a Lease Liability