Capital leases would show up on the balance sheet of the ﬁrm in which manner for a six year machinery lease worth £700,000?
A)Capital leases do not have to be put on the balance sheet only ﬁnancial leases do.
B)Asset - Machinery £700,000; Liabilities - Long Term debt £700,000 because of debt
Displacement.
C)Asset - Assets under Capital Lease £700,000; Liabilities - Obligations under Capital Lease
£700,000.
D)Assets - Assets under Capital Lease £700,000; Liabilities - Long Term Debt £700,000
Because of debt displacement.
E)None of the above.

Question

Quizplus · Accepted Answer

Capital leases must be recorded on the balance sheet as a liability equal to the present value of future lease payments (Obligations under Capital Lease). The leased asset (Machinery) would also be recorded on the balance sheet as an Asset under Capital Lease.

Capital Leases Would Show Up on the Balance Sheet of the ﬁRm