If a lease is capitalized, the firm successfully circumvents restrictive financing covenants.

Question

Quizplus · Accepted Answer

Capitalizing a lease means it is recorded on the balance sheet as both an asset and a liability, which can actually make it more difficult to circumvent restrictive financing covenants since it increases both assets and liabilities, potentially affecting debt ratios and other financial metrics monitored by covenants.

If a Lease Is Capitalized, the Firm Successfully Circumvents Restrictive