B Corp. is a lessee and has a debt/equity ratio of 2 to 1. The debt/equity ratio is increased when B records:
A) Option A
B) Option B
C) Option C
D) Option D

Question

B Corp. is a lessee and has a debt/equity ratio of 2 to 1. The debt/equity ratio is increased when B records: 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

Both operating leases and finance leases increase assets (ROU asset) and liabilities (lease liability) the same amount and thus have no effect on equity, which is A minus L = Equity. Because assets, the denominator, increase and earnings remain the same, the ratio increases.

B Corp Is a Lessee and Has a Debt/equity Ratio of of 2