A lessee mistakenly treated an operating lease as a capital lease.How does this mistake impact the following at the inception of the lease? $\begin{array}{lcc}
&\textbf{Current Ratio}&\textbf{Asset Turnover Ratio}\\hline
\text { a. } & \text { Overstated } & \text { Understated } \
\text { b. } & \text { Understated } & \text { Understated } \
\text { c. } & \text { Overstated } & \text { Overstated } \
\text { d. } & \text { Understated } & \text { Overstated }
\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Question

Quizplus · Accepted Answer

If a lessee mistakenly treated an operating lease as a capital lease, it will impact the following at the inception of the lease:
A) Option A: The lease liability and the right-of-use asset will be incorrectly recognized. Therefore, this option is incorrect.
B) Option B: The lease liability and the right-of-use asset will be incorrectly recognized, resulting in an understatement of the lease liability and an overstatement of the right-of-use asset. This option is the best choice because it correctly identifies the impact of mistakenly treating an operating lease as a capital lease.
C) Option C: The net income will not be impacted by this mistake. Therefore, this option is incorrect.
D) Option D: The interest expense and amortization expense will be impacted by this mistake. However, this option is not the best choice because it does not fully explain the impact of the mistake.

A Lessee Mistakenly Treated an Operating Lease as a Capital