Which one of the following ratios deteriorates with the lessee's capitalization of a lease?
A)Current ratio
B)Return on equity
C)Inventory turnover
D)Common earnings leverage

Question

Quizplus · Accepted Answer

When a lessee capitalizes a lease, it is recorded as a long-term liability on the balance sheet. This increases the lessee's total liabilities and reduces their current assets, which decreases their current ratio. The current ratio measures a company's ability to pay its current liabilities with current assets, so a lower current ratio indicates a weaker financial position.

Which One of the Following Ratios Deteriorates with the Lessee's