Company A and Company B operate in the same industry,where leasing assets is common practice.Company A engages in more finance leases than Company B.Company B's leases are classified as operating leases.Which of the following statements is correct?
A) Company A will appear stronger financially than company B.
B) Company A will appear weaker financially than company B.
C) The leasing type does not make a difference and both companies will appear equal financially.
D) Company B will appear weaker financially than company A.

Question

Quizplus · Accepted Answer

Company A will appear weaker financially because finance leases are classified as debt on the balance sheet and affect the company's debt-to-equity ratio, while operating leases do not appear on the balance sheet as debt, making Company B's financial position appear stronger.

Company a and Company B Operate in the Same Industry,where