Upon entering in the lease agreement, capital leases require that the lessee records
A)the leased asset, only.
B)the leased asset and the lease liability.
C)the lease liability, only.
D)nothing because the lessor owns the property.
E)the present value of future cash flows as an asset, only.

Question

Quizplus · Accepted Answer

Capital leases require that the lessee records both the leased asset and the lease liability on their balance sheet. The leased asset is recorded as a non-current asset, and the lease liability is recorded as a non-current liability. This is done because the lessee effectively owns the asset even though they may not have paid for it upfront, and they have an obligation to make lease payments over the term of the lease.

Upon Entering in the Lease Agreement, Capital Leases Require That