Identify the incorrect statement concerning lease finance. A. Companies that are short of finance can use leasing as a source of assets B. Lease payments attract tax relief C. Interest payments attract tax relief D. Finance leasing allows companies to avoid the problem of obsolescence in cases where assets are subject to rapid technological change E. Empirical research has shown that many companies use an incorrect method when evaluating lease finance

Identify the incorrect statement concerning lease finance. A. Companies that are short of finance can use leasing as a source of assets B. Lease payments attract tax relief C. Interest payments attract tax relief D. Finance leasing allows companies to avoid the problem of obsolescence in cases where assets are subject to rapid technological change E. Empirical research has shown that many companies use an incorrect method when evaluating lease finance

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 5Q

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Which of the following is nota reason why some companies lease rather than buy? A. Leasing may allow you to borrow with little or no down payment. B. Leasing can improve the balance sheet by reducing long-term debt. C. Leasing can lower income taxes. D. Leasing transfers the title to the lessee at the beginning of the lease.
Which is not an advantage of leasing from a lessee's viewpoint? A.The asset can be acquired without having to make a substantial down payment. B. Leased assets are never reported on the balance sheet. C. The risk of obsolescence may be reduced. D. A lease may provide 100% financing.
Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note? a. Lease payments often are lower than installment payments.b. Leasing generally requires less cash upfront.c. Leasing typically offers greater flexibility and lower costs in disposing of an asset.d. All of the above are advantages of leasing.
Which of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. III. Transaction costs will cease to exist for a lease contract than for buying the asset IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: a. I and III only b. IV only c. III only d. I and IV only e. I, III, and IV only
One advantage of leasing voiced in the past is that it kept liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than itotherwise could have. This raised the question of whether or not both the leaseobligation and the asset involved should be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizing leases and related assets
One alleged advantage of leasing voiced in the past was that it kept liabilities off the balancesheet, thus making it possible for a firm to obtain more leverage than it otherwisecould have. This raised the question of whether the lease obligation and the asset involvedshould be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizingleases and related assets.
A mine operating company approaches an Islamic financial firm to obtain lease financing for some large and quite unique equipment. The financial firm is concerned it will not be able to sell the equipment at the end of the lease term. What form of financing should it propose?
14) Good reasons for leasing include all of the following EXCEPT that: Leasing is a source of 100% financing for an asset. Leasing may not increase a firm's financial leverage. Leasing may encumber fewer assets than borrowing. Leasing transfers uncertainty about the future value of the leased asset to the lessor. Taxes may be reduced by leasing
1. Which statement is incorrect about initial direct costs? a. Initial direct costs incurred by the lessee in finance lase are added to the amount recognized as an asset and to the finance lease liability. b. In a direct financing lease, initial direct costs are added to the net investment in the lease. c. In a sales type lease, initial direct costs are expensed as component of cost of goods sold. d. For operating leases, initial direct costs are deferred and allocated over the lease term. 2. If the lessor and lessee use different interest rates to account for a finance lease, then a. The lessor will use different account titles to record the leasing transactions b. Total expenses and revenues will be equal c. Total expenses and revenues will be different d. The lessee and the lessor cannot use different interest rates 3. In the case of a lease of land and building where title to the land is not transferred, the lease is generally treated as if: a. Both land and building are finance…
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets, or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: a. What are the possible advantages of leasing the assets instead of owning them? b. What are the possible disadvantages of leasing the assets instead of owning them? c. How will the balance sheet be different if Bradley Co. leases the assets rather than purchasing them?
Assuming that FASB Statement 13 and ASU2016-02 are working as they are supposed to work,should traditional leasing arrangements enable afirm to use more financial leverage than it otherwise could? How did synthetic leases alter the situation? How do FASB Statement 13, ASU 2016-02and synthetic leases affect the rate at which cashflows are discounted in a lease analysis?
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: a. What might be the advantages of leasing the assets instead of owning them? b. What might be the disadvantages of leasing the assets instead of owning them? c. In what ways will the Statement of Financial Position be differently affected by leasing the assets as opposed to issuing bonds and purchasing the assets?