Series 79 practice questionhardOperating vs. Capital Lease
Under U.S. GAAP ASC 842, which of the following is a key effect of treating a lease as a finance (capital) lease instead of an operating lease?
- ANo impact on the balance sheet
- BLower depreciation expense
- CA single lease expense recognized on a straight-line basis
- DSeparate interest and amortization expense, producing a front-loaded total lease expense✓ Correct answer
Explanation
Why D — Separate interest and amortization expense, producing a front-loaded total lease expense
ASC 842 generally puts both operating and finance leases on the balance sheet through a right-of-use asset and lease liability. Finance leases recognize interest and amortization separately, producing front-loaded total lease expense; operating leases generally recognize a single straight-line lease expense.
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