Question

When the total expenses over the life of an operating lease are compared to the total expenses over the life of a finance lease, one will find that: Multiple Choice The expenses of a finance lease are greater than the expenses of the operating lease. The expenses of the finance lease and operating lease are equal. The expenses of an operating lease are greater than the expenses of a finance lease. No meaningful comparison can be made.

Answer 1

Answer:

The expenses of the finance lease and operating lease are equal

Explanation:

A lease is an agreement wherein the the lessor allows the lessee to use an asset for a fixed period in return for periodical lease rentals.

Leases are of two types, operating and finance. In the latter, the lessee has the option to buy the asset on lease, at the end of the lease term at a very reduced value. In case of operating lease, the lessor remains the owner upon the termination of lease.

Expenses refer to lease rental payments made by the lessee to the lessor. Considering, the lessor wants a desired rate of return from leasing activity, the lease rentals under both would be structured to give him the same desired return.

This means, the expenses of both finance and operating lease would be equal.