Question

Crystal Corporation makes $2,000 payments every month for leasing office equipment. Crystal recorded a lease payment as follows: Lease payable 1,200 Interest expense 800 Cash 2,000 Amortization expense 1,200 Right-of-use asset 1,200 Crystal must have a(n):
Crystal must have a(n):
a. Leveraged lease.
b. Sales-type lease without selling profit.
c. Finance lease.
d. Operating lease.

Answer 1

Answer:

D) Operating lease.

Explanation:

In an operating lease, ownership is not transferred, the agreement is made in order to temporarily use and operate the assets. Since operating leases don't include ownership, they are not included in the balance sheet since they only generate expenses and no liabilities. Operating leases are included in the income statement only.