- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 8. Topics in Long-Term Liabilities and Equity
- Subject 3. Accounting and Reporting by the Lessee
CFA Practice Question
What is the estimated difference between operating lease expense and pro-forma capital lease expense for a mature firm at the midpoint of a lease's life?
B. Operating lease expense is less than pro-forma capital lease expense.
C. The relationship between operating lease expense and pro-forma capital lease expense varies from firm to firm.
D. Operating lease expense is not significantly different from pro-forma capital lease expense.
A. Operating lease expense is greater than pro-forma capital lease expense.
B. Operating lease expense is less than pro-forma capital lease expense.
C. The relationship between operating lease expense and pro-forma capital lease expense varies from firm to firm.
D. Operating lease expense is not significantly different from pro-forma capital lease expense.
Correct Answer: D
Typically, at the midpoint of a capital lease's life a firm will record about as much lease expense as it would if the lease had been structured as an operating lease. Therefore, the operating lease expense and pro-forma capital lease expense are about equal.
User Contributed Comments 4
| User | Comment |
|---|---|
| kuan | Given the firm is mature.. Shouldnt the capital lease expense be less? |
| Piersy | I thought A, b/c firm is mature therefore towards the end of the CL and lease expense will be less than equivalent OL lease expense. But it's the middle of the lease's life... |
| americade | after depreciation / amortization falls off to nothing they are about the same |
| bundy | Key is mid point its the point weher the expenses are pretty much equal |