easy · Investment Banking accounting

What happens to the 'Lease Liability' on the Balance Sheet at the very end of a 10-year finance lease term, assuming no purchase option is exercised?

  1. It is written off as a 'Gain on Lease Termination' recognized on the Income Statement at maturity.
  2. It is reclassified as 'Common Equity' to reflect the company's full ownership stake in the underlying asset.
  3. The liability reaches zero because all principal and interest have been paid through the periodic lease payments.
  4. It remains on the balance sheet at its initial present value until the leased asset is physically returned to the lessor.

Sign up free to see the explanation and track your rank →

More Investment Banking accounting practice

KomFi: Test Prep Made Easy

KomFi: Test Prep Made Easy — free adaptive practice for GMAT, GRE, SAT, ACT, National Real Estate Exam, Investment Banking, and finance with full explanations.

KomFi Academy is free GMAT prep and personalized GMAT help built as a training platform: 92,240+ practice questions, 30,500+ flashcards, on-demand video lectures, podcasts, and 4K slide decks. Flagship tracks: Free GMAT Prep, Free GMAT Resources, National Real Estate Exam Prep, Investment Banking Prep, Finance Prep, GRE, SAT, ACT, LSAT, MCAT, Financial Accounting, Private Equity, Private Credit, and Quantitative Finance.

Free GMAT Prep & Personalized GMAT Help

What's inside

Topics

View pricing · Read testimonials