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