medium · Investment Banking
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' on the Income Statement.
- It is reclassified as 'Common Equity' to reflect the company's full ownership of the ROU 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 asset is physically returned.
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