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Unformatted text preview: Operating Lease Method- Under this method the lease asset and the lease liability are not reported on the balance sheet. The payments for the lease are reflected as rent expense when paid. (Easton et al, 2010) The difference between the two methods should be taken into consideration depending on the companys purpose. For example, under the capital lease method NOPAT is higher, greater operating cash flows are reported. Under the operating lease method, NOAT is higher, balance sheet measures of financial leverage are improved, the perceived quality of the companys ROE is improved and the net income reflected during the early years of the lease is higher than with the capital lease method (Easton et al, 2010). References: Easton, P. D., Halsey, R. F., McAnally, M. L., Hartgraves, A. & Morse, W. J., (2010). Financial & Managerial Accounting for MBAs. Canada: Cambridge Business Publishers, LLC....
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- Spring '09