What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using a capital lease?
What will be an ideal response?
Answer: If the firm acquires the fleet through a capital lease it is the same as if Luther borrowed the money and purchased the fleet directly. The fleet is must be listed as an asset and the lease will show up as a liability. Therefore, Luther's balance sheet will look like:
Assets Liabilities
Cash $500 Debt $6,000
Property, Plant, and Equipment $8,500 Equity $3,000
Total Assets $9,000 Total Debt plus Equity $9,000
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