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Why would a business owner enter into a capital lease instead of an operating lease?

A. Because it's the cheapest way for them to finance the purchase of the asset.
B. Because they don't know any better.
C. Because they want to have full control of the asset.
D. Because they don't want to record the asset on their books; they just want to have use of the asset for a period of time.



Answer :

GinnyAnswer

Final answer:

Business owners may choose a capital lease over an operating lease for control, accounting benefits, and financing. Capital leases offer advantages in terms of ownership, financial reporting, and potential cost-effectiveness.


Explanation:

Business owners might enter into a capital lease instead of an operating lease for several reasons:

  1. They want to have full control of the asset: In a capital lease, the lessee (business owner) has the benefits and risks of ownership, providing more control over the asset compared to an operating lease.
  2. They want to avoid recording the asset on their books: Capital leases allow the lessee to treat the asset as if they own it for accounting purposes, without needing to show it as a liability on their balance sheet.
  3. They want to finance the purchase of the asset: Capital leases often provide a cheaper way to finance the acquisition of the asset, as the lease payments cover not only the use of the asset but also include interest and might result in eventual ownership.

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