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Capital Lease: JK Company.

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JK Company has the following balances on the 2008 B/S: current assets=70,000, long-term assets=250,000, current liability=40,000, long-term debt=130,000, and stockholders equity=150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the next three years. The company s average borrowing rate (discount rate) is 10%. Which one is correct if the lease is recorded as a capital lease?

A Working capital will be increased

B Current ratio will be increased

C ROA will be increased

D None of the above

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Your tutorial explains in a paragraph which response is the best and why with instructional comments about capital leases.

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JK Company has the following balances on the 2008 B/S: current assets=70,000, long-term assets=250,000, current liability=40,000, long-term debt=130,000, and stockholders equity=150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the ...

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