What Is the Effect of Classifying a Lease as an Operating

Multiple Choice

What is the effect of classifying a lease as an operating lease, as opposed to as a finance lease, on the debt to equity ratio and the times-interest-earned ratio?
$\begin{array} { l l l } & \text { Debt to equity ratio } & \text { Times-interest-earned ratio } \\\end{array}$
a) $\begin{array} { l l l } && \text { Overstated } &&&&&& \text { Overstated } \\\end{array}$
b) $\begin{array} { l l l } && \text { Overstated } &&&&&& \text { Understated } \\\end{array}$
c) $\begin{array} { l l l } && \text { Understated } &&&&& \text { Overstated } \\\end{array}$
d) $\begin{array} { l l l } && \text { Understated } &&&&& \text { Understated } \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D