One Advantage of a Financial Lease

D

A financial lease is a long-term lease agreement in which the lessee (the party using the asset) is responsible for the maintenance, insurance, and other expenses associated with the asset, while the lessor (the owner of the asset) retains ownership. The lessee typically has the option to purchase the asset at the end of the lease term for a predetermined price. One advantage of a financial lease is that it provides a way for the lessee to acquire the use of an asset without having to make a large upfront payment or obtain financing to purchase the asset outright.

Now, let's examine each answer choice to see which one represents an advantage of a financial lease:

A. It has a shorter maturity than term loans: This is not an advantage of a financial lease, as a financial lease is a type of long-term financing. In fact, the lease term for a financial lease is typically longer than the term for a term loan.

B. It never appears as a liability on the balance sheet: This is not true. A financial lease is a liability that must be reported on the lessee's balance sheet. The lessee must report the leased asset as an asset and the obligation to make lease payments as a liability.

C. It eliminates the need to make periodic payments: This is not an advantage of a financial lease, as the lessee is required to make regular lease payments to the lessor.

D. It provides a way to indirectly depreciate land: This is not true. Land is not depreciable, as it does not have a finite useful life. However, a financial lease can be used to indirectly depreciate other types of assets, such as machinery or equipment, over the lease term.

Therefore, the correct answer is none of the above.