2025 ACA Corporate Reporting Exam Practice – Comprehensive Prep

An operating lease is indeed characterized by not transferring all risks and rewards of ownership from the lessor to the lessee. This means that while the lessee has the right to use the asset for a specific period, they do not assume the full responsibilities typically associated with ownership, such as the risk of asset obsolescence or depreciation.

In an operating lease, the asset remains on the balance sheet of the lessor, and the lease payments are treated as operating expenses rather than capital expenditures. This arrangement allows businesses to utilize assets without significant capital investment, thus maintaining flexibility and liquidity in their operations.

The other choices specify characteristics of different types of leases. For instance, leases that transfer ownership at the end are more indicative of a finance lease, where the lessee assumes significant risks and rewards of ownership. A long-term financial commitment to purchase an asset points more towards definite ownership arrangements rather than the transient nature of an operating lease. Finally, while operating leases may offer certain levels of sub-leasing, any restrictions typically depend on the terms set forth in the lease agreement, making unrestricted sub-leasing a less accurate definition.