You are studying with some classmates and are reviewing each other’s responses to the following question:

“Why do companies lease equipment and what are the financial statement effects of leasing rather than borrowing and purchasing the equipment?”

Your classmate responds as follows:

“Companies lease equipment when they don’t have the money to buy it. If a company leases equipment, then the financial statement effects are exactly the same as they would have been if the company had borrowed the money and then bought the equipment.”

Required

Identify how your classmate’s answer could be substantively improved.