Critically evaluate the statement.

Lease classification can raise earnings management concerns.

Your answer shall cover the following key points:

1. How do capital leases and operating leases affect the balance sheet and income statement, respectively?
2. What are the possible reasons leading to the managerial misclassification of leases? Briefly explain in what situations managers are more likely to misclassify an operating lease as a capital lease, and in what situations managers are more likely to misclassify a capital lease as an operating lease.