In a capital lease, who assumes the risk associated with ownership?

In a capital lease, the lessee assumes the risk associated with ownership. This is due to the nature of capital leases, which are structured to effectively transfer most of the risks and benefits of ownership from the lessor to the lessee. Under a capital lease, the lessee is responsible for maintaining the asset, as well as handling any associated costs, such as property taxes and insurance, which are typically obligations of an owner. This is in contrast to operating leases, where the lessor retains more ownership responsibilities.

This arrangement impacts financial reporting and accounting, as the lessee records the leased asset and the corresponding lease liability on their balance sheet. By recognizing the lease in this way, the lessee reflects the economic reality that they control the asset and bear the risks typically associated with ownership. Thus, option B accurately captures the essence of risk assumption in capital leases.