Why Must Some Debt Be Eliminated When a Firm Enters

Why must some debt be eliminated when a firm enters a lease agreement?

A) FAS 13 requires an increase in equity equal to the present value of the lease agreement.
B) Lessors require lessees to reduce their debt to demonstrate an ability to make the lease payments.
C) FAS 13 requires a debt offset equal to the present value of the lease payments.
D) Leases are all debt which causes an imbalance in the firm's debt-equity ratio.
E) FAS 13 requires lease payments be offset by an equal decrease in debt payments.

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