Question

A 12-year capital lease specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment applicable to interest expense should:

Answer 1

Answer: Less than in year 8

Explanation:

Here is the complete question:

A 12-year capital lease specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment in Year 10 applicable to interest expense should be:

a. Less than in Year 8

b. More than in Year 8

c. The same as in Year 12

d. Less than in Year 12

A capital lease is a type of lease whereby the leader asset are financed by the lessor while the lessee gets all other ownership rights.

Based on the scenario explained in the question, the portion of the minimum lease payment in Year 10 applicable to interest expense should be less than in Year 8.