Question:
Quick Company’s lease payments are made at the end of each period. Quick’s liability for a capital lease will be reduced periodically by the
A. Minimum lease payment.
B. Minimum lease payment plus the amortization of the related asset.
C. Minimum lease payment less the amortization of the related asset.
D. Minimum lease payment less the portion of the minimum lease payment allocable to interest.
Answer:
The correct choice is D.
Step-by-step explanation:
The present value of the minimum lease payments is the lease payable. The total amount of lease payable is diminished by the percentage of the lease payment chargeable to the lease owed.
This amount is the lease payment minus the interest on the payment. Therefore, the liability is reduced by the minimum lease paid in each period minus the portion of the payment allocable to interest.
Cheers!