Asked by Michelle Mazur on May 12, 2024
Verified
When a lessee makes periodic cash payments for a capital lease, which of the following accounts is decreased?
A) Lease Rental Expense
B) Leased Equipment
C) Capital Lease Obligation
D) Interest Expense
Capital Lease Obligation
A lease classified as a purchase agreement for accounting purposes, wherein the lessee records the leased asset as an owned asset on the balance sheet.
Capital Lease
A lease agreement that transfers substantially all the risks and rewards of ownership of the asset to the lessee, effectively treated as a purchase of the asset.
Periodic Cash Payments
Payments made regularly over a period of time, such as dividends or loan repayments.
- Determine the effects of lease payments on lessee's balance sheet and income statement.
Verified Answer
BK
Beyza Kural
May 18, 2024
Final Answer :
C
Explanation :
When a lessee makes periodic cash payments for a capital lease, the Capital Lease Obligation account is decreased as the lessee is paying off the debt owed for the leased equipment. The Lease Rental Expense account would be increased as the lessee incurs expenses for using the equipment, while the Leased Equipment account would remain unchanged as it represents the value of the equipment being used. Interest Expense would also be decreased over time as the lease liability is paid down.
Learning Objectives
- Determine the effects of lease payments on lessee's balance sheet and income statement.