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Basic Question 3 of 16
When payments are made as part of a capital lease agreement, how does the lessee determine the amount to debit to the account "Obligation under Capital Leases"? It is equal to the ______.
B. difference between the lease payment and the principal amount
C. amortization of the leased asset
D. difference between the lease payment and the interest expense
A. lease payment
B. difference between the lease payment and the principal amount
C. amortization of the leased asset
D. difference between the lease payment and the interest expense
User Contributed Comments 5
| User | Comment |
|---|---|
| stranger | a. lease payment includes the principal and the interest expense b. difference of lease payment and principal will be the interest expense c. x d. THE DIFFERENCE BETWEEN LEASE PAYMENT AND INTEREST EXPENSE GIVES THE DEBT AMOUNT OR LIABILITY |
| o123 | aweome question...single handedly clarified the entire lease payment structure! |
| quanttrader | in capital lease, take on the asset at total amt x. Obligation under capital lease = x - interest expense (it it is principal only)-- like amortization for home. |
| quanttrader | ie principal outstanding |
| gill15 | If this question said the difference between total lease payments and total interest expense I would have chose D... but it didnt say total...doesnt make sense without that. Then it's just an individial payment we're accounting for. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain the financial reporting of leases from the perspectives of lessors and lessees
CFA® 2025 Level I Curriculum, Volume 2, Module 8.