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Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each...

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Accounting

Ajax entered into a four-year finance lease that specifies eightequal minimum semi-annual lease payments. Each payment is composedof two things: interest expense and a reduction in the net leaseliability. The portion of the fourth lease payment applicable tothe reduction of the net lease liability should be

Question 10 options:

more than in the fifth payment.

the same as in the third payment.

less than in the fifth payment.

less than in the third payment.

Answer & Explanation Solved by verified expert
3.6 Ratings (468 Votes)

Year Lease Payment Interest exp

Reduction in net lease liability

 Lease Liability
0 $        10,000
1 $       1,000 $          200 $          800 $          9,200
2 $       1,000 $          184 $          816 $          8,384
3 $       1,000 $          168 $          832 $          7,552
4 $       1,000 $          151 $          849 $          6,703
5 $       1,000 $          134 $          866 $          5,837
6 $       1,000 $          117 $          883 $          4,954
7 $       1,000 $            99 $          901 $          4,053
8 $       1,000 $            81 $          919 $          3,134
Correct option  - less than in the fifth payment.

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