Assume a Company Enters into a Capital Lease on January

question 6

Multiple Choice

Assume a company enters into a capital lease on January 1, 2012, to acquire the use of a machine for 5 years. The present value of the lease payments is $60,000, and the interest rate is 12 percent. If annual rental payments of $18,000 are due at the end of each year, the journal entry to record the first annual payment on December 31, 2012, would include a debit to

• A) Lease Expense, $18,000
• B) Interest Expense, $7,200 and Lease Expense, $10,800
• C) Interest Expense, $7,200 and Lease Liability, $10,800
• D) Interest Expense, $9,000 and Lease Liability, $9,000

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