On January 1, 2012, Eugene Inc. entered into a capital lease to acquire the use of a computer for 5 years. The present value of the lease payments is $85,000, the applicable interest rate is 10 percent, and payments of $24,000 are due at the end of each year. The entry to record the first $24,000 payment on December 31, 2012, will include a debit to

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The first payment includes interest expense and a reduction of the lease liability. The interest expense for the first year is $8,500 ($85,000 x 10%), so the reduction of the lease liability is $15,500 ($24,000 - $8,500).