When accounting for a capital lease,depreciation expense is equal to the
A)lease payments.
B)principal portion of the lease payments.
C)normal depreciation computed on the depreciable base of the asset.
D)straight-line depreciation only on the full amount of the leased asset.

Question

Quizplus · Accepted Answer

Depreciation expense for a capital lease is computed on the depreciable base of the asset, which is equal to the present value of the lease payments over the lease term. This is because the lessee is considered the owner of the asset for accounting purposes, and must record the lease payments as both interest expense and reduction of the lease liability. The normal depreciation method should be used to compute depreciation expense, and the depreciation amount should be charged to the lease asset account. Option A is incorrect because lease payments are split between interest expense and reduction of the lease liability, and only the latter amount can be considered for depreciation. Option B is incorrect because the principal portion of the lease payments only reflects the reduction of the lease liability, not the depreciable amount of the asset. Option D is incorrect because straight-line depreciation would not be appropriate if another method (such as accelerated depreciation) is used for tax purposes.

When Accounting for a Capital Lease,depreciation Expense Is Equal to the