The capital lease method classifies the portion of the lease payment related to interest expense as an ________use of cash and the portion related to a reduction in the lease liability as a _________ use of cash.
A)operating; investing
B)operating; financing
C)financing; investing
D)investing; financing
E)financing; operating

Question

Quizplus · Accepted Answer

The capital lease method treats the interest portion of the lease payment as an operating use of cash because it is an expense related to the operation of the business. The portion of the payment that reduces the lease liability is considered a financing use of cash because it relates to how the company finances its use of the asset.

The Capital Lease Method Classifies the Portion of the Lease