If a company had capitalized a lease on an asset, which of the following entries for the lease payment would be correct?
a) Dr. Lease obligation
Cr. Cash
b) Dr. Amortization expense Cr. Cash
c) Dr. Lease obligation
Dr. Amortization expense Cr. Cash
d) Dr. Interest expense
Dr. Lease obligation
Cr. Cash
A)Option A
B)Option B
C)Option C
D)Option D

Question

If a company had capitalized a lease on an asset, which of the following entries for the lease payment would be correct? 
a) Dr. Lease obligation
Cr. Cash
b) Dr. Amortization expense Cr. Cash
c) Dr. Lease obligation
Dr. Amortization expense Cr. Cash
d) Dr. Interest expense
Dr. Lease obligation
Cr. Cash
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

When a company capitalizes a lease, the lease payments are split into two parts: the reduction of the lease liability (lease obligation) and interest expense. This is reflected in option D, where both Interest expense and Lease obligation are debited, indicating the payment of interest and the reduction of the principal amount of the lease liability, respectively, with Cash being credited to show the outflow of cash for the lease payment.

If a Company Had Capitalized a Lease on an Asset