In an operating lease, the amortization of the right-of-use asset in the third year is:
A) the same as in the fourth year.
B) zero.
C) less than in the fourth year.
D) more than in the fourth year.

Question

Quizplus · Accepted Answer

Since interest is computed on the beginning balance of the liability account, as that balance is reduced, the interest component of subsequent payments is reduced. The interest portion of the payment in the third year will therefore be more than the interest portion of the payment in the fourth year. Since the amortization expense is the difference between the interest portion of the payment, and the payment is the same amount each year, then as the interest portion of the payment declines, the amortization portion of the payment increases.

In an Operating Lease, the Amortization of the Right-Of-Use Asset