A. Total minimum lease payment.
B. Portion of minimum lease payment allocable to interest.
C. Portion of minimum lease payment allocable to reduction of principal.
D. Depreciation/amortization of the asset.

The correct asnwer is D. Why is not C? Thanks

The lease payment you make each period comprises of interest cost and amortization. So the portion that is applicable to amortization reduces the carrying value .

Hi Gottatobe CPA,

Don't you think D =C.

The way you explained  to me-> Cash= interest + amortization

Dr. Lease obligaion

Dr. Interest Exp

Cr. Cash

But anyway, I guess the question is more asking about carrying value of the assets...and we will do JE as follows

Dr-Amortization / Depreciation Exp

Cr-Accumulated Amortization / Depreciation Exp

Well...I don't like this question too much.

I will try to expalin u with some made up numbers

for eg say PV of your lease obligation is 100,000

and interest rate is 10% and mimum lease payment is $20,000

so of $20,000 u r paying (100,000 * .10 = 10,000), that's interest and rest 10,000 is reducing your principal. so after your first payment u would have paid $10,000 interest and carrying value of your equipment is reduced to $90,000

Now these r just made up numbers just to explain u the concept

I hope that helps.