Question

Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each payment is composed of two things: interest expense and a reduction in the net lease liability. The portion of the fourth lease payment applicable to the reduction of the net lease liability should be

Question 10 options:

	more than in the fifth payment.
	the same as in the third payment.
	less than in the fifth payment.
	less than in the third payment.

Answer 1

Year	Lease Payment	Interest exp	Reduction in net lease liability	Lease Liability
0				$        10,000
1	$       1,000	$          200	$          800	$          9,200
2	$       1,000	$          184	$          816	$          8,384
3	$       1,000	$          168	$          832	$          7,552
4	$       1,000	$          151	$          849	$          6,703
5	$       1,000	$          134	$          866	$          5,837
6	$       1,000	$          117	$          883	$          4,954
7	$       1,000	$            99	$          901	$          4,053
8	$       1,000	$            81	$          919	$          3,134
Correct option  - less than in the fifth payment.