Capiatal Lease

Assume the following capital lease: Present value (PV) of lease payments at 12 percent is $25,000. The leased asset is depreciated straight line over 6 years. The lease payment is $6,000. The first payment of $6,000 is to be paid at the end of the year. On a before tax basis, the income reported under capital lease compared with that reported under an operating lease for the first year will be: A) -$1,167. B) $1,167. C) -$3,000. D) $3,000.


yes, A, if that means the expense is gonna be that much larger

depreciation per year = 4166.66, interest expense = 12% x 25,000 = 3000 so expense under capital lease = 7166.66, operating lease 6000 -> difference 1,167, now get sign right. capital lease is less -> “-” -> A. correct?