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Capital lease amortization schedule
AI accountant’s answer:
I'm glad you're interested in the capital lease amortization schedule! A capital lease, also known as a finance lease, is a type of lease where the lessee assumes substantially all risks and rewards of owning the asset, even though the legal title remains with the lessor. An amortization schedule is a table that shows the allocation of lease payments over the lease term, breaking down the amount applied toward interest and principal balance. Here's how you can create a capital lease amortization schedule: 1. Identify the lease term, interest rate, and lease payment amounts. 2. Determine the present value of the asset, which is the initial amount financed or the cost of the asset. 3. Start with the first period of the lease and apply the interest rate to the present value of the asset to find the interest expense for that period. 4. Subtract the interest expense from the total lease payment to find the principal portion paid during that period. 5. Update the present value of the asset by deducting the principal portion of the payment. 6. Repeat steps 3-5 for each subsequent period until the end of the lease term. Remember that each payment consists of two components: interest and principal. Initially, the interest portion of the payment will be higher, and over time, as the balance reduces, the principal portion increases. Creating an amortization schedule helps you track this shift and provides a clear understanding of how much of each payment goes toward interest expense and principal reduction. If you need help with a specific capital lease scenario, feel free to provide more details, and I'd be happy to assist you!
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Ieva Ivanauskas, EA
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