A six-year capital lease entered into on December 31, year 1,
specified equal minimum annual lease payments due on December
31 of each year. The first minimum annual lease payment,
paid on December 31, year 1, consists of which of the following?

Interest expense
Lease liability

(c) In a capital lease where the first annual lease payment
is made immediately upon signing the lease (annuity due),
the first payment consists solely of lease liability reduction, since
no time has transpired during which interest expense could be
incurred. Subsequent payments include both interest expense
and reduction of the liability