In a capital lease, what is typically included in the lessee’s payments?

In a capital lease, the lessee's payments typically include both interest and principal components. This reflects the fact that a capital lease is essentially a financing arrangement where the lessee is acquiring the asset and is responsible for its entire cost over the lease term. The payment consists of a portion that covers the interest expense, which compensates the lessor for the use of the capital, as well as a portion that applies toward reducing the principal amount, which reflects the acquisition of the asset itself.

This combination of interest and principal reflects the economic reality of the lease being treated similarly to a loan for accounting purposes, as the lessee effectively assumes the risks and benefits of ownership. As a result, this payment structure is crucial for accurately representing the financial obligations associated with a capital lease on the lessee's balance sheet.

The other options do not capture this complete structure of the payment. Interest charges alone, principal only without interest, or costs related to operations or taxes do not encompass the full nature of the payments in a capital lease scenario, which is why they are not correct.