Question

A city entered into a general capital lease for equipment on July 1, 20x7. the capitalizable...

A city entered into a general capital lease for equipment on July 1, 20x7. the capitalizable cost of the equipment was $400,000. a down payment of $40,000 was made. the next lease payment of $100,000 id due July 1, 20X8. the implicit rate of interest on the lease agreement is 10%. the amount of expenditure that the city should report in its general Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 20X7 is

A. $40,000

B- $58,000

C- $400,000

D- $418,000

The right answer is C $400,000

Could you please show me the steps for this problem

Business   Accounting   
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Answer #1

The amount of expenditure that the city should report in its general Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 20X7 is the capitalizable cost of the equipment.

The entry to record the inception of lease in the General Fund will be:

Total Expenditures    Dr $400,000

To Cash $40,000

To Other Financing source $360,000

(To record the inception of the lease in the General Fund.

Hence, the amount of expenditure that the city should report in its general Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 20X7 is $400,000.

Answer is C- $400,000.

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