Question

At the beginning of fiscal 2020, the county government signs a 2-year lease, with $50,000 paid at signing, and $50,000 due at the end of fiscal 2020. The lease has an implicit interest rate of 3%, the present value of the lease payments is $98,544, and the leased equipment has an estimated life equal to the life of the lease, no residual value.

The lease is reported in the general fund. What asset is reported for this lease in the governmental funds balance sheet at the end of fiscal 2020?

	A.	No asset is reported.
	B.	Leased asset, $49,272
	C.	Leased asset, $98,544
	D.	Leased asset, $100,000

Answer 1

Answer
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Solution:
At the beginning of year 2020, the asset was leased and recorded in books at $ 98,544, but at the end of year 2020, depreciation expense would have been recorded on the asset due to which its carrying value in the books would have reduced, so the asset would be reported at ;
	= Cost - Depreciation expense for the year
= $98,544 - ($98,544/2)
= $98,544 - $49,272
= $49,272
Hence,Option B) Leased asset, $49,272 is correct answer.
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