Question

a.

On Dec. 31, 2017, the Eastville City water department leased equipment under a noncancelable lease agreement that transferred title to the city after making seven payments of $ 15,250. The present value (6% interest) of the minimum lease payments is $90,250. Payments are to take place on December 31 beginning in 2017.  

Required: Prepare journal entries for 2017 and 2018 assuming the estimated useful life of the equipment is 10 years.

(B) Big City provides a defined benefit pension plan for employees of the city water department, an enterprise fund. Assume that the service cost component is $420,000, and interest on the pension liability is $380,000 for the year. Actual returns on plan assets for the year were $300,000 while the projected level of earnings on plan investments was $360,000. This difference is to be amortized over a 5 year period, beginning this year. Finally assume the City is amortizing a deferred inflow resulting from a change in plan assumptions from a prior year in the amount of $10,000 per year.

Required: Prepare journal entries to record annual pension expense for the enterprise fund.

Please use below format

a
Big City
Water Department Enterprise Fund
	Account	DR	CR
1
2
3
4
b
Eastville City
Water Department Enterprise Fund
1
2
3
12/31/2017

Answer 1

Date	Account Titles and Explanation	Debit	Credit
12-31-2017	Equipment	90,250
	Lease Payable		90,250
	(To record equipment leased)
12-31-2017	Lease Payable	15,250
	Cash		15,250
	(To record payment of lease rental)
12-31-2018	Lease Payable	10,750
	Finance Cost [(90,250 - 15,250)x 6%]	4,500
	Cash		15,250
	(To record finance cost and payment of lease rental)
12-31-2018	Depreciation (90,250 / 10years)	9,025
	Equipment		9,025
	(To record depreciation on equipment for 2018)

Note: We are allowed to answer only 1 question for each posting. If you want answer for 2nd question, post it separately. If you have any doubts or need any clarifications, feel free to reach us in comments. Kindly provide your valuable feedback.