Question

At the inception of a lease, no entry is necessary to record capital lease agreements entered...

At the inception of a lease, no entry is necessary to record capital lease agreements entered by the General Fund since neither the asset nor the lease obligation appear in the fund-basis statements.

True or False?

Business   Accounting   
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Answer #1

Answer:

False

Explanation:

When a government acquires general fixed assets under a capital lease agreement, the asset should be recorded in the General Fund's fund basis financial statements as debt service expenditures when payments are made.

GASB standards also require the lease to be reflected as a capital expenditure within a governmental fund. Assuming the equipment is for a department in the General Fund, the following entry would be made at the inception of the capital lease:

By Expenditures—Capital Outlay Dr    xxxx

To Other Financing Sources—Capital Lease Agreements Cr xxxx

To Cash Cr xxxx

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