Star City Leased a Bulldozer for Use in Activities Accounted

question 41

Multiple Choice

Star City leased a bulldozer for use in activities accounted for in the general fund. The city paid $40,000 and agreed to pay $40,000 per year for 3 years. The bulldozer has a useful life of six years. The lease qualified as a capital lease. Assuming that the city maintains is books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the general fund at the date of acquisition would be

• A) Debit Expenditures $160,000; Credit Cash $40,000 and Other financing sources $120,000.
• B) Debit Expenditures $40,000 and Prepaid lease $120,000; Credit Cash $40,000 and Other financing sources $120,000.
• C) Debit Equipment $160,000; Credit Cash $40,000 and Other financing sources $120,000.
• D) Debit Expenditures $160,000; Credit Cash $40,000 and Lease payable $120,000.

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