During the Year the City of Hamburg Engaged in the Following

question 2

Essay

During the year the City of Hamburg engaged in the following transactions. The city uses the consumption method of recording inventories and prepayments. The city has a 6/30 fiscal year end.
REQUIRED: Record the following transactions related to supplies, prepaid items and fixed asset acquisitions.
a. During the year the city purchased $600,000 of expendable supplies.
b. On September 1 the city paid $360,000 for a three-year insurance policy to cover some assets used in general government activities.
c. On December 1 the city purchased four pickup trucks for general government activities. The trucks cost $100,000 in total.
d. On January 1 the city leased some office equipment for use in the administrative offices. The lease qualified as a capital lease. The present value of the minimum lease payments is $96,000.
e. On April 1 the city leased a copying machine. The lease qualified as an operating lease. The terms of the lease require yearly payments of $2,000 each April 1 for 5 years. The city prepaid the entire five years of the lease.

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Definitions:

Bondholder Claims

The rights or entitlements that bondholders have to receive payments of principal and interest, as well as their place in the hierarchy of creditors in the event of a default.

Debt/equity Ratio

A ratio used to determine how much of a company's assets are financed through equity versus debt.

Tax Shield

A deduction from taxable income that results in a reduction of taxes owed, often associated with interest expense, depreciation, or other deductions.