Use the Following to Answer the Next Four Questions

question 85

Multiple Choice

Use the following to answer the next four questions:
On April 1, 2015, the City of Southern Ponds issued $3,500,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $3,490,000 was used to construct the police station, which was completed before December 31, 2015, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2015, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $175,000 is due April 1, 2016.
-A government signed a five-year capital lease on January 1,2015 to obtain some equipment. The lease provided that the government would make a down payment of $20,000 and four $20,000 payments each year after that,beginning January 1,2016. The government has a fiscal year ending December 31. Upon inception of the lease,the government,in its governmental fund accounting records would:

• A) Debit expenditures for $20,000 and credit cash for $20,000.
• B) Debit expenditures for $100,000, credit cash for $20,000, and credit accounts payable for $80,000.
• C) Debit expenditures for the present value of the payments (including the $20,000 down payment), credit cash for $20,000, and credit accounts payable for the difference between the $20,000 and the present value of the future payments.
• D) Debit expenditures for the present value of the payments (including the $20,000 down payment), credit cash for $20,000, and credit other financing sources for the difference between the $20,000 and the present value of the future payments.

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