A Five-Year Lease Is Signed by the City of Wachovia

question 24

Multiple Choice

A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund. What should be recorded in the General Fund on the date the lease is signed?

• A)Option A
• B)Option B
• C)Option C
• D)Option D
• E)Option E

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Definitions:

Manufacturing Overhead

Manufacturing overhead encompasses all the indirect costs associated with producing goods, such as utilities, depreciation, and salaries of support staff, that cannot be directly traced to specific products.

Direct Labor

The compensation given to workers directly engaged in creating goods or services.

Direct Materials

Rephrase: The raw materials or components directly incorporated into a finished product, impacting the product's production process.

Manufacturing Overhead

All indirect costs associated with manufacturing, such as utilities, maintenance, and salaries not directly tied to production.