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

question 7

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 entry should be made for the government-wide financial statements one year from the date the lease is signed?
$$\begin{array} { | l | l | r | r | } \hline \text { A) } & \text { Capital Lease Obligation } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { B) } & \text { Interest Expense } & 1,604.75 & \\\hline & \text { Capital Lease Obligation } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { C) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Lease Asset } & 3,806.66 & \\\hline & \text { Other Financing Sources - Capital Lease } & & 5,411.41 \\\hline \text { D) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Leased Asset } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { E) } & \text { Equipment } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline\end{array}$$

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

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