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

question 33

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 one year from the date the lease is signed?
$$\begin{array} { | l | l | r | r | } \hline \text { A) } & \text { Expenditures - Leased Asset } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { B) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Lease Principal } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { C) } & \text { Lease Principal } & 5,411.41 & \\\hline & \text { Other Financing Sources - Capital Lease } & & 5,411.41 \\\hline \text { D) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Leased Asset } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { E) } & \text { Other Financing Sources - Capital Lease } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline\end{array}$$

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

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Definitions:

Vertical

In economics, this term typically refers to a market structure where companies provide different, but related, products or services at various stages of production.

Money Supply

The total financial resources in an economy at a particular time, made up of cash, coins, and the holdings in checking and savings accounts.

Inflation

An increase in the average cost of goods and services, resulting in a drop in the value of purchasing power.

Unemployment Rate

The unemployment rate represents the proportion of the workforce that is without a job and is actively looking for work.