When a Cash and Investment Pool of a Certain City

question 53

Multiple Choice

When a cash and investment pool of a certain city was established,the debt service fund transferred investments to the pool having a cost of $3,000,000 but a current fair market value of $2,900,000.To record this transaction,the journal entry made by the debt service fund will include:

• A) A debit to Equity in Pooled Cash and Investments in the amount of $3,000,000.
• B) A debit to Revenues-Change in Fair Value of Investments in the amount of $100,000.
• C) A debit to Investments in the amount of $2,900,000.
• D) A credit to Investments in the amount of $100,000.

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Definitions:

Guaranteed Residual Value

The assured value that an asset will have at the end of its lease term, guaranteed by a party, often the lessee or manufacturer.

Bargain Purchase Option

An option in a lease agreement that allows the lessee to purchase the leased asset at a price significantly below its fair market value at the end of the lease term.

Capital Lease Obligation

A financial commitment that a lessee must recognize on their balance sheet for a lease considered a purchase of an asset rather than a rental, due to its terms meeting certain criteria.

Initial Direct Costs

Expenses that are directly associated with acquiring or originating a loan or insurance contract, or other financial instruments, that are recognized at the inception of the contract.