New municipal building office equipment costs $400,000 and is being financed with a capital lease. If the government makes a $40,000 down payment, which of the following best describes the external financial reporting effects?

Question

Quizplus · Accepted Answer

The down payment of $40,000 is recorded as an "other financing source," which means the financing for the purchase comes from both the capital lease and the down payment. The General Fund statements report the full cost of the equipment as an expenditure, but also report the other financing source. In the General Long-Term Liabilities accounts, the liability is the amount financed through the capital lease, which is $360,000. Finally, the General Capital Assets accounts record the full cost of the equipment as an asset, which is $400,000.

New Municipal Building Office Equipment Costs $400,000 and Is Being