Beaver city entered into a long-term capital lease for some office equipment.The city maintains its books and records in a manner to facilitate preparation of fund financial statements.What entry should be made in its general fund to record this event?

Question

Quizplus · Accepted Answer

Under the modified accrual basis of accounting used by the general fund, expenditures are recognized when the related liability is incurred. In this case, the liability is the lease payments to be made under the capital lease. Therefore, the appropriate entry is to debit Expenditures and credit Other financing sources-leases to record the incurrence of the liability. Option B is incorrect because the general fund does not record capital assets; those are recorded in the government-wide statements. Option C is also incorrect because leases payable is recorded in the general long-term debt account group, not the general fund. Option D is incorrect because the capital lease does have an effect on financial resources by creating a new liability.

Beaver City Entered into a Long-Term Capital Lease for Some