The City of Roswell has a 6/30 fiscal year-end.The city uses the consumption method for recognizing inventories and prepayments.On July 1, 2014, the city leased computer equipment for use in the city's general activities.The lease is a three-year lease that qualifies as an operating lease.The city prepaid the entire three-year rental fee of $45,000.At June 30, 2015, the appropriate account balances in the general fund associated with this transaction would be
A)Prepaid lease $0; Expenditures $45,000; Fund balance-nonspendable $0.
B)Prepaid lease $45,000; Expenditures $0; Fund balance-nonspendable $45,000.
C)Prepaid lease $30,000; Expenditures $45,000; Fund balance-nonspendable $30,000.
D)Prepaid lease $30,000; Expenditures $15,000; Fund balance-nonspendable $0.

Question

Quizplus · Accepted Answer

The city uses the consumption method, so it recognizes expenditures as the lease is consumed. For the first year, $15,000 is expended, leaving $30,000 as prepaid. The fund balance-nonspendable is $0 because the prepaid amount is already accounted for in the prepaid lease.

The City of Roswell Has a 6/30 Fiscal Year-End