A general government department of the City of Rocky Flats leased specialized equipment under a multi-year, noncancelable lease agreement that qualifies as a capital lease. The lease required a down payment of $500 and the present value of the minimum lease payments (i.e., the capitalizable cost of the leased asset) was $5,000. The implicit rate of interest on the lease is 10%. Subsequent lease payments of $750 are required annually beginning in 20X2. All amounts are in thousands of dollars.
Transactions:
1. The lease was signed on March 1, 20X1.
2. Prepare any adjusting entries required at December 31, 20X1, the end of Rocky Flats fiscal year.
3. The City made the required payment on February 28, 20X2.
Requirements:
1. Prepare the general ledger journal entries for the transactions for the General Fund. If no entry is required, do not leave it blank. State "No Entry Required" and briefly explain why.
2. Indicate the effects of the transaction on the accounting equations for the General Fund and the General Capital Assets and General Long-Term Liabilities accounts. Do not leave a cell blank.
3. How will the capital lease be reported on the General Fund financial statements for the year ended December 31, 20X1?

Question

Quizplus · Accepted Answer

The Answer of A general government department of the City of Rocky Flats leased specialized equipment under a multi-year, noncancelable lease agreement that qualifies as a capital lease. The lease required a down payment of $500 and the present value of the minimum lease payments (i.e., the capitalizable cost of the leased asset) was $5,000. The implicit rate of interest on the lease is 10%. Subsequent lease payments of $750 are required annually beginning in 20X2. All amounts are in thousands of dollars. Transactions: 1. The lease was signed on March 1, 20X1. 2. Prepare any adjusting entries required at December 31, 20X1, the end of Rocky Flats fiscal year. 3. The City made the required payment on February 28, 20X2. Requirements: 1. Prepare the general ledger journal entries for the transactions for the General Fund. If no entry is required, do not leave it blank. State "No Entry Required" and briefly explain why. 2. Indicate the effects of the transaction on the accounting equations for the General Fund and the General Capital Assets and General Long-Term Liabilities accounts. Do not leave a cell blank. 3. How will the capital lease be reported on the General Fund financial statements for the year ended December 31, 20X1?

A General Government Department of the City of Rocky Flats