Immediately after making its annual $20,000 lease payment on June 30,2014,the last day of its fiscal year,Capitol City had an unpaid capital lease obligation of $95,000.The interest rate applicable to the lease is 10 percent.When the $20,000 lease payment due on June 30,2015 is made,the journal entry for the governmental activities accounts will include

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The interest expense for one year on the unpaid capital lease obligation of $95,000 is $9,500 ($95,000 x 0.10). Therefore, the $20,000 lease payment made on June 30, 2015, would be allocated between reducing the lease obligation by $10,500 ($20,000 - $9,500) and paying the interest expense of $9,500. As a result, the entry would include a debit to Capital Lease Obligation Payable in the amount of $10,500.

Immediately After Making Its Annual $20,000 Lease Payment on June