A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund. What entry should be made for the government-wide financial statements on the date the lease is signed?

Question

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Equipment Cost $20,000 - Cash Payment $5,411.41 = Capital Lease Obligation $14,588.59

A Five-Year Lease Is Signed by the City of Wachovia