When Sunny City makes its annual lease payment on an unpaid capital lease obligation,the journal entry for the debt service fund accounts will include:

Question

Quizplus · Accepted Answer

When a lease payment is made on an unpaid capital lease obligation, the debt service fund must record the amount as an expenditure. Specifically, the entry would include a debit to Expenditures-Principal of Capital Lease Obligation. This reflects the fact that a portion of the lease payment is going towards paying down the principal balance of the lease, which is a reduction in the financial obligation of the government. The other answer choices are not correct as they do not represent the correct account to be debited or credited upon making a lease payment.

When Sunny City Makes Its Annual Lease Payment on an Unpaid