Use the following to answer the next three questions:
A government entered into a capital lease agreement to acquire equipment for the general government on January 1, 2012. Five payments of $8,000 each are to be made, beginning on December 31, 2012. Discounting is at 6%, computed annually. The present value of the five payments is $33,699.
-On December 31,2012,the amount debited to Expenditures-Interest in the debt service fund would be:

Question

Quizplus · Accepted Answer

The interest expense for the first year would be calculated based on the present value of the lease payments ($33,699) and the discount rate (6%) for one year. This would result in an interest expense of $2,022 for the first year, which would be debited to Expenditures-Interest in the debt service fund. The $8,000 payment made on December 31, 2012 would be recorded as a reduction of the lease liability and a credit to cash.

Use the Following to Answer the Next Three Questions