How should a fixed asset acquired through a capital lease agreement be recorded in a General Fund?
A)at the present value of the future lease payments,by debiting expenditures and crediting other financing sources - capital leases
B)at the total amount of the future lease payments,by debiting expenditures and crediting other financing sources - capital leases
C)at the present value of the future lease payments,by debiting expenditures and crediting capital leases payable.
D)no entry is needed until payments are actually made on the capital lease agreement.

Question

Quizplus · Accepted Answer

A fixed asset acquired through a capital lease agreement should be recorded at the present value of the future lease payments. This is because a capital lease is essentially a form of financing, and the asset is not owned outright until the lease payments have been made in full. Therefore, the expenditure should be debited and the other financing source - capital leases should be credited. This records the liability for the lease agreement and the asset acquired through it. Option B is incorrect because it records the full amount of future lease payments, which would overstate the asset value and understate the liability. Option C is also incorrect because it records the liability separately from the asset, leading to unbalanced accounts. Option D is incorrect because an entry is needed at the time of acquisition to accurately reflect the financial position of the organization.

How Should a Fixed Asset Acquired Through a Capital Lease