Accounting For Governmental & Nonprofit Entities
18th Edition
ISBN: 9781259917059
Author: RECK, Jacqueline L., Lowensohn, Suzanne L., NEELY, Daniel G.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 20EP
Lease Agreement. (LO6-5) McCormick County agreed to acquire a new recreation equipment storage facility under a lease financing agreement. At the inception of the lease, a payment of $750,000 will be made; four additional annual lease payments, each in the amount of $750,000, are to be made at the end of each year, beginning late in the current year. The total amount to be paid under this lease is $3,750,000. The lease arrangements implied an annual interest rate of 6 percent. Therefore, the present value of the lease at inception, including the initial payment, is $3,348,829. Assume that the fair value of the building at the inception of the lease is $3,600,000.
Required
- a. Show the entries required to record the inception of the lease in the capital projects fund, the debt service fund, and the governmental activities journal.
- b. Show the entries required to record the payment at the end of the first year of the lease in both the debt service fund and governmental activities journal.
- c. Which financial statement(s) prepared at the end of the first year would show both the asset and the liability related to this lease? At what amount would the liability be reported?
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Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020.Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable.Click here to view factor tables.
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Oriole Industries and Waterway Inc. enter into an agreement that requires Waterway Inc. to build three diesel-electric engines to Oriole’s specifications. Upon completion of the engines, Oriole has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $362,863 each January 1, starting January 1, 2020.Oriole’s incremental borrowing rate is 8%. The implicit interest rate used by Waterway and known to Oriole is 7%. The total cost of building the three engines is $2,358,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Oriole depreciates similar equipment on a straight-line basis. At the end of the lease, Oriole assumes title to the engines. Collectibility of the lease payments is probable.Click here to view factor tables.…
Kendall County entered into a lease agreement to finance computer equipment used in government offices. The lease covers three years, and county officials are reasonably certain that funding and approvals will be renewed annually. At the inception of the lease, a payment of $640,000 will be made; two additional annual lease payments of $640,000 are to be made near the end of each year. The total amount to be paid under this lease is $1,920,000. The lease arrangements implied an annual interest rate of 3 percent. Therefore, the present value of the lease at inception, including the initial payment, is $1,864,620. Assume that the fair value of the equipment at the inception of the lease is $1,900,000.
What amount would the liability be reported at the end of the first year
Chapter 6 Solutions
Accounting For Governmental & Nonprofit Entities
Ch. 6 - Prob. 1QCh. 6 - What disclosures about long-term liabilities are...Ch. 6 - Prob. 3QCh. 6 - Prob. 4QCh. 6 - Although the most common type of general long-term...Ch. 6 - What is overlapping debt? Why would a citizen care...Ch. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - How are debt issuance costs accounted for at the...Ch. 6 - Under what circumstances might a government...
Ch. 6 - Prob. 11CCh. 6 - A citizens group in your state has placed an...Ch. 6 - A county government and a legally separate...Ch. 6 - Prob. 14CCh. 6 - Evaluating Legal Debt Margins. (LO6-2) Youll be...Ch. 6 - Prob. 17.1EPCh. 6 - Proceeds from bonds issued to construct a new city...Ch. 6 - The liability for long-term debt issued to finance...Ch. 6 - Which one of the following statements regarding...Ch. 6 - Prob. 17.5EPCh. 6 - On March 2, 2020, 20-year, 6 percent, general...Ch. 6 - Prob. 17.7EPCh. 6 - Prob. 17.8EPCh. 6 - The liability for special assessment bonds for...Ch. 6 - Total general long-term indebtedness subject to...Ch. 6 - Payment of general obligation bond interest would...Ch. 6 - Debt issuance costs a. Include legal and...Ch. 6 - If bonds are sold at a premium: a. The premium is...Ch. 6 - Prob. 17.14EPCh. 6 - Prob. 17.15EPCh. 6 - Prob. 18EPCh. 6 - Budgeted and Actual Debt Service Transactions....Ch. 6 - Lease Agreement. (LO6-5) McCormick County agreed...Ch. 6 - Legal Debt Margin and Direct and Overlapping Debt....Ch. 6 - Debt Service Fund Trial Balance. (LO6-5) Following...Ch. 6 - Prob. 23EPCh. 6 - Term Bond Debt Service Fund Transactions. (LO6-5)...Ch. 6 - Prob. 25EP
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