(Answered) Crystal city signed a lease agreement with east builders

Accounting

Crystal City signed a lease agreement with East Builders, Inc., under which East Coast will construct a new office building for the city at a cost of $15 million and lease it to the city for 30 years. The city agrees to make an initial payment of $1,047,637 and annual payments in the same amount for the next 29 years. An assumed borrowing rate of 6 percent was used in calculating lease payments. Upon completion, the building had an appraised market value of $16.5 million and an estimated life of 40 years. (The present value factor of an annuity for 29 periods is 13.590721.)

Using the criteria presented in this chapter, determine whether Crystal City should consider this lease agreement a capital lease. Explain your decision.

Provide the journal entries Crystal City should make for both the capital projects fund and governmental-wide level to record the lease at a date of inception.

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