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The City of Jamestown has agreed to acquire a new citymaintenance building under a capital lease agreement. At theinception of the lease, a payment of $100,000 is to be made; nineanual lease payments, each in the amount of $100,000, are to bemade at the end of each year after the inception of the lease. Thetotal amount to be paid under this lease, therefore, is $1,000,000.The town could borrow this amount for nine years at the annual rateof 8 percent; therefore, the present value of the lease atinception, including the initial payment, is $724,689. Assume thatthe fair value of the building at the inception of the lease is$750,000.

a. Show the entry that should be made in a capital projects fund atthe inception of the lease after the initial payment has beenmade.

b. Show the entry that should be made at the inception of thelease in the government activities journal.

c. Show the entry that should be made in the debt service fundand governmental activities journal to record the second leasepayment.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9988847

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