$5-6$

Irrespective of how capital assets are acquired, they are recorded differently in governmental funds than in businesses.

In a recent year, Ives Township acquired six police cars at a total cost of $$200,000.$ The vehicles are expected to have a useful life of four years.

Prepare the journal entries that the township would make in its general fund in the year of acquisition for each of the following assumptions:

It paid for the cars in cash at the time of acquisition.

It leased the cars and agreed to make, starting in the year of acquisition, four equal payments of $$63,095,$ an amount that represents the annuity required to liquidate a loan of $$200,000$ at $10$ percent interest. The lease would satisfy the criteria necessary to be accounted for as a capital lease.

It issued $$200,000$ in installment notes to the car dealer, agreeing to repay them in four annual payments of $$63,095,$ starting in the year of acquisition.

Comment on how any "off the balance sheet" assets or obligations would be reported in supplementary schedules and the government$-$wide statements.