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6. Sur City signed a lease agreement with Arabian Builders, under which Arabian Builders will construct a new office building for the city at a
6. Sur City signed a lease agreement with Arabian Builders, under which Arabian Builders will construct a new office building for the city at a cost of OMR 6 million and lease it to the city for 30 years. The city agrees to make an initial payment of OMR 423,819 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 OMR 6.5 million and an estimated life of 40 years. (the present value of an annuity for 29 years at 6 percent is 13.590721) Required a. Determine whether Sur City should consider this lease agreement a capital lease. Explain your decision. (1 mark) b. Provide the journal entries SUR City should make for both the capital projects fund and governmental activities at the government-wide level to record the lease at the date of inception. (4
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