A city leases equipment on January 1, 2022 by means of a long-term lease agreement. The agreement calls for paying the leasing company $300,000 in three $100,000 annual payments, starting December 31, 2022. The present value of the three lease payments, using a 6% annual interest rate, is $267,301. The city will make the lease payments from the General Fund. What journal entry should the city make in the General Fund when it makes its first annual payment on the lease on December 31, 2022?

Select one:

a.

Expenditures--lease principal	83,962
Expenditures--lease interest	16,038
Cash		100,000

b.

Lease payable	82,000
Expenditures--lease interest	18,000
Cash		100,000

c.

Expenditures--lease principal	1300,000
Cash		100,000

d.

Lease payable	100,000
Cash		100,000