Clavel County leases an office building with a remaining economic life of 20 years. The fair market value of the building is $6 million. Annual lease payments are agreed at $523,107, based on a 6 percent interest rate. The lease meets the conditions for a capital lease.

1. Record the lease and the first years interest payment

(a) In a governmental fund

(b) In the government-wide statements

2. Should the office building be depreciated? If so, how and where should depreciation be recorded?

3. Suppose the lease did not meet the conditions for a capital lease. How and where should the lease be recorded? Should the office building be depreciated? If so, how and where should depreciation be reported?