In early 2017, McCormick County agreed to acquire a new recreation equipment storage facility under a capital lease agreement. At the inception of the lease, a payment of $750,000 is made; four additional annual lease payments, each in the amount of $750,000, are to be made at the end of each year, beginning in late 2017. The total amount to be paid under this lease is $3,750,000. The county could borrow this amount for four years at an annual interest rate of 6%. Therefore, the present value of the lease at inception, including the initial payment, is $3,348,829. Assume that the fair value of the building at the inception of the lease is $3,600,000.

b.

Prepare the entries required to record the inception of the lease in the capital projects fund, the debt service fund and the governmental activities journal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

c.

Prepare the entries required to record the payment at the end of the first year of the lease in both the debt service fund and governmental activities journal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Transaction	Fund	General Journal	Debit	Credit
1. Record the payment at the end of the year.
1	Debt Service Fund
	Governmental Activities

d-1.

Which financial statement(s) prepared at the end of the first year would show both the asset and the liability related to this capital lease?

	Government wide statements of comprehensive income
	Government wide statements of net position
	Government wide statements of profit or loss
	Government wide statements of revenue and expenditure

d-2.	What amount would the liability be reported?

b. Prepare the entries required to record the inception of the lease in the capital projects fund, the debt service fund and the governmental activities journal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) Fund General Journal Transaction 1. Record the inception of the lease. 1 Capital Projects Fund Expenditures Other Financing Sources-Capital Lease Agreements Debt Service Fund Governmental Activities Debit 3,348,829 Credit 3,348,829