Question 2

A town enters into a long-term lease agreement with Trucks, Inc. for four garbage trucks. The agreement provides that the town pay $100,000 at the end of each year for four years. The agreement is based on an interest rate of 7%. (The present value of an annuity of $1 for 4 periods at 7% is 3.3872.) The lease agreement is accounted for in the General Fund.

Required: Prepare journal entries for the General Fund to record (a) the lease agreement; (b) the lease payment at the end of the first year; and (c) the lease payment at the end of the second year.