Question
The City of Rochester signed a 30-year agreement with East Coast Real Estate, Inc. to lease a newly-constructed building for city services. The city agrees
The City of Rochester signed a 30-year agreement with East Coast Real Estate, Inc. to lease a newly-constructed building for city services. The city agrees to make an initial payment of $1,600,000 and annual payments of $755,260 for the next 29 years. Using an assumed borrowing rate of 6 percent, the present value of the lease payments is approximately $11,864,600. At the time the lease agreement is signed, the building had an appraised market value of $13 million and an estimated life of 40 years. |
Required | |||||
a-1. | Should the city consider this agreement a capital lease? | ||||
|
a-2. | Complete the following criteria's in relation to decision making. (Do not round intermediate calculations. Round your answers to 1 decimal place.) |
b. | Provide journal entries the 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. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) |
c. | 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? | ||||||||
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started