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 $2,400,000 and annual payments of $799,370 for the next 29 years. Using an assumed borrowing rate of 6 percent, the present value of the lease payments is approximately $13,264,100. At the time the lease agreement is signed, the building had an appraised market value of $14 million and an estimated life of 40 years.

a-1.	Should the city consider this agreement a capital lease? Yes or No?

a-2.

Complete the following criteria's in relation to decision making. (Do not round intermediate calculations. Round your answers to 1 decimal place.)

1.	Present value of minimum lease payment as a percentage of fair value of building		%
2.	Lease term as a percentage of estimated useful life of building		%

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.)

Transaction	Fund	General Journal	Debit	Credit
1. Record the lease at the date of inception.
1	Capital Projects Fund
	Governmental Activities

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?
	A) Government wide statements of comprehensive income B) Government wide statements of net position C) Government wide statements of profit or loss D) Government wide statements of revenue and expenditure