McCormick County agreed to acquire a new recreation equipment storage facility under a lease financing agreement. At the inception of the lease, a payment of $540,000 will be made; four additional annual lease payments, each in the amount of $540,000, are to be made at the end of each year, beginning late in the current year. The total amount to be paid under this lease is $2,700,000. The lease arrangements implied an annual interest rate of 7 percent. Therefore, the present value of the lease at inception, including the initial payment, is $2,369,093. Assume that the fair value of the building at the inception of the lease is $2,538,000.
Required
- Prepare entries required to record the. inception of the lease in the capital projects fund, the debt service fund, and the governmental activities journal.
- Prepare 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.
c-1. Which financial statement(s) prepared at the end of the first year would show both the asset and the liability related to this lease?
c-2. What amount would the liability be reported?
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