[shawnl112]

Frome City signed a 20-year office property lease for its general staff. Frome could terminate the lease at any time after giving one year’s notice, but termination is considered a remote possibility. The lease meets the criteria for a capital lease. What is the effect of the lease on the asset amount in Frome’s capital assets and the liability amount in Frome’s governmental activities column of the government-wide statement of net position?

Asset amount Liability amount
A. Increase No effect
B. No effect No effect
C. No effect Increase
D. Increase Increase

What are the journal entries for this?

[Frances]

Government Wide JE:
DR: Leased Asset – at present value of lease payments
CR: Capital Lease Obligation – at present value of lease payments

Fund Level JE:
DR: Expenditures – at present value of lease payments
CR: Other Financing Sources – at present value of lease payments

[shawnl112]

What would be the effect be for Fund Level

Asset and liabilities unchanged ?thanks

[Author]

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