Question

A government enters into a lease agreement for the purchase of a new snow plow. The present value of the future lease payments is 845,500 and there is a down payment at the inception of the lease of 25,000. The snow plow should be recorded in the government-wide statement of net position at:

1) 25,000
2) 870,500
3) 845,500
4) 0

Answer 1

The snow plow should be recorded at the sum of the present value of the lease payments ($845,500) and the down payment ($25,000), totaling $870,500 in the government-wide statement of net position.

Step-by-step explanation:

A government enters into a lease agreement for the purchase of a new snow plow. The present value of the future lease payments is $845,500 and there is a down payment at the inception of the lease of $25,000. The snow plow should be recorded in the government-wide statement of net position at the sum of the present value of the lease payments and the down payment, which is $870,500 (option 2). This is because in accounting, an asset acquired through leasing is recorded at the present value of the lease payments plus any initial direct costs or payments, which in this case includes the down payment made.