Question

Five trucks were leased by Pleasantville under terms qualifying as a capital lease. These trucks are to be used by the fire department. Where would the capital lease transaction be recorded?

a. Internal service fund.
b. Special revenue fund
c. Plant and equipment fund.
d. Governmental activities.

Answer 1

The capital lease transaction for the trucks leased by Pleasantville for the fire department should be recorded as governmental activities.

Step-by-step explanation:

The capital lease transaction for the trucks leased by Pleasantville and used by the fire department would be recorded in the governmental activities category. The reason for this categorization is that capital leases for government entities are generally recorded as capital assets and long-term liabilities at the government-wide level. These leases are treated similarly to a purchase by the government, reflecting the acquisition of a long-term asset that provides benefits over multiple financial periods.