Final answer:
In the inception of a capital lease agreement in governmental operations, a liability is reported on the government-wide financial statements, and an expenditure is recorded in the governmental fund. Option a is not correct because it inaccurately includes an Other financing Source in the General Fund. Thus, all choices are not correct.
Step-by-step explanation:
When a governmental entity enters into a capital lease agreement for equipment used in its operations, the correct accounting treatment includes both government-wide and fund-level entries. Specifically:
- b. A liability is incurred and reported in the government-wide financial statements, reflecting the obligation to make future payments under the terms of the lease.
- c. An expenditure is recorded in the governmental fund, which is the fund that would typically finance the operations of government activities on a modified accrual basis.
While bonds also represent a method to acquire financial capital, by agreeing to repay a borrowed amount with interest over time, the initial accounting for a capital lease does not involve the recording of an Other financing Source in the General Fund, which is why option a. is not correct. Therefore, d. All of the choices are correct is not accurate, as it incorrectly includes option a. in its assessment.