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:

Option A: $845,500
Option B: $820,500
Option C: $870,500
Option D: $25,000

Answer 1

The proper accounting treatment for the government's snow plow in the government-wide statement of net position is Option C, $870,500. This value includes both the present value of the lease payments ($845,500) and the initial down payment ($25,000).

Step-by-step explanation:

The question relates to how a government should record an asset in its government-wide statement of net position after entering into a lease agreement. To determine the proper accounting treatment, you must add the present value of the future lease payments and the down payment made at the inception of the lease. The present value is given as $845,500, and the down payment is $25,000.

Therefore, the correct value of the snow plow to be recorded in the government-wide statement of net position can be calculated as:

$845,500 + $25,000 = $870,500

Thus, the snow plow should be recorded at $870,500, which corresponds to Option C.