Question

A city entered into a general government capital lease for equipment on July 1, 20X7. The capitalizable cost of the equipment was $400,000. A down payment of $40,000 was made. The next lease payment of $100,000 is due July 1, 20X8. The implicit rate of interest on the lease agreement is 10%. The amount of expenditures that the city should report in its General Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 20X7 is

Answer 1

The city should report $360,000 in expenditures in its General Fund statement for the year.

Step-by-step explanation:

The amount of expenditures that the city should report in its General Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 20X7 is $360,000.

To calculate this, we need to determine the total lease payments for the year. The down payment of $40,000 is not included as an expenditure in the current year, so we subtract it from the capitalizable cost of $400,000. This gives us a total lease obligation of $360,000.

We assume that the interest expense for the year is $0, as the lease agreement has not yet begun, therefore there are no interest expenses to report in the current year.