Final answer:
The correct answer is option b) The present value of the required lease payments.
Step-by-step explanation:
In governmental fund financial statements, assets acquired under a capital lease are reported at the present value of the required lease payments. This is because, under capital lease accounting, the lessee (the government in this case) is treated as if it has essentially purchased the asset using a loan equivalent to the present value of the lease payments. The lessee then records both an asset and a corresponding liability on its balance sheet for that amount. Over time, as lease payments are made, interest expense is recognized, and the liability is reduced.
Now, let's discuss the balance sheet of a bank. The money listed under assets on a bank balance sheet may not actually be housed within the bank because assets can include loans made to customers and investments in securities, like government bonds. These assets are expected to generate a stream of income over time rather than represent physical cash kept in the bank's vault.
When considering purchasing loans in the secondary market, the decision on how much to pay for a given loan will depend on various factors:
- Loan Payments: If the borrower has been late on loan payments, this would indicate a higher risk of default, and thus, the buyer would likely pay less for the loan.
- Rising Interest Rates: If overall interest rates have increased since the loan was made, the older loan's lower interest rate would be less attractive, leading to a lower price.
- Borrower's Profits: If the borrower has declared high profits, it suggests better financial stability, enticing a potential buyer to pay more for the loan due to lower perceived risk.
- Falling Interest Rates: If interest rates have fallen, the older loan at a higher rate becomes more attractive, and a buyer might be willing to pay more for it.