On July 1, 2012, a five-year agreement is signed between the city of Genoa and the computer leasing corporation for the use of computer equipment not associated with proprietary funds activity. The cost of the lease, excluding executpry costs, is $12,000 per year. The first payment is to be made by a capital projects fund at the inception of the lease. Subsequemt payments, beginning July 1, 2012 are to be made by a debt sservice fund. The present value of the lease payments, including the first payment, is $54,552. The interest rate implicit in the lease is 5 percent.
a. Make the entries required in (1) the capital projects fund and (2) the debt service fund on July 1, 2011 and July 1, 2012.
b. Comment on where the fixed asset and long-term liability associated with the capital lease would be recorded and the impact of the journal entries for a.