The City of Jamestown has agreed to get a new city maintenance building under a capital lease agreement. At the inception of the lease, a payment of $100,000 is to be made: nine annual lease payments, each in the amount of $100,000 are to be made at the end of every year after the inception of the lease. The total amount to be paid under this lease, thus, is $1,000,000. The town could borrow this amount for nine years at the annual rate of 8 %: thus, the present value of the lease at inception, including the initial payment is $724,689. Suppose that the fair value of the building at the inception of the lease is $750,000.
a. Demonstrate the entry that should be made in a capital projects fund at inception of the lease after initial payment has been made.
b. Demonstrate the entry that should be made at the inception of the lease in government activities journal.
c. Demonstrate the entry that should be made in the debt service fund and governmental activities journal to record second lease payment.