A police department leases a car on July 1, Year 1, with five annual payments of $20,000 each. It immediately makes the first payment, and the present value of the annuity due is $78,000 based on an assumed rate of 10 percent. The car has a 5-year life. Assume that this is a capitalized lease. Indicate whether each of the following independent statements is true or false and briefly explain each answer. a. The fund financial statements will show a total liability of $3,900 at the end of Year 1.
b. The government-wide financial statements will show a total liability of $58,000 at the end of Year 1.
c. The government-wide financial statements will show total interest expense of $2,900 in Year 1.
d. The fund financial statements will show total expenditures of $20,000 in Year 1.
The government-wide financial statements will show a net leased asset of $70,200 at the end of Year 1. f. If this were an ordinary annuity so that the first payment was made in Year 2, no expenditure would be reported in the fund financial statements in Year 1.
g. If the car had an 8-year useful life, this contract could not be a capitalized lease.
h. Over the entire life of the car, the amount of expense recognized in the government-wide financial statements will be the same as the amount of expenditures recognized in the fund financial statements.
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