A police department leases a car on July 1 Year

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 five-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-based 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-based financial statements will show total
expenditures of $20,000 in Year 1.e. 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-based financial
statements in Year 1.g. If the car had an eight-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-based financial statements.View Solution: A police department leases a
car on July 1 Year
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