Irrespective of how capital assets are acquired, they are recorded differently in governmental funds than in businesses. In a recent year, Ives Township acquired six police cars at a total cost of $200,000. The vehicles are expected to have a useful life of four years. Prepare the journal entries that the township would make in its general fund in the year of acquisition for each of the following assumptions:It paid for the cars in cash at the time of acquisition.It leased the cars and agreed to make, starting in the year of acquisition, four equal payments of $63,095, an amount that represents the annuity required to liquidate a loan of $200,000 at 10 percent interest. The lease would satisfy the criteria necessary to be accounted for as a capital lease.It issued $200,000 in installment notes to the car dealer, agreeing to repay them in four annual payments of $63,095, starting in the year of acquisition.2. Comment on how any “off the balance sheet” assets or obligations would be reported in supplementary schedules and the government-wide statements.

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Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Irrespective of how capital assets are acquired, they are recorded differently in governmental funds than in businesses.

In a recent year, Ives Township acquired six police cars at a total cost of $200,000. The vehicles are expected to have a useful life of four years.

Prepare the journal entries that the township would make in its general fund in the year of acquisition for each of the following assumptions:

It paid for the cars in cash at the time of acquisition.
It leased the cars and agreed to make, starting in the year of acquisition, four equal payments of $63,095, an amount that represents the annuity required to liquidate a loan of $200,000 at 10 percent interest. The lease would satisfy the criteria necessary to be accounted for as a capital lease.
It issued $200,000 in installment notes to the car dealer, agreeing to repay them in four annual payments of $63,095, starting in the year of acquisition.

2. Comment on how any “off the balance sheet” assets or obligations would be reported in supplementary schedules and the government-wide statements.

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