Immediately after making its annual $20,000 lease payment on June 30, 2011, the

Question

Immediately after making its annual $20,000 lease payment on June 30, 2011, the last day of its fiscal year, a certain city had an unpaid capital lease obligation of $95,000. The interest rate applicable to the lease is 10 percent. When the $20,000 lease payment due on June 30, 2012 is made, the journal entry for the governmental activities accounts will include A. A debit to Capital Lease Obligation Payable in the amount of $10,500. B. A debit to Capital Lease Obligation Payable in the amount of $20,000. C. A debit to Cash in the amount of $20,000. D. A debit to Capital Lease Obligation Payable in the amount of $12,500.

Explanation / Answer

Immediately after making its annual $20,000 lease payment on June 30, 2011, the last day of its fiscal year, a certain city had an unpaid capital lease obligation of $95,000. The interest rate applicable to the lease is 10 percent. When the $20,000 lease payment due on June 30, 2012 is made, the journal entry for the governmental activities accounts will include

A. A debit to Capital Lease Obligation Payable in the amount of $10,500.

B. A debit to Capital Lease Obligation Payable in the amount of $20,000.

C. A debit to Cash in the amount of $20,000.

D. A debit to Capital Lease Obligation Payable in the amount of $12,500.

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