A Five-Year Lease Is Signed by the City of Wachovia

Multiple Choice

A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund. What should be recorded in the General Fund one year from the date the lease is signed?
$$\begin{array} { | l | l | r | r | } \hline \text { A) } & \text { Expenditures - Leased Asset } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { B) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Lease Principal } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { C) } & \text { Lease Principal } & 5,411.41 & \\\hline & \text { Other Financing Sources - Capital Lease } & & 5,411.41 \\\hline \text { D) } & \text { Expenditures - Interest } & 1,604.75 & \\\hline & \text { Expenditures - Leased Asset } & 3,806.66 & \\\hline & \text { Cash } & & 5,411.41 \\\hline \text { E) } & \text { Other Financing Sources - Capital Lease } & 5,411.41 & \\\hline & \text { Cash } & & 5,411.41 \\\hline\end{array}$$

A) Option A
B) Option B
C) Option C
D) Option D
E) Option E