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Question(s) / Instruction(s):

36.          (Journal entries to record a capital lease transaction)

A town enters into a lease-purchase agreement with Trucks, Inc. to acquire four garbage trucks. The agreement provides that the town pay $100,000 at the end of each year for four years. Upon full payment, the trucks become town property. The agreement is based on an interest rate of 7%. (The present value of an annuity of $1 for 4 periods at 7% is 3.3872.)

Required:
          Prepare journal entries for all affected funds to record the lease agreement and the lease payment at the end of the first year and at the end of the second year. Town accounting policies provide that, regardless of the financing method used, all capital asset expenditures must be recorded in the Capital Projects Fund, and all debt service payments be recorded in the Debt Service Fund.

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