Land City leases a fleet of garbage trucks. The term of the lease is 10 years, approximately the useful life of the equipment. Based on a sales price of $800,000 and an interest rate of 6%, the city agrees to make annual payments of $108,694. Upon the expiration of the lease, the trucks will revert to the city.
Required
1. Prepare appropriate journal entries in the general fund, the general fixed assets account group and the general long-term debt account group to record the signing of the lease.
2. Prepare appropriate journal entries in the same fund and account groups to record the first payment on the lease. The city records depreciation on garbage trucks using the straight-line method.