On January 1, 2017, the Mount Rogers city water department leases a truck under a non-cancelable lease agreement meeting the requirements for classification as a capital lease. The present value (8 percent interest) of the minimum lease payments is $45,000, and the lease calls for five annual lease payments of $10,435 every January 1st, beginning in 2017. The leased truck has a five year life and no salvage.

1. Prepare journal entries for the first year of the lease.

2. How would the lease be reflected in the Statement of Cash Flows prepared for the enterprise fund for the year ended December 31, 2017?