40.60.20.1 Governmental Funds (Lessee)

In governmental funds, the recording for a leased asset acquisition at commencement of the lease term is recorded by the following series of entries:

Operating (governmental) Fund

Account	Account Description	DR	CR
5040275	Lease Asset Acquisition	$ 1,066,109.82
4040200	Other Finance Sources/Right-to-Use Lease Acquisition		1,066,109.82

Fund 997 – General Capital Assets Subsidiary

Account	Account Description	DR	CR
11220xx	Leased Asset – Land/Buildings/Furn. & Equip.	$ 1,066,109.82
3000050	Investment-General Capital Assets		1,066,109.82

Fund 999 – General Long-Term Obligations Subsidiary

Account	Account Description	DR	CR
1110040	Amount Provided-Retirement of Long-term Obligations	$ 1,066,109.82
2050100	Right-to-use Lease Liability Short-Term		88,484.78
2140100	Right-to-use Lease Liability Long-Term		977,625.04

The following illustrative entries and instructions below are based on the amortization schedule shown in Section 40.60.20 Right-To-Use Lease Agreements as Lessee.

Periodic lease payments represent debt service expenditures in governmental fund type accounts. Periodic payments can be recorded directly as expenditures to leases and principal, or as expensed to 5081110 Equipment Rental or 5081240 Rentals/Leases (Land or Building) and re-classed to leases and principal at year-end. The following example shows the re-class at year-end option.

In the operating (governmental) fund re-class monthly payments to principal and interest:

Account	Account Description	DR	CR
5110110 or 5110130	Equipment Leases – Principal (Equipment) or Equipment Leases – Principal (Land or Buildings)	$ 352,735.69
5110120 or 5110140	Equipment Leases – Interest (Equipment) or Equipment Leases – Interest (Land or Buildings)	7,264.31
5081110 or 5081240	Equipment Rental or Rentals (Land or Buildings)		360,000.00

Reduce the short-term liability by annual payments amount:

Fund 999

Account	Account Description	DR	CR
2050100	Right-to-use Lease Liability Short-Term	$ 352,735.69
1110040	Allow for Amort. – Lease Asset		352,735.69

The right-to-use lease asset should be amortized using the straight-line method over the shorter of the lease term or the asset useful life. Amortization Expense and Allowance for Amortization are recorded as follows:

Fund 997

Account	Account Description	DR	CR
5070040	Gov’t – Depreciation (Amort) Expense	$ 355,369.94
1122xxx	Allow for Amort. – Lease asset		355,369.94

At year-end, reclassify the amount due within one year from long-term to short-term.

Fund 999

Account	Account Description	DR	CR
2140100	Right-to-use Lease Liability LT	$ 355,887.88
2050100	Right-to-use Lease Liability ST		355,887.88

At the end of the lease, remove the capital asset when the asset is returned to the lessor. If the lease is cancelled early and the asset was not fully amortized (i.e. the cost is greater than the accumulated amortization), debit account 5070070-Gov’t Capital Asset Adjust for the difference between the initial cost of the asset and the accumulated amortization.