40.60.20.2 Proprietary Funds (Lessee)

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

Fund 4xx or 5xx Purchasing Fund

Account	Account Description	DR	CR
1122xxx	Leased Asset	$ 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

Periodic lease payments may be recorded directly to principal and interest or 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 proprietary fund re-class monthly payments to principal and interest:

Account	Account Description	DR	CR
2050100	Right-to-use Lease Liability ST	$ 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

If the asset is leased through a budgeted proprietary account, the entries needed to account for annual payments are different. Please contact State Board if you are leasing right-to-use equipment, buildings, or land in a budgeted proprietary fund.

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 in the proprietary fund:

Fund 4xx or 5xx Purchasing Fund

Record amortization expense and allowance:

Account	Account Description	DR	CR
5070020	Prop - Amortization Expense (Assets)	$ 355,369.94
1122xxx	Allow for Amortization – Lease asset		355,369.94

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

Account	Account Description	DR	CR
2140100	Right-to-use Lease Liability Long-Term	$ 355,887.88
2050100	Right-to-use Lease Liability Short-Term		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 4130010 - Gain/Loss Sale Capital Asset for the difference between the initial cost of the asset and the accumulated amortization.