Capital Assets Acquired under Lease Agreements. (LO5-2) The City o Clear Lake signed a lease agreement with Mountainside Builders whereby Mountainside will construct a new office building for city administrative use and lease it to the City for 30 years. The fair market value of the building is S12 million. The City has agreed to make an initial payment of $822,441 and annual payments in the same amount for the next 29 years. (This assumes a 6 percent discount rate.) The lease includes a funding clause, which allows Clear Lake to terminate the lease agreement if the government does not ap- propriate funds for the lease payments. Clear Lake does not intend to exercise this option unless there is a financial emergency. Upon completion, the build- ing had an appraised value of $13 million and an estimated useful life of 40 years. Required:

Provide journal entries the city should make for both the capital projects fund and governmental activities at the government-wide level to record the lease at the date of inception.