What is the journal entry a lessee uses to recognize a lease contract that transfers ownership in a proprietary fund?

The appropriate journal entry for a lessee recognizing a lease contract that transfers ownership in a proprietary fund reflects the lessee's acquisition of a capital asset and the corresponding obligation to make lease payments. In this scenario, the lessee debits a Capital Asset to reflect the ownership interest in the asset obtained through the lease, aligning with the accounting treatment of leased assets that transfer ownership rights.

When ownership of the asset is transferred to the lessee at the end of the lease term, it is important to recognize both the asset and the liability that the lessee assumes in relation to the lease obligations. Therefore, the journal entry includes a debit to the Capital Asset account, indicating an increase in the assets held by the lessee, and a credit to Lease Liability, which represents the obligation to pay for the asset over the lease term, although the asset is now owned by the lessee.

This method of accounting is consistent with the frameworks that govern lease accounting, particularly under the guidance of relevant accounting standards that stipulate the recording of such transactions to reflect the true economic reality that the lessee has effectively acquired the asset.

In contrast, options that suggest debiting Lease Receivable or Right of Use Asset do not apply here as they relate to different situations, such