Chapter 6: The Governmental Fund Accounting Cycle

36. (Classification of resource inflows in Fund operating statements)

A county's Debt Service and Capital Projects Funds had the following resource inflows during 2013. State whether each of the inflows should be reported as revenues or as other financing sources in the fund-level statements of revenues, expenditures and changes in fund balances.

a. Property taxes levied specifically for the Debt Service Fund

b. Cash received from General Fund to finance debt service payments

c. Cash received from General Fund to finance part of the cost of new police headquarters

d. Grant from state to finance part of cost of new police headquarters

e. Proceeds of bonds issued to finance part of the cost of new police headquarters

f. Interest earned on investment of resources being accumulated to finance construction

g. Increase in fair market value of investments being accumulated to finance construction

h. Bond premium received by Debt Service Fund from Capital Projects fund

37. (Basic journal entries for acquisition of capital assets through issuance of debt)

Prepare entries to record the following transactions related to acquisition of capital assets by a county. The county does not use encumbrance accounting. Identify the fund(s) used.

a. The county issues general obligation bonds in the amount of $900,000, receiving cash for the full face amount of the bonds. The cash will be used to buy capital assets.

b. The county buys a prefabricated building for $750,000, using part of the bond proceeds. The building is delivered and the invoice for the building is approved.

c. The invoice approved in b. is paid.

d. The General Fund transfers cash of $55,000 to another fund in anticipation of the payment of the first installment of interest ($30,000) and principal ($25,000) on the debt.

e. The first installment of debt service on bonds issued in a. becomes due and payable.

f. Debt service on the bonds issued in a. is paid.

38. (Journal entries with emphasis on Capital Projects Fund)

Prepare journal entries in the Capital Projects Fund to record the following transactions related to the construction of a building by the Village of Navajo Falls. (Note that only Capital Projects Fund journal entries are required.) The Village adopts a formal budget and uses encumbrance accounting.

a. The Village Council adopts a capital budget at the beginning of the year. To finance construction of the building, the Village will transfer $3 million from its General Fund and apply for a state grant of $1 million. It appropriates $4 million for construction.

b. The General Fund transfers $3 million to the Capital Projects Fund for the new project.

c. The state approves Navajo Falls's application for a $1 million construction grant and simultaneously sends a check to the Village. The grant is expenditure driven and thus requires that Navajo Falls incur qualifying expenditures.

d. Navajo Falls awards a construction contract in the amount of $3.4 million.

e. The contractor sends a progress billing to Navajo Falls in the amount of $1.6 million. The bill is approved by the Village's engineers and a voucher is prepared, less a 10% retainage pending completion of the building and final approval by the Village. Navajo Falls considers 25 percent of the billing to be the state's share of the cost.

f. The voucher in e., above, is paid.

g. The contractor encounters construction problems due to unforeseen soil conditions. As a result, Navajo Falls authorizes a change order increasing the cost of the construction contract by $200,000.

h. The contractor completes construction, and sends Navajo Falls an invoice for the remaining $2 million. The Village's engineers inspect the building and accept the work. The invoice is approved and paid, together with the amount retained on the progress billing in e., above. Navajo Falls considers $600,000 of the billing to be the state's share of the cost.

39. (Journal entries with emphasis on Debt Service Fund)

The Shannon Township Debt Service Fund accumulates resources to pay its $2 million general obligation debt. The debt is payable in equal annual installments of principal over 10 years with 5% interest on the unpaid principal. Prepare journal entries to record the following transactions in the Debt Service Fund.

a. The Township levies a special property tax amounting to $500,000 to pay debt service on its long-term general obligation debt. The tax must be accounted for in the Debt Service Fund.

b. All the property taxes levied for debt service purposes are collected.

c. The Township invests $150,000 in a six-month certificate of deposit.

d. Debt service (interest of $100,000 and principal of $200,000) becomes due and payable.

e. The debt service liabilities are paid.

f. The certificate of deposit in c. matures and the Township receives a total of $153,000, which includes $3,000 of interest.

40. (Journal entries to record a capital lease transaction)

A town enters into a lease-purchase agreement with Trucks, Inc. to acquire four garbage trucks. The agreement provides that the town pay $100,000 at the end of each year for four years. Upon full payment, the trucks become town property. The agreement is based on an interest rate of 7%. (The present value of an annuity of $1 for 4 periods at 7% is 3.3872.) The lease agreement is accounted for in the General Fund.

Required:

Prepare journal entries for the General Fund to record (a) the lease agreement and the lease payment (b) at the end of the first year and (c) at the end of the second year.

41. (Journal entries for a major construction project)

Prepare journal entries to record the following transactions of a state, identifying the funds affected by each transaction. Record journal entries for all funds affected. The state prepares a budget for the Capital Projects Fund and uses encumbrance accounting in that fund.

a. The state records its capital budget. It appropriates $10 million for highway construction, which will be financed entirely with the issuance of bonds.

b. The state sells 20-year 6% bonds having a face value of $10 million. The bonds are sold at a discount, so the state realizes a total of $9,900,000. Equal installments of principal will be paid every six months, together with interest on the unpaid balance.

c. The state awards two contracts, one for highway construction ($6,500,000) and one for construction supervision ($350,000). Both contracts provide for progress payments. The highway construction contract provides for 10% retainage pending completion of the project. There is no retainage on the construction supervision contract.

d. The construction contractor submits an invoice for $1,500,000. The invoice is approved and a voucher is prepared, less the 10% retainage.

e. The construction supervisor submits an invoice for $100,000, and a voucher is prepared.

f. Both of the invoices in transactions d. and e. are paid.

g. The state transfers $800,000 from the General Fund to the Debt Service Fund in anticipation of the payment of debt service on the bonds.

h. The first semi-annual debt service on the 20-year bonds becomes due and payable (see transaction b).

i. The debt service is paid.

42. (Preparing entries to close a Capital Projects Fund) [see p. 195… uses “close” not “abolish”]

You are the Finance Director of the Town of Blue Mountain. Presented below is the trial balance for a Capital Projects Fund of the Town at October 31, 2013. The Town Engineer has advised you that the project accounted for within this fund, a new system of bicycle trails, is complete and formal acceptance by the Town is pending. The Town Council has directed you to abolish this fund and transfer any remaining net assets to the Town’s Debt Service Fund. Prepare the entries necessary to settle the remaining liabilities of the fund, close the accounts, and transfer the remaining net assets to the Debt Service Fund.

.

Town of Blue Mountain Capital Projects Fund Preclosing Trial Balance October 31, 2013
	Debits	Credits
Cash	$ 70,160
Vouchers payable		$ 24,450
Retainage percentage		42,750
Restricted fund balance		117,285
Revenues - interest		50,175
Expenditures - capital outlay	197,000
Transfer in from General Fund		32,500
	$ 267,160	$ 267,160