sm10e tif ch09 prob

Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)Problems – Chapter 9

Problem 1 – Comprehensive Interfund Transactions

1Prepare the general journal entries to properly record each of the following transactions and events in the appropriate general ledger accounts of the appropriate funds for the year ended June 30, 2011. The City of Middlesettlements uses a series of each type of nominal account (e.g., Revenues–Property Taxes, Revenues–Other, Expenditures–Operations, Expenditures–Capital Outlay, Expenditures–Debt Service–Interest, OFS–Bond Principal, OFU–Transfer to GF, etc.), except for budgetary entries where no additional detail is required. The General Capital Assets and General Long-term Liability accounts are updated whenever a relevant transaction occurs.

ADDITIONAL INFORMATION:■ The fiscal year for the City is July 1 to June 30.■ All premiums on bonds payable, net of bond issue costs, are transferred to the DSF that

will be used to service the debt. The amounts transferred are used for future bond interest payments.

■ When bonds are issued at a discount or bond issue costs are incurred, a special transfer is made from the GF to the fund issuing the bonds to reimburse it for the discount and issue costs. This transfer is over and above any previously authorized transfers from the GF to that fund.

■ The City uses the consumption method / periodic inventory system to account for supplies.

The City is constructing a new municipal building. Capital Projects Fund #1 will be used to account for this construction. The expected cost of and the sources of proportional financing for the municipal building are:

Bond issue (authorized July 1, 2010, 6%, 30-year serial bonds)...................... $3,000State grant (expenditure driven)........................................................................ 1,500Transfer from the General Fund....................................................................... 500

Total sources and cost of building.............................................................. $5,000All amounts are in thousands of dollars.

Transactions:

1. A computer has been leased for the City for its accounting and payroll operations. The lease has a fair market value (and a net present value) of $2,000. The lease will be serviced through the General Fund.

2. A contract for the construction of the new municipal building was accepted by Swann & Hall (S&H) Construction Company for $4,500. The required transfer from the General Fund to the Capital Projects Fund was made.

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3. $400 in 6-month, 4%, bond anticipation notes (BANs) were issued to finance expenditures in advance of the bond issue. The BANs are to be repaid from the proceeds of the previously authorized bond issue—as required by the debt covenant—by CPF #1.

4. The City accounts for its supplies in the General Fund. The City started the year with $100 in its supply account and purchased $200 in supplies to augment its inventory.

5. The first capital lease payment on the computer, $150 (including $100 in interest), was paid. (See entry 1)

6. 5 acres of land were purchased for $200 for the new municipal building. This purchase had not been previously encumbered, but it is included in the budget for the project.

7. The bonds authorized on July 1, 2010, were issued at 102 on October 1, 20X1. Bond issue costs were $20. The bonds pay interest on March 31 and September 30. Principal payments occur evenly over the life of the bonds each year (1/30 each September 30). DSF #1 was established to service this debt. (See entries 3 & 8)

8. The BANs were paid when due. (See entries 3 and 7)9. The City issued $125 in supplies to its departments.10. Expenditures totaling $2,500 were made for the construction project. These expenditures

had originally been encumbered for $2,600. The amount was vouchered for payment to S&H Construction net of a 10% retainage. (See entry 2)

11. Sufficient funds were transferred from the General Fund to the DSF #1 to finance one year's principal retirement, interest, and fiscal agent fees ($10) for the municipal building bonds. (See entries 7 and 13)

12. The City issued another $100 in supplies to its departments.13. DSF #13 made the required March 31 bond payments. (See entries 7 and 11)14. At year-end an inventory of supplies revealed that $80 were on hand. The appropriate

adjustments were made. (

Requirement: Prepare the general journal entries for the City of Middlesettlements, using standard fund-type terminology, identifying the fund or list for which the entry is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL, OFS, OFU). If no entry is required, write “No Entry Required” and briefly explain why. Do not include formal entry explanations or dates, but include any important assumptions made and all calculations. If an amount is not given in the exam, you must show your work to demonstrate how you determined the amount.


Answers:

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Fund orNonfund Accounts Accounts Debit Credit

1a GF Expenditures – Capital Outlay 2,000OFS – Capital Lease 2,000

1b GCA/GLTL Equipment under Capital Lease 2,000Leases Payable 2,000

2a CPF Encumbrances 4,500Encumbrances Outstanding 4,500

2b CPF Cash 500OFS – Transfer from GF 500

2c GF OFU – Transfer to CPF 500Cash 500

3a CPF Cash 400OFS – BANs Principal 400

3b GLTL Net Position 400BANs Payable 400

4 GF Expenditures – Operating 200Cash / Vouchers Payable / Accounts Payable 200

5a GF Expenditures – Debt Service – Principal 50Expenditures – Debt Service – Interest 100

Cash 150

5b GLTL Leases Payable 50Net Position 50

6a CPF Expenditures – Capital Outlay 200Cash 200

6b CPF Due from State (200 x 30%) 60Revenues – Intergovernmental 60

6b GCA Land 200Net Position 200


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7a CPF Cash 3,070Expenditures – Debt Service – Bond Issue Costs 20

OFS – Bond Premium (3,000 x .03) 90OFS – Bond Principal 3,000

7b CPF OFU – Transfer to DSF #1 (90 – 20) 70Cash 70

7c DSF Cash 70OFS – Transfer from CPF #1 70

7d GLTL Net Position 3,090Serial Bonds Payable 3,000Bond Premium 90

8a CPF OFU – Repayment of BANs 400Expenditures – Debt Service – Interest (400 x 4% / 2) 8

Cash 408

8b GLTL BANs Payable 400Net Position 400

9 GF No Entry Required – periodic inventory method

10a CPF Encumbrances Outstanding 2,600Encumbrances 2,600

10b CPF Expenditures – Capital Outlay 2,500Retainage Payable (2,500 x 10%) 250Contracts Payable 2,250

10c CPF Due from State (2,500 x 30%) 750Revenues – Intergovernmental 750

10d GCA Construction in Progress 2,500Net Position 2,500

11 Principal (3,000 / 30) 1,000Interest (3,000 x 6%) 180Fiscal agent fees 10

Total Transfer 1,1904

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11a GF OFU – Transfer to DSF #1 1,190Cash 1,190

11b DSF Cash 1,190OFS – Transfer from GF 1,190

12 GF No Entry Required – periodic inventory method

13 DSF Expenditures – Debt Service – Interest (180 / 2) 90Expenditures – Debt Service – Fiscal Agent Fees (10/2) 5

Cash 95

14 GF Expenditures – Operating (BI – EI, 100 – 80) 20Inventory of Supplies 20

Problem 2 – Other Interfund Transactions: Transfers

Transactions:

1. The $10 assets (cash) from a terminated Capital Projects Fund (CPF) were received by the General Fund.

2. General Fund resources of $250 were paid to a newly established Capital Projects Fund. The resources will not be repaid to the General Fund.

3. The government ordered that $140 be paid from its General Fund to the fund that services its long-term debt.

4. The government directed that $200 be moved from the General Fund to the Jail Addition Capital Projects Fund to provide additional funding for the project. The actual payment will occur at the beginning of the next fiscal year.

Requirement: Prepare the general journal entries using standard fund-type terminology, identifying the fund or nonfund accounts for which the entry is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL, OFS, or OFU). If no entry is required, write “No Entry Required” and briefly explain why. Do not include formal entry explanations or dates, but include any important assumptions made and all calculations.


Answers:

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Fund orNonfundAccounts Accounts Debit Credit

1a GF Cash 10OFS – Transfer from CPF 10

1b CPF OFU – Transfer to GF 10Cash 10

2a GF OFU – Transfer to CPF 250Cash 250

2b CPF Cash 250OFS – Transfer from GF 250

3a GF OFU – Transfer to DSF 140Cash 140

3b DSF Cash 140OFS – Transfer from GF 140

4a GF OFU – Transfer to CPF 200Due to CPF 200

4b CPF Due from GF 200OFS – Transfer from GF 200

Problem 3 – Other Interfund Transactions: Loans

Transactions:

1. A loan of $50 was made from the General Fund to the Gasoline Tax Fund (GTF), which is accounted for as a Special Revenue Fund. The loan will be repaid in five years.

2. The General Fund loaned $320 to the Capital Projects Fund—to be repaid in 90 days.

Requirement: Prepare the general journal entries using standard fund-type terminology, identifying the fund or nonfund accounts for which the entry is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL, OFS, or OFU). If no entry is required, write “No Entry Required” and


briefly explain why. Do not include formal entry explanations or dates, but include any important assumptions made and all calculations.

Answers:

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1a GF Advance to GTF 50Cash 50

1b SRF Cash 50Advance from GF 50

2a GF Due from CPF 320Cash 320

2b CPF Cash 320Due to GF 320

Problem 4 – Other Interfund Transactions: Capital Leases

Transactions:

1. A government Special Revenue Fund leased specialized equipment under a multi-year, noncancelable lease agreement that qualifies as a capital lease. The lease required a down payment of $500 and the present value of the minimum lease payments (i.e., the capitalizable cost of the leased asset) was $5,000. The implicit rate of interest on the lease is 10%.

2. The government made the first lease payment of $750.3. The government made the second lease payment of $750.



Answers:

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1a SRF Expenditures – Capital Outlay 5,000Cash 500OFS – Capital Lease 4,500

1b GCA/GLTL Equipment (under Capital Lease) 5000Capital Lease Payable 4,500

Net Position 500

2a SRF Expenditures – Debt Service – Principal 300Expenditures – Debt Service – Interest 450

Cash 750Interest = 4,500 x 10%

2b GLTL Capital Lease Payable 300Net Position 300

3a SRF Expenditures – Debt Service – Principal 330Expenditures – Debt Service – Interest 420

Cash 750Interest = (4,500 – 300) x 10%

3b GLTL Capital Lease Payable 330Net Position 330

Problem 5 – Other Interfund Transactions: Capital Asset Acquisitions and Disposals

Transactions:

1. A pickup truck purchased seven years ago for $30 with General Fund money was sold for $5. The government's proprietary funds usually depreciate this type of asset over a 10-year period using straight-line depreciation with zero (0) salvage value and disposes of assets at the end of its useful life.

2. Sold land for $300, which had been used many years ago as a public park. The land had been purchased for $140.

3. The county purchased a police vehicle for $22 and paid cash.


4. The government signed a contract for $5,000 for construction of an addition to the jail.5. The contractor billed the county for 40% of the work on the jail addition. The actual cost

of the work was $2,200. The county paid all but 10% of the amount billed. The balance is to be paid upon completion and approval of the project. The state was billed for its 30% of the project based on an expenditure-driven grant. (See entry #4 and #6)

6. The contractor billed the county $2,800 for the remainder of the work on the jail. The county approved the facility and paid the contractor all amounts owed. The state was billed for its portion of the work. (See entries #4, #5, and #7)

7. The state reimbursed only $1,400. Other costs were disallowed for reimbursement. (See entries #5 and #6)

Requirement: Prepare the general journal entries using standard fund-type terminology, identifying the fund or nonfund accounts for which the entry is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL, OFS, OFU). If no entry is required, write “No Entry Required” and briefly explain why. Do not include formal entry explanations or dates, but include any important assumptions made and all calculations.

Answers:

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1a GF Cash 5OFS – Proceeds from Sale of Vehicle 5

1b GCA Accumulated Depreciation 21Net Position 9

Vehicles 30

Annual Depreciation 30 / 10 3Number of years 7Accumulated Depreciation 21

2a GF Cash 300Special Item – Proceeds from Sale of Land 300

2b GCA Net Position 140Land 140


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3a GF Expenditures – Capital Outlay 22Cash 22

3b GCA Vehicles 22Net Position 22

4 CPF Encumbrances 5,000Encumbrances Outstanding 5,000


5b CPF Expenditures – Capital Outlay 2,200Retainage Payable 220Cash 1,980

5c GCA Construction in Progress 2,200Net Position 2,200

5d CPF Due from State (30% x 2,200) 660Revenues – Intergovernmental 660


6b CPF Expenditures – Capital Outlay 2,800Retainage Payable 220

Cash 3,020

6c GCA Buildings 5,000Construction in Progress 2,200Net Position 2,800

6d CPF Due from State (30% x 2,800) 840Revenues – Intergovernmental 840

7 CPF Cash 1,400Revenues – Intergovernmental 100

Due from State 1,500


Problem 6 – Other Interfund Transactions: BANs and Long-Term Debt

Transactions:

1. The government issued $2,500 of 8-month, 9% bond anticipation notes. The notes meet the requirements to be accounted for as long-term debt. The proceeds are to be used to begin construction of a recently approved addition to the county jail.

2. The government issued $5,000 of 10-year, 8% bonds at par. Bond issue costs of $50 were withheld from the proceeds. Interest and one-tenth of the principal are payable annually on the bonds. The bond proceeds are to be used to repay the bond anticipation notes and to finance construction of the jail addition. (See entries #1 and #3)

3. The BANs and interest were paid on their due date. (See entries #1 and #2)4. The semi-annual payment of interest on bonds issued several years ago by a Capital

Projects Fund came due and was paid. The outstanding principal of these 20-year, 4% face rate, term bonds is $3,000. The unamortized discount on these bonds is $100. The bonds were issued 15 years ago on this date. The payment includes fiscal agent fees of $10.

5. The annual payment of serial bonds issued 10 years ago by the government came due. The amount owed is $1,250 in principal, $20 interest, and $5 in fiscal agent fees. The amount due was paid.

6. Another term bond issued 20 years ago by the government came due and was paid. The face amount and rate was $3,200 and 3%, respectively, and pays interest semi-annually. The fiscal agent fees were $60.

7. A serial bond issued in the current year has its first annual payment of principal and interest due on the third day of the next fiscal year. As is required by the debt covenant and following the general procedures for all debt issues of the county, $1,200 ($1,000 for principal, $180 for interest, and $20 for fiscal agent fees) has been transferred from the General Fund to the Debt Service Fund to make this payment.



Answers:

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1a CPF Cash 2,500OFS – BAN Principal 2,500

1b GLTL Net Position 2,500BANs Payable 2,500

2a CPF Cash 4,950Expenditures – Debt Service – Bond Issue Costs 50

OFS – Bond Principal 5,000

2b GLTL Net Position 5,000Bonds Payable 5,000

3a CPF OFU – Repayment of BANs 2,500Expenditures – Debt Service – Interest 150

Cash 2,650Interest = 2,500 x 9% x 8/12

3b GLTL BANs Payable 2,500Net Position 2,500

4a DSF Expenditures – Debt Service – Interest 60Expenditures – Debt Service – Fiscal Agent Fees 10

Cash 70Interest = 3,000 x 4% / 2

4b GLTL Net Position 10Discount on Bonds Payable 10

Amortization = 100 / 5 / 2[Original calculation 400 / 20 / 2]

5a DSF Expenditures – Debt Service – Principal 1,250Expenditures – Debt Service – Interest 20Expenditures – Debt Service – Fiscal Agent Fees 5

Cash 1,500

5b GLTL Serial Bonds Payable 1,250Net Position 1,250


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6a DSF Expenditures – Debt Service – Principal 3,200Expenditures – Debt Service – Interest 48Expenditures – Debt Service – Fiscal Agent Fees 60

Cash 3,308Interest = 3,200 x 3% / 2

6b GLTL Serial Bonds Payable 3,200Net Position 3,200

7a GF OFU – Transfer to DSF 1,200Cash 1,200

7b DSF Cash 1,200OFS – Transfer from GF 1,200

7c DSF Expenditures – Debt Service – Principal 1,000Expenditures – Debt Service – Interest 180Expenditures – Debt Service – Fiscal Agent Fees 20

Matured Bonds Payable 1,000Interest Payable 180Fiscal Agent Fees Payable 20

Optional additional entry assumes money transferred tofiscal agent.

7d DSF Cash with Fiscal Agent 1,200Cash 1,200

Problem 7 – Other Interfund Transactions: Debt Refunding

Transactions:

The City of Armona has decided to refinance $8,000 of par value, general government, general obligation bonds outstanding. The bonds had a related unamortized bond premium of $200. The city issues $6,000 of refunding bonds and transfers $2,700,000 from the General Fund to the Debt Service Fund. The city paid $8,700 from the Debt Service Fund into an irrevocable trust to cover future payments on the original bonds.



Answers:

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1a DSF Cash 6,000OFS – Refunding Bond Principal 6,000

1b DSF Cash 2,700OFS - Transfer from GF 2,700

1c GLTL Net Position 6,000Refunding Bonds Payable 6,000

2a DSF OFU – Payment to Refunding Bond Escrow Agent 6,000Expenditures – Debt Service – Payment to Refunding

Bond Escrow Agent 2,700Cash 8,700

2b GLTL Bonds Payable 6,000Net Position 6,000

Problem 8 – Other Liability Transactions

Assume that the fiscal year-end for all the transactions below is June 30. Transactions:

1. The General Fund paid $12 to a Special Revenue Fund to repay it for General Fund employee salaries that were inadvertently recorded as expenditures in the Special Revenue Fund.

2. The government decided to settle a lawsuit on the advice of its legal counsel. The lawsuit came about because of damage to a citizen’s property caused by a garbage service employee. The garbage operation is accounted for in the General Fund. The government settled the suit for $300, paying $100 on June 1, 20X1, and $50 on August 1 for each of the next 4 fiscal years. For these types of lawsuits, the government is self-insured for the first $50 and 100% insured for the remaining payments. Because of a cash flow issue,


the government borrowed $200 on a 6 month, 3% note that comes due 2 months after year-end. No money was received from the insurance company by year-end, but the total amount due was expected by August 15. Prepare all journal entries required through the end of the 20X1 fiscal year.

3. The government’s employees earned $25 in compensated absences during the year. Of this amount, $10 was paid during the year and another $8 will be paid in the first 45 days of the following fiscal year. In addition, $5 due at the end of last year was paid at the beginning of this year.. Finally, $3 earned in earlier years was paid this year.

4. The actuarial amount owed to the government’s OPEB Plan for the year is $20,000. Of this amount, only $5,000 – the approximate amount of retiree healthcare costs paid for the year – was paid to the plan. The balance will be paid in later years.


Answers:

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1a GF Expenditures – Operating 12Cash 12

1b SRF Cash 12Expenditures – Operating 12

2a GF Expenditures – Operating 150Claims & Judgments Payable 50Cash 100

Since the next payment comes due less than 60 days into the next fiscal year, it would be paid from current financial resources.

2b GLTL Net Position (50 x 3) 150Claims & Judgments Payable 150

2c GF Cash 200Notes Payable 200

2d GF Due from Insurance Company 50OFS – Insurance Proceeds 50


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2e GF Expenditures – Debt Service – Interest 2Interest Payable 2

Interest = 200 x 3% x 4/12

3a GF Expenditures – Operating (10 + 8 + 3) 21Compensated Absences Payable 5

Cash (10 + 5 + 3) 18Compensated Absences Payable 8

3b GLTL Net Position 4Compensated Absences Payable (25 – 10 – 8 – 3) 4

4a GF Expenditures – Operating 5Cash 5

GLTL Net Position 15OPEB Liability 15

Problem 9 – General Capital Assets Note Disclosure

The general capital assets balances for the City of Sugarland as end of the December 31, 20X1 fiscal year are:

Nondepreciable Capital AssetsLand............................................................................................................... 1,350Construction in Progress................................................................................ 2,200

Depreciable Capital AssetsBuildings........................................................................................................ 16,500

Accumulated Depreciation....................................................................... 7,500Infrastructure.................................................................................................. 186,000

Accumulated Depreciation....................................................................... 103,000Vehicles.......................................................................................................... 8,500

Accumulated Depreciation....................................................................... 2,600Equipment...................................................................................................... 3,450

Accumulated Depreciation....................................................................... 2,800


The following events related to the city’s capital assets occurred during fiscal year 20X2:

1. A pickup truck purchased for $30 was sold. It had accumulated depreciation of $21.2. Land purchased many years ago for $140 was sold.3. A new police car was purchased for $50 (5 year useful life) as was a new fire truck for

$250 (10 year useful life). Both were purchased at the beginning of the fiscal year. Depreciation on all new buildings, vehicles, and equipment is for the nearest full year, using the straight-line method with zero salvage value.

4. A new civic center was started in the previous fiscal year. Costs were $2,200 in the previous year. It cost $2,800 to finish it in the current fiscal year. The center was ready for use just in time for a Christmas pageant on December 20, 20X2.

5. New roads costing $550 were built during the year. Depreciation on new roads starts the following fiscal year.

6. Depreciation expenses for FY 20X2 on capital assets on hand at the beginning of the year are: Building, $500; Infrastructure, $2,500; Vehicles, $415; and Equipment, $200.

7. Depreciation on all capital assets except infrastructure is allocated to government functions as follows: general government, 30%; public safety, 50%; streets and roads, 20%. Infrastructure depreciation is charged to the function responsible for maintaining it.

Requirement: Using the information presented above, complete the general capital asset note disclosure for FY 20X2. Note, the incomplete note is in this Excel file: Ch09P-9.xlsx

Answers: The solution is in this Excel File: Ch09P-9S.xlsx


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