Governmental and nonprofit accounting 11th edition freeman solutions manual

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CHAPTER 9 GENERAL CAPITAL ASSETS; GENERAL LONG-TERM LIABILITIES; PERMANENT FUNDS: INTRODUCTION TO INTERFUND-GCA-GLTL ACCOUNTING ANSWERS TO QUESTIONS Question 9-1 Fund capital assets are capital assets of specific proprietary or trust funds. They are accounted for and reported in the financial statements of the funds and, except for capital assets of trust funds, are also reported in the government-wide financial statements.

General capital assets are general government capital assets. They are accounted for in the General Capital Assets and General Long-Term Liabilities accounts (or using some similar approach).

General capital assets are not reported in fund financial statements because they relate to activities accounted for through the governmental funds, which are used only to account for net current financial resources. General capital assets are reported only in the government-wide financial statements.

Question 9-2 Capital assets are assets (1) of material and significant value, (2) having a useful life extending beyond the year of acquisition, and (3) used, or to be used, in the conduct of the government's activities. Capital assets may be tangible or intangible in nature.

General capital assets are capital assets of the governmental unit as a whole, not of an Enterprise, Internal Service, or Trust Fund. Stated differently, general capital assets are those capital assets that are used to carry on the general activities of the governmental unit as distinguished from the assets used to carry on activities of a trust or of a self-supporting nature, such as those financed from an Enterprise or Internal Service Fund.

Question 9-3 “Cost” is generally defined as “consideration given or consideration received, whichever is more clearly determinable.” Importantly, “cost” includes all normal and necessary costs incurred to bring an asset into a state of readiness for the use for which it is intended. In most cases “consideration given” is the measure employed, but “consideration received” is the more appropriate measure where assets are donated to the government.

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Question 9-4 Intangible capital assets are reported in generally the same manner as other types of capital assets.

Capital assets are not recorded as governmental fund assets, but rather the acquisition of such assets is reported as an expenditure of governmental fund resources. The capital assets are then capitalized in the General Capital Assets accounts and reported in the government-wide financial Statements.

Generally, costs incurred to create or produce internally generated capital assets are not capitalized.

However, GAAP does require internally created intangible assets to be capitalized if the following three (3) conditions are met: 1. Determination of the specific objective of the project and the nature of the service capacity that is expected to be provided by the intangible asset upon the completion of the project 2. Demonstration of the technical or technological feasibility for completing the project so that the intangible asset will provide its expected service capacity 3. Demonstration of the current intention, ability, and presence of effort to complete or, in the case of a multiyear project, continue development of the intangible asset.

Question 9-5 Acquisition of capital assets by eminent domain refers to exercise of a government's power to seize private property for public use, compensation to the owner normally being determined through the courts.

Acquisition by escheat occurs when title to property is vested in or reverts to the government because the rightful owner does not come forward to claim it or dies without known heirs.

Question 9-6 The most common approach used to measure a capital asset impairment loss resulting from physical damage to the asset is the restoration cost approach. Under this approach, the amount of impairment is derived from the estimated costs to restore the utility of the capital asset. The restoration cost can be converted to historical cost by either 1. deflating the restoration cost using an appropriate cost index, or 2. applying a ratio of restoration cost over replacement cost to the carrying value of the capital asset.

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Question 9-7 The “modified approach” is an alternative to depreciating infrastructure capital assets. Governments may use the modified approach for infrastructure capital assets that are part of a subsystem or network (e.g., highway system) if they meet two requirements. The government must both: 1. Manage the eligible infrastructure assets using an asset management system that has certain characteristics.

2. Document that the eligible infrastructure assets are being preserved approximately at or above a condition level established and disclosed by the government.

The asset management system should: • •

have an up-to-date inventory of eligible infrastructure assets, perform condition assessments of the eligible infrastructure assets in a manner that can be replicated, and summarize the results using a measurement scale, and estimate each year the annual amount to maintain and preserve the eligible infrastructure assets at the condition level established and disclosed by the government.

•

The modified approach requires that expenditures made for infrastructure capital assets (other than for additions and improvements) are expensed (in the government-wide statements and in Enterprise Fund financial statements). Those expenditures will not be capitalized. In turn, depreciation expense is not reported on infrastructure capital assets accounted for using the modified approach.

Question 9-8 GASB Statement No. 42 defines a capital asset impairment as significant, unexpected decline in the service utility of an asset. An impairment does not include normal and expected use of an asset over the course of its normal service life. Specifically, GAAP identifies the following as common indicators of capital asset impairment: • • • • •

Evidence of physical damage Changes in legal or environmental factors Technological development or evidence of obsolescence A change in the manner or expected duration of use of a capital asset Construction stoppage

If a capital asset has any one or more of these indicators (and the impairment is deemed to not be temporary), GAAP requires a valuation of the impairment and a potential loss to be reflected in the financial statements of the reporting period in which the impairment occurred.

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Question 9-9 General capital assets do not represent financial resources available for expenditure and therefore do not fit the governmental fund flow of current financial resources accounting model. They are not assets of any fund but of the government as an instrumentality. Including these assets in the financial statements of a governmental fund would overstate fund balance and potentially mislead statement users. General long-term liabilities do not require current appropriation and expenditure of governmental fund financial resources. As with general capital assets, including general long-term liabilities in a governmental fund is not consistent with the flow of current financial resources measurement focus and basis of accounting.

Question 9-10 General Long-Term Liabilities (GLTL) are, by definition: (1) the unmatured principal (2) of “general government” bonds, warrants, notes, or other long-term debt outstanding, such as for claims and judgments, net pension liability, net OPEB liability, and compensated absences, that (3) are not deemed a primary obligation of—and thus not carried in the accounts of—any specific fund of the organization.

Excluded from GLTL are (1) obligations of proprietary and trust funds, and (2) matured debt that has been set up in the accounts of the Debt Service (or other payor) Fund. These are excluded because they are liabilities of specific funds, not of the government as a whole, although the government may be contingently liable for them.

Question 9-11 The bonds should be shown as a liability of the Debt Service (Sinking) Fund. Once default occurs, the bonds are “due and payable”—and thus are no longer unmatured—and should be reported as “Defaulted Bonds Payable” in the Debt Service Fund. They should not remain in the General LongTerm Liabilities accounts.

Question 9-12 Note: The response to this question should be evaluated in terms of its analytical reasonableness rather than on a specific section(s) of the text. Some of these points might be brought out. a.

Special assessment debt on which the SLG is obligated in some manner is recorded as general long-term liabilities in order to avoid its being recorded in a governmental fund. This treatment avoids reporting “artificial deficits” in the related governmental fund. While such debt does not fit the usual definition of GLTL, the GASB concluded that the benefits of this approach warranted its being reported as general long-term liabilities. It is reported as “Special Assessment Debt with Governmental Obligation”—that is, separately from other GLTL.

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Question 9-12 (continued) b. Net pension liability may be considered “due” actuarially, but usually is not legally “due and payable.” The GASB Codification requires that the net pension liability that is “noncurrent”— that is, it is not due and payable at year end—be reported in as general long-term liabilities.

However, for any portion of the net pension liability to be consider due and payable requires that benefits due and payable to beneficiaries at year end exceed the net position available to pay the benefits that are due and payable.

Question 9-13 For General Capital Assets (GCA), GASB standards require that: 1. General capital assets be reported in the governmental activities column of the governmentwide Statement of Net Position.

2. Detailed capital assets information—that distinguishes those associated with governmental activities and business-type activities—be provided in the notes to the basic financial statements.

The notes should disclose GCA information by major classes of general capital assets, should separately disclose any GCA that are not being depreciated, and should include: 1. Beginning- and end-of-year balances (regardless of whether beginning-of-year balances are presented on the face of the government-wide financial statements), with accumulated depreciation presented separately from historical cost.

2. Acquisitions of capital assets.

3. Sales or other dispositions.

4. Current-period depreciation expense, with disclosure of the amounts charged to each of the functions in the Statement of Activities.

For General Long-Term Liabilities, the notes should disclose the following information: 1. Beginning- and end-of-year balances (regardless of whether prior-year data are presented on the face of the government-wide financial statements).

2. Increases and decreases (separately presented).

3. The portions of each item that are due to be paid within one year of the statement date.

4. Which governmental funds typically have been used to liquidate other long-term liabilities (such as compensated absences and pension liabilities) in prior years.

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Question 9-14 While not common, Permanent Funds would be reported by a governmental entity when the government itself or its citizenry as a whole is the beneficiary of resources held in trust by the government. Examples could include (not considered to be an all-inclusive list): • • •

Trust established for the maintenance of a government-owned cemetery Trust established as an employee loan fund Trust established for maintenance or preservation of a historical site or structure

Though reported as a governmental fund, Permanent Funds fundamentally differ from other governmental funds in that the operations accounted therein are bound by nonexpendable trust agreements (their primary defining characteristic). They are reported as a governmental fund primarily because: • •

their resources provide a benefit to the government itself or its citizenry and, in most cases, the activities benefited are governmental in nature, and classification as a governmental fund simplifies the reconciliation between the government-wide and the fund financial statements.

Question 9-15 General Capital Assets are reported in the governmental activities column of the government-wide Statement of Net Position. Detailed capital asset information—which distinguishes those assets associated with governmental activities from those associated with business-type activities—must be provided in the notes to the basic financial statements. The notes should disclose General Capital Asset information by major classes of capital assets, differentiating between depreciable and nondepreciable assets. The information should also include the beginning and ending balances, with accumulated depreciation presented separately from historical cost, acquisitions of capital assets, sales and other dispositions, and the current period depreciation expense by functional category.

General Long-Term Liabilities are reported by type in the governmental activities column of the government-wide Statement of Net Position. Several note disclosures are required for both general long-term liabilities and for other long-term liabilities. The information should include beginning and end of year balances, increases and decreases (reported separately), and the portions of each liability that are due within one year of the financial statement date.

Question 9-16 Total pension liability is defined as the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service. The total pension liability is estimated based on an actuarial valuation that uses the entry age valuation method applying GASBspecified guidance. The guidance includes such important variables as (1) the discount rate that must

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Question 9-16 (continued) be used to determine the actuarial present value of pension benefits—ranging from the long-term expected rate of return on pension plan investments to a specified 20-year, AA or better rated municipal bond index, (2) projections of the timing and amount of benefit payments current participants will receive, (3) the projected sufficiency of contributions made on behalf of existing participants and related investment earnings to pay those projected benefits, and (4) attribution of the actuarial present value of pension benefits to years of past service.

The government’s net pension liability (NPL) for the plan is a single amount—the difference between the total pension liability of the plan and the fiduciary net position of the plan. Any portion of the NPL incurred for Enterprise Fund purposes and to be repaid from Enterprise Fund resources should be reported as Enterprise Fund liabilities, not as general long-term liabilities.

Question 9-17 Net pension liabilities and net OPEB liabilities are unique from most other liabilities in that they result from the netting of a liability (the total pension liability or the total OPEB liability) and the net position of a trust in which assets have been accumulated for the purpose of paying the future benefits represented by this liability.

Question 9-18 Pension expense is included in the functional expenses reported in the government-wide statement of activities on the accrual basis. GASB Statement No. 68 requires that pension expense include all changes in the net pension liability during the reporting period except that recognition of certain specified changes in the net pension liability are deferred and amortized over specified periods. The pension-related deferred outflows of resources and deferred inflows of resources for a government that provides pensions to employees through a single-employer defined benefit pension plan for which the net pension liability is measured as of the end of the reporting period include amounts resulting from: (1) differences between expected and actual experience, (2) changes of plan assumptions, and (3) difference between projected and actual returns on plan investments. In effect, the amortization of such deferred outflows(inflows) increases(decreases) pension expense.

GASB Statement No. 68 requires that pension expenditures and liabilities related to defined benefit pension plans (in which an employer bears responsibility for some guaranteed level of benefits) be recognized in the governmental funds on the modified accrual basis. Thus, pension expenditures equal the total of contributions to the pension plan during the year plus or minus the change during the year in the amount of the net pension liability that would normally be liquidated with expendable available financial resources of a governmental fund (i.e., the portion that is due and payable)— usually zero. The net pension liability is accounted for in the general long-term liabilities, assuming no part of it is proprietary or fiduciary fund related.

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SOLUTIONS TO EXERCISES Exercise 9-1 1. b 2. c 3. a 4. a 5. c 6. b 7. a 8. b—Bonds payable of $10 million less bond discount of $100,000 9. d 10. a—GASBS No. 65 requires these costs to be expensed as incurred.

Exercise 9-2 1. b 2. a 3. d—(The government has a $170,000 loss, but the building was not a General Fund asset.)

4. c 5. d 6. c 7. b 8. c 9. a 10. d

Exercise 9-3 1.

2.

3.

4.

5.

6.

7.

8.

d c b a d b c d

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Exercise 9-4 # 1.

Accounts Land ..........................................................................................

Net Position.........................................................................

To record donated land.

Dr. 40,000

40,000

2.

No entry is required in the GCA nonfund accounts until the equipment is received.

3.

Furniture and Equipment ..........................................................

Net Position.........................................................................

To record purchase of equipment.

47,750

Accumulated Depreciation—Furniture and Equipment ...........

Net Position...............................................................................

Furniture and Equipment ....................................................

To remove truck from accounts upon sale.

50,000 5,000

4.

Cr.

47,750

55,000

Additional information for government-wide reporting: Loss on Sale of Capital Assets, $1,700 (Book value of $5,000 less proceeds of $3,300) 5.

Accumulated Depreciation—Buildings ....................................

Net Position...............................................................................

Buildings .............................................................................

To record destruction of building.

75,000 75,000 150,000

Additional information for government-wide reporting: Loss on Disposal of Building, $75,000 (Depending on circumstances, it may be an extraordinary loss.)

6.

Equipment Under Capital Lease ...............................................

Capital Leases Payable .......................................................

Net Position.........................................................................

To record inception of capital lease.

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1,200,000 1,100,000 100,000

Exercise 9-5 # 1.

2.

3.

Accounts Equipment Under Capital Lease ...............................................

Capital Leases Payable .......................................................

Net Position.........................................................................

To record inception of capital lease.

Dr. 1,400,000

Capital Leases Payable .............................................................

Net Position.........................................................................

To record reduction of lease liability resulting from lease payment.

125,000

Net Position...............................................................................

Claims and Judgments Payable...........................................

To record increase in long-term liability for claims and judgments.

1,200,000

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Cr. 1,200,000 200,000

125,000

1,200,000

Exercise 9-6 # 1.

Accounts Capital Projects Fund Cash ..........................................................................................

Expenditures—Debt Service—Bond Issue Costs .....................

Other Financing Sources—Bonds ......................................

Other Financing Sources—Bond Premium ........................

To record receipt of bond issue.

Other Financing Uses—Transfer to Debt Service Fund ...........

Cash ....................................................................................

To record transfer of premium to DSF. Debt Service Fund Cash ..........................................................................................

Other Financing Sources—Transfer from Capital Projects Fund ......................................................

To record transfer of premium from CPF. GLTL accounts Net Position...............................................................................

Bonds Payable.....................................................................

Premium on Bonds Payable ................................................

To record liability for bonds issued.

2.

3.

Capital Projects Fund Encumbrances ...........................................................................

Encumbrances Outstanding ................................................

To record construction contract.

Capital Projects Fund Encumbrances Outstanding ......................................................

Expenditures—Capital Outlay ..................................................

Encumbrances .....................................................................

Cash ....................................................................................

To record construction expenditures and reverse encumbrances for contract.

GCA accounts Improvements Other than Buildings (Fountain) .......................

Net Position.........................................................................

To record asset constructed.

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Dr.

Cr.

5,090,000 30,000 5,000,000 120,000

90,000 90,000

90,000 90,000

5,120,000 5,000,000 120,000

4,850,000 4,850,000

4,850,000 4,890,000 4,850,000 4,890,000

4,890,000 4,890,000

Exercise 9-6 (continued) # 4.

Accounts Capital Projects Fund Other Financing Uses—Transfer to Debt Service Fund ...........

Cash ....................................................................................

To record transfer of premium to DSF. Debt Service Fund Cash ..........................................................................................

Other Financing Sources—Transfer from Capital Projects Fund ......................................................

To record transfer of premium from CPF.

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Dr.

Cr.

110,000 110,000

110,000 110,000

Exercise 9-7 # 1.

Accounts Debt Service Fund Cash ..........................................................................................

Other Financing Sources—Refunding Bonds.....................

To record issuance of refunding bonds.

GLTL accounts Net Position...............................................................................

Refunding Bonds Payable ...................................................

To record issuance of refunding bonds.

2.

General Fund Other Financing Uses—Transfer to Debt Service Fund ...........

Cash ....................................................................................

To record transfer to Debt Service Fund.

Debt Service Fund Cash ..........................................................................................

Other Financing Sources—Transfer from General Fund...................................................................

To record transfer from General Fund.

3.

Debt Service Fund Other Financing Uses—Payment to Refunded Bond Escrow Agent ...............................................................

Expenditures—Debt Service—Payment to Refunded Bond Escrow Agent ...............................................................

Cash ....................................................................................

To record payment to trust to defease bonds.

GLTL accounts Bonds Payable (Old) .................................................................

Net Position.........................................................................

To record defeasance of bonds.

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Dr.

Cr.

3,000,000 3,000,000

3,000,000 3,000,000

1,850,000 1,850,000

1,850,000 1,850,000

3,000,000 1,850,000 4,850,000

5,000,000 5,000,000

Exercise 9-8 Accounts General Fund Expenditures—Operating—(Various Functions) .....................

Cash ....................................................................................

To record pension expenditures during the year (detailed by function).

GLTL accounts Net Position...............................................................................

Deferred Outflows of Resources—Investment Income Less than Projected ..................................................................

Net Pension Liability ..........................................................

Deferred Inflows of Resources—Assumption Changes .....

To record the increase in the net pension liability during the year.

GLTL accounts Deferred Inflows of Resources—Assumption Changes ...........

Deferred Outflows of Resources— Investment Income Less than Projected .........................

Net Position.........................................................................

To record amortization of current period deferrals.

Dr.

Cr.

878,894 878,894

2,450,000 50,000 2,000,000 500,000

62,500 10,000 52,500

Note: • Deferrals resulting from differences between expected and actual plan investment income must be amortized over a closed 5-year period, beginning in the year that the difference arises. $10,000 = $50,000 / 5 years • Most other pension-related deferred outflows of resources and deferred inflows of resources must be amortized over a closed period equal to the average service lives of plan participants. $62,500 = $500,000 / 8 years • The net pension liability of $12 million, deferred outflows of resources of $40,000 ($50,000 ‒ $10,000), and deferred inflows of resources of $437,500 ($500,000 ‒ $62,500) are reported in the government-wide statement of net position.

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Exercise 9-9 (a) The total cost should be allocated among the various assets acquired in proportion to the best available approximation of their relative fair market values. Approximations of relative fair market values may be obtained from: 1.

2.

3.

4.

5.

documents related to the acquisition of the assets, inquiry of those involved in the acquisition, appraisal by a reputable appraiser, valuations made by the governing board or a responsible official of the governmental unit, or other sources such as property tax assessment records.

(b) An increase in the value of general capital assets should not be recorded in the GCA nonfund accounts and should not be reported in the financial statements. The reason is that these accounts do not show the “value” of the assets; rather, they show the cost, estimated cost, or acquisition value (if donated) of the asset at the time of its acquisition less accumulated depreciation (on depreciable assets). (c) Proceeds from the sale of the asset originally financed out of a Special Revenue Fund logically should be recorded in the Special Revenue Fund. If the asset is to be replaced, it would probably be advisable to use the money for that purpose; otherwise it can be used for any of the authorized purposes of the Special Revenue Fund. This capital asset was financed by the Special Revenue Fund, and the SRF should take preference over any other fund in disposition of the proceeds from its sale.

If, however, the proceeds from the sale clearly are unrestricted, they should be recorded in the General Fund. (d) Since a Capital Projects Fund ceases to exist as soon as the project is completed, the proceeds should be recorded in some fund now in use other than a Capital Projects Fund, assuming the original one has been terminated. If bonds issued to finance the project through which the asset was acquired are still outstanding, the proceeds typically should be recorded in the Debt Service Fund from which they are to be retired. If the bonds have already been retired, the proceeds normally should be recorded in the General Fund and used for such purposes as the governing board may determine to be appropriate.

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Exercise 9-9 (continued) (e) 20X5 Entries Accounts General Fund Expenditures—Capital Outlay .................................................

Vouchers Payable (or Cash) ..............................................

To record acquisition of automobile.

GCA accounts Furniture and Equipment .........................................................

Net Position.........................................................................

To record acquisition of automobile.

Dr.

Cr.

15,000 15,000

15,000 15,000

20X6 Entries GCA accounts Depreciation Expense (detailed by function)............................

Accumulated Depreciation—Furniture and Equipment .....

To record depreciation on vehicle.

Accumulated Depreciation—Furniture and Equipment ...........

Net Position...............................................................................

Furniture and Equipment ....................................................

To record disposal of wrecked vehicle.

General Fund Cash .........................................................................................

Other Financing Sources—Sales of General Capital Assets ...................................................

To record receipt of salvage proceeds upon sale of wrecked vehicle.

2,000 2,000

2,000 13,000 15,000

1,000 1,000

In the government-wide financial statements, the government should report a loss equal to the book value of the vehicle ($15,000 ‒ $2,000, or $13,000) less the salvage proceeds ($1,000), or $12,000.

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Exercise 9-10 1.

# 2.

3.

Net Pension Liability Calculation: Total Pension Liability

Plan Fiduciary Net Position

Net Pension Liability

Balances at 6/30/20X5

$2,534,855

$2,052,589

$482,266

Balances at 6/30/20X6

$2,648,850

$2,204,590

$444,260

Net Change

$(38,006)

Accounts General Fund Expenditures—Operating—(Various Functions) .....................

Cash ....................................................................................

To record pension expenditures (detailed by function).

GLTL accounts Net Pension Liability ................................................................

Net Position...............................................................................

Deferred Inflows of Resources—Investment Gains ...........

Deferred Inflows of Resources—Differences Between Expected and Actual Experience .....................

To record the decrease in the net pension liability during the year.

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Dr.

Cr.

77,913 77,913

38,006 197,354 195,610 39,750

Exercise 9-10 (continued) # 4.

Accounts GLTL accounts Deferred Inflows of Resources—Investment Gains .................

Deferred Inflows of Resources—Differences Between Expected and Actual Experience ............................

Net Position.........................................................................

To record the amortization of current period deferrals.

Dr.

Cr.

39,122 3,975 43,097

Note: • Deferrals resulting from differences between expected and actual plan investment income must be amortized over a closed 5-year period, beginning in the year that the difference arises. $39,122 = $195,610 / 5 years • Most other pension-related deferred outflows of resources and deferred inflows of resources must be amortized over a closed period equal to the average service lives of plan participants. $3,975 = $39,750 / 10 years • The net pension liability of $444,260 and deferred inflows of resources of $192,263 ($195,610 + $39,750 ‒ $39,122 ‒ $3,975) are reported in the government-wide statement of net position.

5.

Decrease in Net Pension Liability ....................

Add: Contributions.........................................

Unrecognized investment gain for the year ........................................

Unrecognized experience gain for the year ........................................

Less: Amortization of unrecognized investment gain for the year..............

Amortization of unrecognized experience gain for the year ..............

Pension expense ................................................

$( 38,006) $ 77,913 195,610 39,750

313,273 275,267

39,122 3,975

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43,097 $232,170

Exercise 9-11 # 1.

2.

3.

Accounts General Fund Expenditures—Operating—(Various Functions) .....................

Cash ....................................................................................

To record OPEB expenditures (detailed by function).

GLTL accounts Net Position...............................................................................

Net OPEB Liability.............................................................

Deferred Inflows of Resources—Investment Gains ...........

To record the increase in the net OPEB liability during the year.

GLTL accounts Deferred Inflows of Resources—Investment Gains .................

Net Position.........................................................................

To record the amortization of current period deferrals.

Dr.

Cr.

19,051 19,051

17,852 2,852 15,000

3,000 3,000

Note: • Deferrals resulting from differences between expected and actual plan investment income must be amortized over a closed 5-year period, beginning in the year that the difference arises. $3,000 = $15,000 / 5 years • Most other OPEB-related deferred outflows of resources and deferred inflows of resources must be amortized over a closed period equal to the average service lives of plan participants (active employees and inactive employees).

• The net OPEB liability of $12,218 and deferred inflows of resources of $12,000 ($15,000 ‒ $3,000) are reported in the government-wide statement of net position.

4.

Increase in Net OPEB Liability ........................

Add: Contributions.........................................

Unrecognized investment gain for the year ........................................

$ 2,852 $19,051 15,000

Less: Amortization of unrecognized investment gain for the year..............

OPEB expense ..................................................

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34,051 36,903 3,000 $33,903

SOLUTIONS TO PROBLEMS Problem 9-1 # 1.

2.

3.

4.

5.

6.

Accounts Equipment Under Capital Lease ...........................................

Capital Leases Payable ...................................................

Net Position ....................................................................

To record acquisition of equipment under capital lease.

Dr. 150,000

Land ......................................................................................

Net Position ....................................................................

To record acquisition of land by foreclosure.

18,500

Construction in Progress .......................................................

Net Position ....................................................................

To record construction in progress at year end.

8,000,000

Buildings ...............................................................................

Construction in Progress ................................................

Net Position ....................................................................

To record completion of building.

17,800,000

Net Position............................................................................

Accumulated Depreciation—Furniture and Equipment ........

Furniture and Equipment ...............................................

To record sale of capital assets.

Note: An other financing source of $65,000 should be reported in the governmental fund receiving the proceeds from the sale. There is no loss in the governmental fund financial statements. However, a loss of $10,000 should be reported for governmental activities in the government-wide financial statements.

75,000 225,000

Net Position............................................................................

Accumulated Depreciation—Infrastructure ...........................

Infrastructure ..................................................................

To record destruction of a bridge by tornado.

Note: A loss of $46,000 should be reported in the government-wide financial statements.

46,000 46,000

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Cr. 120,000 30,000

18,500

8,000,000

8,000,000 9,800,000

300,000

92,000

Problem 9-1 (continued) # 7.

Accounts Furniture and Equipment ......................................................

Accumulated Depreciation—Furniture and Equipment .

Net Position ....................................................................

To record donation of Enterprise Fund truck.

Dr. 80,000

Cr. 31,000 49,000

Calculation: (1) Accumulated Depreciation $80,000 ‒ $18,000 2 = $31,000 (2) Book Value = $80,000 ‒ $31,000 = $49,000 Note: A nonoperating expense of $49,000 should be reported in the Enterprise Fund. In the government-wide financial statements, this transaction will be reclassified and reported as a transfer of $49,000 between governmental activities and business-type activities.

8.

Net Position............................................................................

Accumulated Depreciation—Furniture and Equipment ........

Furniture and Equipment ...............................................

To record transfer of equipment to golf course Enterprise Fund.

Note: A capital contributions revenue of $5,000 should be reported in the Enterprise Fund. In the government-wide financial statements, this transaction will be reclassified and reported as a transfer between governmental activities and business-type activities.

Copyright © 2018 Pearson Education, Inc. 21

5,000 35,000 40,000

Problem 9-2 # 1.

2.

3.

4.

5a.

5b.

6.

Accounts Net Position............................................................................

Bond Anticipation Notes Payable ...................................

To record issuance of “long-term” BANs.

Dr. 5,000,000

Special Assessment Bonds Payable ......................................

Net Position ....................................................................

To record retirement of SA bonds.

50,000

Serial Bonds Payable ............................................................

Net Position ....................................................................

To record removal of matured bonds from the long-term liabilities accounts.

Note: The defaulted bonds payable should be recorded and reported in the DSF.

75,000

Capital Leases Payable .........................................................

Net Position ....................................................................

To record reduction of capital lease principal.

70,000

Net Position............................................................................

Refunding Bonds Payable ..............................................

To record issuance of refunding bonds.

10,000,000

School Bonds Payable ...........................................................

Net Position. ...................................................................

To record advance refunding of school bonds.

11,500,000

Net Position............................................................................

Refunding Bonds Payable ..............................................

To record issuance of refunding bonds. [Same as 5a.]

10,000,000

Copyright © 2018 Pearson Education, Inc. 22

Cr. 5,000,000

50,000

75,000

70,000

10,000,000

11,500,000

10,000,000

Problem 9-3 # 1.

Accounts

Dr.

20X1 Capital Projects Fund Cash .......................................................................................

Other Financing Sources—Bonds .................................

Other Financing Sources—Bond Premium ....................

To record receipt bond proceeds.

Other Financing Uses—Transfer to Debt Service Fund .......

Cash ...............................................................................

To record transfer of bond premium to Debt Service Fund.

Debt Service Fund Cash .......................................................................................

Other Financing Sources—Transfer from Capital Projects Fund .................................................

To record receipt of bond premium from CPF. General Fund Expenditures—Debt Service—Bond Issue Costs ..................

Cash ................................................................................

To record payment of bond issue costs by the General Fund.

GLTL accounts Net Position............................................................................

Term Bonds Payable ......................................................

Premium on Term Bonds ................................................

To record long-term liability for issuance of term bonds.

2.

Capital Projects Fund Encumbrances .......................................................................

Encumbrances Outstanding ...........................................

To record encumbrances outstanding.

52,500,000 50,000,000 2,500,000

2,500,000 2,500,000

2,500,000 2,500,000

75,000 75,000

52,500,000 50,000,000 2,500,000

55,000,000 55,000,000

Encumbrances Outstanding ..................................................

Encumbrances ................................................................

To record the cancellation of encumbrances.

18,000,000

Expenditures—Capital Outlay ..............................................

Cash ...............................................................................

Contracts Payable—Retainage .......................................

To record office building construction expenditures.

18,000,000

Copyright © 2018 Pearson Education, Inc. 23

Cr.

18,000,000

16,200,000 1,800,000

Problem 9-3 (continued) #

Accounts GCA accounts Construction in Progress .......................................................

Net Position ....................................................................

To record cost of construction on progress.

End of 20X1 adjustment: GLTL accounts Premium on Term Bonds .......................................................

Expenses—Interest (($2,500,000 / 20 years) × 9/12) .....

To amortize bond premium. (Close interest expense to Net Position.)

Dr.

Cr.

18,000,000 18,000,000

93,750 93,750

20X2 3.

4.

Debt Service Fund Expenditures—Debt Service—Interest .................................

Cash ...............................................................................

To record annual payment of interest on 4% term bond on March 31, 20X2.

General Fund Other Financing Uses—Transfer to Capital Projects Fund ..

Cash ...............................................................................

To record transfer to CPF. Capital Projects Fund Cash .......................................................................................

Other Financing Sources—Transfer from General Fund .............................................................

To record transfer from GF.

5.

Capital Projects Fund Encumbrances Outstanding ..................................................

Expenditures—Capital Outlay ..............................................

Contracts Payable—Retainage...............................................

Encumbrances ................................................................

Cash ...............................................................................

To record reversal of encumbrances, office building construction expenditures, and payment of vouchers.

Copyright © 2018 Pearson Education, Inc. 24

2,000,000 2,000,000

5,000,000 5,000,000

5,000,000 5,000,000

37,000,000 36,500,000 1,800,000 37,000,000 38,300,000

Problem 9-3 (continued) #

Accounts

Dr.

Other Financing Uses—Transfer to Debt Service Fund .......

Cash ...............................................................................

To record transfer of remaining fund assets to DSF.

500,000

Debt Service Fund Cash .......................................................................................

Other Financing Sources—Transfer from Capital Projects Fund .................................................

To record receipt of transfer from CPF. GCA accounts Buildings ...............................................................................

Construction in Progress ................................................

Net Position ....................................................................

To record cost of completed office building.

End of 20X2 adjustment: GLTL accounts Premium on Term Bonds .......................................................

Expenses—Interest ($2,500,000 / 20 years) ...................

To amortize bond premium. (Close interest expense to Net Position.)

Cr.

500,000

500,000 500,000

54,500,000 18,000,000 36,500,000

125,000 125,000

20X3 6.

General Fund Other Financing Uses—Transfer to Debt Service Fund .......

Cash ...............................................................................

To record transfer to DSF. Debt Service Fund Cash .......................................................................................

Other Financing Sources—Transfer from General Fund .............................................................

To record transfer from GF.

7.

Debt Service Fund Expenditures—Debt Service—Interest .................................

Cash ...............................................................................

To record annual payment of interest on 4% term bond on March 31, 20X3.

Copyright © 2018 Pearson Education, Inc. 25

3,300,000 3,300,000

3,300,000 3,300,000

2,000,000 2,000,000

Problem 9-3 (continued) #

Accounts

Dr.

End of 20X3 adjustment: GLTL accounts Premium on Term Bonds .......................................................

Expenses—Interest ($2,500,000 / 20 years) ...................

To amortize bond premium. (Close interest expense to Net Position.)

Cr.

125,000 125,000

20Z1 8.

General Fund Other Financing Uses—Transfer to Debt Service Fund .......

Cash ...............................................................................

To record transfer to DSF. Debt Service Fund Cash .......................................................................................

Other Financing Sources—Transfer from General Fund .............................................................

To record transfer from GF. Expenditures—Debt Service—Principal ..............................

Expenditures—Debt Service—Interest .................................

Cash ...............................................................................

To record payment of interest and retirement of bonds.

GLTL accounts Term Bonds Payable .............................................................

Premium on Term Bonds .......................................................

Net Position ....................................................................

Expenses—Interest ........................................................

To record retirement of term bonds and amortization of bond premium. (Close interest expense to Net Position.)

Copyright © 2018 Pearson Education, Inc. 26

6,000,000 6,000,000

6,000,000 6,000,000

50,000,000 2,000,000 52,000,000

50,000,000 31,250 50,000,000 31,250

Problem 9-4 # Accounts 1.

General Fund Cash .......................................................................................

Other Financing Sources—Sales of General Capital Assets ................................................

To record proceeds from sale of old equipment.

GCA accounts Net Position............................................................................

Accumulated Depreciation—Furniture and Equipment ........

Furniture and Equipment ...............................................

To remove the cost of equipment sold.

Note: There is no loss in the governmental fund financial statements. However, a loss of $73,000 should be reported in the government-wide financial statements.

2.

General Fund Expenditures—Capital Outlay ..............................................

Other Financing Sources—Capital Lease ......................

Cash ...............................................................................

To record capital lease.

GCA-GLTL accounts Equipment—Under Capital Lease ........................................

Capital Leases Payable ...................................................

Net Position ....................................................................

To record long-term capital lease.

3.

4.

General Fund Encumbrances .......................................................................

Encumbrances Outstanding ...........................................

To record encumbrance for patrol cars.

General Fund Encumbrances Outstanding ..................................................

Expenditures—Capital Outlay ..............................................

Encumbrances ................................................................

Vouchers Payable ..........................................................

To reverse encumbrance entry and record expenditure for patrol cars.

GCA accounts Furniture and Equipment ......................................................

Net Position ....................................................................

To record purchase of patrol cars.

Copyright © 2018 Pearson Education, Inc. 27

Dr.

Cr.

127,000 127,000

200,000 600,000 800,000

780,000 680,000 100,000

780,000 680,000 100,000

100,000 100,000

100,000 101,200 100,000 101,200

101,200 101,200

Problem 9-4 (continued) # 5.

6.

Accounts GCA accounts Land ......................................................................................

Net Position ....................................................................

To record receipt of donated land.

Note: No current financial resources are used in acquiring donated property; so, there is no entry in the governmental funds. However, a capital contributions revenue of $90,000 should be reported for governmental activities in the government-wide financial statements.

Enterprise Fund Cash .......................................................................................

Bonds Payable ...............................................................

To record issuance of bonds backed by the full faith and credit of the county.

Note: The pledge of the full faith and credit of the government must be disclosed. However, the debt was issued for Enterprise Fund purposes and is to be repaid from Enterprise Fund resources. Therefore, it is Enterprise Fund debt.

Copyright © 2018 Pearson Education, Inc. 28

Dr.

Cr.

90,000 90,000

2,000,000 2,000,000

Problem 9-5 #

Accounts

Dr.

Cr.

20X6 1.

General Fund Correction of Prior Year Errors ............................................

Cash ...............................................................................

To reimburse Special Revenue Fund #4 for 20X5 expenditures charged in error to that fund.

Special Revenue Fund #4 Cash .......................................................................................

Correction of Prior Year Errors .....................................

To record reimbursement from General Fund for expenditures improperly charged to this fund.

2.

Special Revenue Fund #2 Expenditures—Capital Outlay ..............................................

Other Financing Sources—Capital Lease ......................

Cash ................................................................................

To record equipment acquired under capital lease.

GCA-GLTL accounts Equipment—Under Capital Lease ........................................

Capital Leases Payable ..................................................

Net Position ....................................................................

To record equipment acquired under capital lease.

3.

Special Revenue Fund #4 Cash .......................................................................................

Expenditures—Operating—Highways and Streets .......

To record reimbursement for Highway Department employees' salaries and wages while working on bridge project.

Capital Projects Fund #7 Expenditures—Capital Outlay ..............................................

Cash ...............................................................................

To record expenditures for Highway Department assistance on bridge project.

GCA accounts Construction in Progress .......................................................

Net Position ....................................................................

To record construction in progress on bridge project.

Copyright © 2018 Pearson Education, Inc. 29

440,000 440,000

440,000 440,000

600,000 500,000 100,000

600,000 500,000 100,000

700,000 700,000

700,000 700,000

700,000 700,000

Problem 9-5 (continued) # 4.

Accounts Special Revenue Fund #2 Expenditures—Debt Service—Principal ..............................

Expenditures—Debt Service—Interest .................................

Cash ...............................................................................

To record annual payment under capital lease.

(Interest = $500,000 × 6% = $30,000) GLTL accounts Capital Leases Payable .........................................................

Net Position ....................................................................

To record reduction of the principal of the capital lease liability.

Expenses—Depreciation (detailed by function) ....................

Accumulated Depreciation—Leased Equipment ...........

To record depreciation on leased equipment.

(Close depreciation expense to Net Position.)

5.

General Fund Advance to Debt Service Fund #12 ......................................

Cash ...............................................................................

To record three-year advance to Debt Service Fund #12.

Note: Nonspendable fund balance must be increased by $500,000 and unassigned fund balance reduced by that same amount.

Debt Service Fund #12 Cash .......................................................................................

Advance from General Fund ..........................................

To record three-year advance from General Fund.

6.

Capital Projects Fund #7 Cash .......................................................................................

Other Financing Uses—Bond Discount.................................

Other Financing Sources—Bonds .................................

To record Other Financing Sources—Bonds, net of discount.

GLTL accounts Net Position............................................................................

Discount on Serial Bonds…………………………………….

Serial Bonds Payable .....................................................

To record liability for serial bonds issued.

Copyright © 2018 Pearson Education, Inc. 30

Dr.

Cr.

70,000 30,000 100,000

70,000 70,000

60,000 60,000

500,000 500,000

500,000 500,000

3,840,000 160,000 4,000,000

3,840,000 160,000 4,000,000

Problem 9-5 (continued) #

Accounts

Dr.

Note: The bond discount would be amortized at year end as follows: Expenses—Interest ................................................................

Discount on Serial Bonds ...............................................

7.

Debt Service Fund #1 Other Financing Uses—Transfer to Debt Service Fund #14 ......................................................

Cash ...............................................................................

To record transfer of net position to Debt Service Fund #14.

Fund Balance ........................................................................

Other Financing Uses—Transfer to Debt Service Fund #14 ...............................................

To close the remaining accounts and terminate the fund.

Debt Service Fund #14 Cash .......................................................................................

Other Financing Sources—Transfer from Debt Service Fund #1 ................................................

To record transfer of net position from Debt Service Fund #1.

8.

Special Revenue Fund #2 Cash .......................................................................................

Other Financing Sources—Sales of General Capital Assets ................................................

To record the proceeds of sale of land and buildings.

GCA accounts Net Position............................................................................

Accumulated Depreciation—Buildings .................................

Land ...............................................................................

Buildings ........................................................................

To remove the accounts of capital assets sold.

Note: There is no gain in the governmental fund financial statements. However, a gain of $11,800,000 should be reported in the government-wide financial statements. (This may well be reported as a special item.)

Copyright © 2018 Pearson Education, Inc. 31

Cr.

XXX XXX

375,000 375,000 375,000 375,000

375,000 375,000

12,000,000 12,000,000

200,000 300,000 50,000 450,000

Problem 9-6 (a) Town of Rego General Fund General Journal Adjusting and Closing Journal Entries (Numbered in accordance with data in the problem) # 1a.

1b.

2.

3.

4.

5.

6.

General Fund Allowance for Uncollectible Taxes—Delinquent .................

Revenues ........................................................................

To reduce balance of estimated losses on prior year taxes receivable to amount of receivables, $8,000.

Dr. 2,200

Taxes Receivable—Delinquent ............................................

Allowance for Uncollectible Taxes—Current ......................

Taxes Receivable—Current ...........................................

Allowance for Uncollectible Taxes—Delinquent .........

To reclassify current taxes as delinquent.

59,200 18,000

Revenues ...............................................................................

Donated Land .................................................................

To remove accounts related to general capital assets.

27,000

Expenditures—Capital Outlay ..............................................

Building Addition ..........................................................

To reclassify as expenditures.

50,000

Expenditures—Debt Service—Principal ..............................

Expenditures—Debt Service—Interest ..................................

Serial Bonds Paid ...........................................................

To reclassify as expenditures.

9,000 7,000

Fund Balance ........................................................................

Appropriations ...............................................................

To record appropriations equal to purchase orders outstanding at June 30, 20X7.

[Alternatively, an Appropriations—20X7 (or Prior Year) account may be credited $8,800 and that amount of the Expenditures reclassified as Expenditures—20X7 (or Prior Year).]

8,800

Encumbrances .......................................................................

Encumbrances Outstanding ...........................................

To record encumbrances of appropriations for purchase orders outstanding at June 30, 20X8.

2,100

Copyright © 2018 Pearson Education, Inc. 32

Cr. 2,200

59,200 18,000

27,000

50,000

16,000

8,800

2,100

Problem 9- 6 (a) (continued) #

General Fund

Dr.

7.

Special Assessment Bonds Payable ......................................

Due to Street-Paving Capital Projects Fund ...................

To record liability to CPF for cash obtained from sale of Special Assessment bonds.

100,000

Revenues ...............................................................................

Tax Anticipation Notes Payable ....................................

To record liability for tax anticipation notes payable.

20,000

8.

9.

C1.

C2.

Closing Entries Appropriations ......................................................................

Encumbrances Outstanding ...................................................

Estimated Revenues .......................................................

Encumbrances .................................................................

Fund Balance .................................................................

To close the encumbrances and budgetary accounts, and adjust the Fund Balance account to its actual preclosing balance.

Revenues ...............................................................................

Fund Balance .........................................................................

Expenditures—Operating ...............................................

Expenditures—Capital Outlay ........................................

Expenditures—Debt Service—Principal ........................

Expenditures—Debt Service—Interest ..........................

To close the general ledger proprietary (nonbudgetary) accounts.

Copyright © 2018 Pearson Education, Inc. 33

Cr.

100,000

20,000

356,800 2,100 310,000 2,100 46,800

309,200 36,800 280,000 50,000 9,000 7,000

Problem 9-6 (b) # 7.

# 2.

3.

4.

7.

Street-Paving Capital Projects Fund Due from General Fund ........................................................

Other Financing Sources— Special Assessment Bonds .......................................

To record the proceeds of the Special Assessment Bonds and the receivable due from GF for these proceeds.

General Capital Assets and General Long-Term Liabilities accounts

Dr. 100,000

100,000

Dr.

Land ......................................................................................

Net Position ....................................................................

To record donation of land by the state.

27,000

Buildings and Improvements ................................................

Net Position ....................................................................

To record the cost of addition to town hall.

50,000

Serial Bonds Payable ............................................................

Net Position ....................................................................

To reduce bond liability by the amount of the bonds matured and paid.

16,000

Net Position............................................................................

Special Assessment Bonds Payable ...............................

To record Special Assessment bonds outstanding.

100,000

Copyright © 2018 Pearson Education, Inc. 34

Cr.

Cr.

27,000

50,000

16,000

100,000

Problem 9-7 # 1.

Accounts Capital Projects Fund Cash........................................................................................

Expenditures—Debt Service—Bond Issue Costs ..................

Other Financing Sources—Bonds ..................................

Other Financing Sources—Premium on Bonds ..............

To record the issue of term bonds at a premium.

GLTL accounts Net Position............................................................................

Term Bonds Payable .......................................................

Premium on Term Bonds ...............................................

To record liability for term bonds issued.

2.

Capital Projects Fund Other Financing Uses—Transfer to Debt Service Fund ........

Cash ................................................................................

To record transfer of cash representing premium on bonds to the Debt Service Fund.

Debt Service Fund Cash........................................................................................

Other Financing Sources—Transfer from Capital Projects Fund ..................................................

To record receipt of cash representing premium on bonds.

3.

General Fund Other Financing Uses—Transfer to Debt Service Fund ........

Cash ................................................................................

To record payment of contribution to the Debt Service Fund.

Debt Service Fund Cash........................................................................................

Other Financing Sources—Transfer from General Fund ..............................................................

To record receipt of contribution from the Debt Service Fund.

Copyright © 2018 Pearson Education, Inc. 35

Dr.

Cr.

2,525,000 10,000 2,500,000 35,000

2,535,000 2,500,000 35,000

25,000 25,000

25,000 25,000

400,000 400,000

400,000 400,000

Problem 9-7 (continued) # 4.

Accounts Capital Projects Fund Expenditures—Capital Outlay ...............................................

Vouchers Payable ..........................................................

To record bridge construction expenditures.

GCA accounts Infrastructure .........................................................................

Net Position ....................................................................

To record bridge construction.

5.

Capital Projects Fund Other Financing Uses—Transfer to Debt Service Fund .......

Cash ...............................................................................

To record transfer of balance from the Capital Projects Fund to the Debt Service Fund.

Debt Service Fund Cash .......................................................................................

Other Financing Sources—Transfer from Capital Projects Fund ..................................................

To record receipt of transfer from Capital Projects Fund.

6.

Debt Service Fund Expenditures—Debt Service—Principal ...............................

Expenditures—Debt Service—Interest ..................................

Cash ................................................................................

To record.

GLTL accounts Notes Payable.........................................................................

Net Position……………………………………. ...........

To record retirement of notes payable.

Copyright © 2018 Pearson Education, Inc. 36

Dr.

Cr.

2,480,000 2,480,000

2,480,000 2,480,000

20,000 20,000

20,000 20,000

50,000 30,000 80,000

50,000 50,000

Problem 9-7 (continued) # 7.

Accounts General Fund Expenditure—Capital Outlay.................................................

Other Financing Sources—Capital Lease .......................

Cash ................................................................................

To record the inception of a capital lease and the initial down payment.

GCA-GLTL accounts Equipment Under Capital Lease ............................................

Capital Leases Payable ...................................................

Net Position ....................................................................

To record capital lease.

8.

General Fund Expenditures—Debt Service—Principal ..............................

Expenditures—Debt Service—Interest ..................................

Cash ................................................................................

Dr.

Cr.

1,250,000 1,125,000 125,000

1,250,000 1,125,000 125,000

150,000 100,000 250,000

To record periodic lease payments.

GLTL accounts Capital Leases Payable ..........................................................

Net Position ....................................................................

To record retirement of a portion of the capital lease liabilities.

9.

General Fund Expenditures—Operating—(Various Functions) .................

Cash ...............................................................................

To record payment of retiree benefits (detailed by function).

GLTL accounts Net Position............................................................................

Net OPEB Liability ........................................................

To record an increase in the long-term net OPEB liability.

Copyright © 2018 Pearson Education, Inc. 37

150,000 150,000

400,000 400,000

2,800,000 2,800,000

Problem 9-7 (continued) # 10.

Accounts General Fund Due from Capital Projects Fund ............................................

Revenues—Charges for Services ...................................

To record revenues for inspection services for Capital Projects Fund.

Capital Projects Fund Expenditures—Capital Outlay ...............................................

Due to General Fund ......................................................

To record cost of inspection services provided by the General Fund.

GCA accounts Construction in Progress ........................................................

Net Position ....................................................................

To record inspection cost as capital asset cost.

11.

Capital Projects Fund Due from General Fund ........................................................

Expenditures—Capital Outlay ........................................

To record reduction of expenditures that should be reported in the General Fund.

General Fund Expenditures—Operating—Maintenance ..............................

Due to Capital Projects Fund ..........................................

To record amount due to the Capital Projects Fund.

GCA accounts Net Position............................................................................

Construction in Progress .................................................

To record reduction of construction cost by reimbursement.

12.

General Fund Due from Debt Service Fund ................................................

Cash ...............................................................................

To record short-term loan to the Debt Service Fund.

Debt Service Fund Cash........................................................................................

Due to General Fund .......................................................

To record short-term loan from the General Fund.

Copyright © 2018 Pearson Education, Inc. 38

Dr.

Cr.

3,000 3,000

3,000 3,000

3,000 3,000

1,800 1,800

1,800 1,800

1,800 1,800

400,000 400,000

400,000 400,000

Problem 9-7 (continued) # 13.

Accounts General Fund Advance to Capital Projects Fund .........................................

Cash ................................................................................

To record two-year advance to the Capital Projects Fund.

Note: Nonspendable fund balance must be increased by $2,000,000 and unassigned fund balance reduced by that same amount.

Capital Projects Fund Cash........................................................................................

Advance from General Fund ..........................................

To record two-year advance from the General Fund.

14.

General Fund Cash........................................................................................

Other Financing Sources—Sales of General Capital Assets ................................................

To record proceeds from sale of general capital assets.

GCA accounts Net Position............................................................................

Accumulated Depreciation.....................................................

Furniture and Equipment ................................................

To remove general capital assets upon sale.

15.

General Fund Expenditures—Operating—(Various Functions) ..................

Cash ................................................................................

Claims and Judgments Payable ......................................

To record claims and judgments incurred and paid, as well as due and payable (detailed by function).

GLTL accounts Claims and Judgments Payable ..............................................

Net Position ....................................................................

To record the decrease in long-term claims and judgments liability.

Copyright © 2018 Pearson Education, Inc. 39

Dr.

Cr.

2,000,000 2,000,000

2,000,000 2,000,000

65,000 65,000

96,000 384,000 480,000

2,100,000 2,000,000 100,000

335,000 335,000

Problem 9-8 Summary reports on this research and analysis problem should be evaluated in terms of the specific requirements. The depth of analysis and understanding should be apparent—particularly if several reports are evaluated concurrently.

Problem 9-9 1. The GASB defines pollution remediation obligations as obligations “to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities” such as site assessments and cleanups. Remediation could include activities such as precleanup, cleanup, government oversight, operation, and remedy maintenance.

2. If identified, pollution remediation obligations would typically be reported as an expense and a liability on an accrual basis when a range of expected outlays is reasonably estimable.

These would be reported in both proprietary funds, as well as the government-wide financial statements. An expenditure and a liability would be recognized in governmental funds consistent with GAAP requirements for the modified accrual basis of accounting. There are three specific situations where the outlays for pollution remediation obligations would be capitalized rather than being expensed—(a) outlays to prepare property for sale; (b) outlays to prepare property for use when it was purchased with the expectation that remediation would be necessary; and (c) outlays to restore service loss due to asset impairment.

3. An obligating event occurs when a governmental entity “knows or reasonably believes a site is polluted or contaminated”. An obligating event has occurred when • • • • •

imminent endangerment has caused a governmental entity to take remedial action, or the government has violated a pollution prevention-related permit or license, or the government has been named, or evidence indicates that the government will be named, as a responsible party or potential responsible party by a regulator, or the government has been named, or evidence indicates that the government will be named, in a lawsuit to enforce cleanup, or the government begins, or obligates itself to begin, cleanup, monitoring, or maintenance and operation activities.

4. Liabilities for pollution remediation obligations and the related expenditures/expenses are potentially accrued when a range of expected outlays is reasonably estimable.

Copyright © 2018 Pearson Education, Inc. 40

SOLUTIONS TO CASES Case 9-1 # 1.

Accounts Capital Projects Fund Cash........................................................................................

Expenditures—Debt Service—Bond Issue Costs ..................

Other Financing Sources—Bonds ..................................

Other Financing Sources—Premium on Bonds ..............

To record the issue of bonds at a premium.

GLTL accounts Net Position............................................................................

Bonds Payable ................................................................

Premium on Bonds ........................................................

To record liability for bonds issued.

2.

3.

Capital Projects Fund Encumbrances ........................................................................

Encumbrances Outstanding ............................................

To record construction contract.

Capital Projects Fund Expenditures—Capital Outlay ...............................................

Vouchers Payable ..........................................................

To record construction costs incurred on capital projects.

GCA accounts Buildings ................................................................................

Construction in Progress ........................................................

Net Position ....................................................................

To record general capital assets completed and under construction.

4.

Debt Service Fund Expenditures—Debt Service—Principal ...............................

Expenditures—Debt Service—Interest ..................................

Cash ................................................................................

To record debt service on bonds.

GLTL accounts Bonds Payable........................................................................

Net Position ....................................................................

To record retirement of bond principal.

Copyright © 2018 Pearson Education, Inc. 41

Dr.

Cr.

136,507 343 132,000 4,850

136,850 132,000 4,850

168,000 168,000

120,000 120,000

100,000 20,000 120,000

113,781 49,037 162,818

113,781 113,781

Case 9-1 (continued) # Accounts 5.

GCA accounts Expenses—Depreciation (detailed by function) ....................

Accumulated Depreciation—Buildings .........................

To record depreciation for buildings placed in service. ($100,000 / 40 Years) 6.

General Fund Cash........................................................................................

Other Financing Sources—Transfer from Enterprise Fund ...........................................................

To record receipt of transfer from Enterprise Fund.

Enterprise Fund Transfer to General Fund .......................................................

Cash……………………………………. .......................

To record transfer to the General Fund.

7.

General Fund Expenditures—Capital Outlay ...............................................

Cash ................................................................................

To record the inception of a capital lease and the initial down payment.

GCA accounts Land .......................................................................................

Furniture and Equipment ($7,670 + $4,981) .........................

Net Position ....................................................................

To record general capital assets purchased.

Expenses—Depreciation (detailed by function) ....................

Accumulated Depreciation—Furniture and Equipment .

To record depreciation for general capital assets placed in service.

[Vehicles ($7,670 / 5) + Equipment ($4,981 / 4) = $2,779]

8.

General Fund Expenditures—Operating—(Various Functions) .................

Cash ................................................................................

To record claims paid (detailed by function).

GLTL accounts Net Position............................................................................

Claims and Judgments Payable ......................................

To record claims and judgments liability.

Copyright © 2018 Pearson Education, Inc. 42

Dr.

Cr.

2,500 2,500

230,000 230,000

230,000 230,000

34,892 34,892

22,241 12,651 34,892

2,779 2,779

556,089 556,089

6,352 6,352

Case 9-2 # 1.

2.

Accounts General Fund Expenditures—Capital Outlay ...............................................

Cash ................................................................................

To record infrastructure maintenance.

General Fund Cash........................................................................................

Other Financing Sources—Sales of General Capital Assets ...............................................

To record proceeds from sale of general capital assets.

Note: A $210,864 loss is reported in the government-wide financial statements.

GCA accounts Net Position............................................................................

Accumulated Depreciation—Furniture and Equipment ........

Furniture and Equipment ................................................

To remove general capital assets upon sale.

3.

GCA accounts Expenses—Depreciation (detailed by function) ....................

Accumulated Depreciation—Buildings ..........................

Accumulated Depreciation—Leased Equipment ...........

Accumulated Depreciation—Furniture and Equipment .

To record depreciation for general capital assets.

Calculation: Buildings ($35,036,945 / 40 years) ........................................

Leased Equipment ($46,896 / 2 years) ..................................

Other Equipment ($9,409,251 / 12 years) ..............................

Total depreciation expense .............................................

4.

Debt Service Fund Expenditures—Debt Service—Principal ...............................

Expenditures—Debt Service—Interest ..................................

Cash ................................................................................

To record payment of debt service on bonds.

GLTL accounts Bonds Payable........................................................................

Net Position ....................................................................

To record retirement of bond principal.

Copyright © 2018 Pearson Education, Inc. 43

Dr.

Cr.

2,349,688 2,349,688

54,538 54,538

265,402 534,598 800,000

1,683,476 875,924 23,448 784,104

$ 875,924 23,448 784,105 $1,683,476

425,000 745,034 1,170,034

425,000 425,000

Case 9-2 (continued) # 5.

Accounts General Fund Other Financing Uses—Transfer to Special Revenue Fund........................................................

Other Financing Uses—Transfer to Capital Projects Fund .........................................................

Other Financing Uses—Transfer to Enterprise Fund ............

Other Financing Uses—Transfer to Internal Service Fund .........................................................

Cash ................................................................................

To record transfers made to various funds.

Note: The journal entry in each recipient fund is a debit to cash and a credit to transfers from the General Fund for the amount shown above for that fund.

Copyright © 2018 Pearson Education, Inc. 44

Dr.

Cr.

508,122 2,299 192,505 2,782 705,708