Solution manual fundamentals of advanced accounting 9e by fischertaylor ch 10

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CHAPTER 10
UNDERSTANDING THE ISSUES
1. Separating activity into governmental, proprietary, and fiduciary funds allows for detailed reporting of resources and spending. Separating
of activities also allows for a different
measurement focus and basis of accounting
depending on whether activities are general
government or business-type activities. In addition, since the governmental activities are
accounted for using a modified accrual basis of
accounting in order to capture financial resource information, the account groups have
served to record (i.e., list) the long-term capital
assets and liabilities. Proponents of this model
argue that information generated best serves
the budget-planning process and answers
questions relating to how much resources are
needed to pay for the current level of services.

for governmental funds. Fixed assets acquired
with proceeds from general obligation bonds
are accounted for in the general fixed assets
account group subsequent to acquisition.
6. Revenues would be credited if resources were
received from a source outside of the governmental unit that need not be repaid. An example is a property tax levy. If repayment is
required, as in the case of a bond issue, the
credit is to Other Financing Sources. The latter
account is also used for amounts received from
other funds of the same governmental unit if
that unit had previously recorded the resources
as revenue. The procedure prevents recognizing the same resources twice as revenue.
7. Both funds account for public-purpose trusts. If

the resources and any earnings on investments
can be used to finance government programs,
then a special revenue fund is used. If only the
earnings can be spent, a permanent fund is
used.

2. Budgets are the legal authorization to raise
revenue, incur long-term debt, and appropriate
resources. Authorized expenditures are termed
appropriations. Budgetary totals are recorded in
the general ledger as control accounts to allow
for budgetary comparisons in the ledgers as
well as to facilitate financial reporting of a budgetary comparison statement.

8. Both are proprietary funds. An enterprise fund
is used to account for activities of a government
that provides goods or services to the public.
An internal service fund is used to account for
activities providing goods or services to other
departments within the same governmental
unit.

3. The advantage of reporting designations of the
fund balance is improved communications of
decisions made by the common council or
town/village board that will impact the availability of resources for other purposes. While not
restricted by external grantors or donors, these
funds are internally designated for specific purposes, e.g., planned purchases, reduction of
taxes, and improvements in services.

9. The accounting emphasis for governmental
funds emphasizes the funds available, spendable resources, and their expenditures. Modified
accrual
accounting
is
required.
The
accounting for proprietary funds, however, emphasizes expenses rather than expenditures
and is similar to that for a private enterprise.
Proprietary funds measure net income, focusing on the total cost of services and the
amounts of cost recovered by revenue. Proprietary funds are accounted for with a capital
maintenance measurement focus, using the
accrual basis of accounting. They account for
their own assets (including fixed assets and
depreciation) and liabilities (including long-term
debt). Proprietary funds also differentiate between contributed and earned equity, just as a
corporation would.

4. The encumbrance system is designed as an
early indicator or an ―expected expenditure‖ to
prevent overspending and to plan for payment
of an ―expected liability.‖ It is an estimate of an
expenditure that may or may not be realized by
year-end but will require the use of existing or
future financial resources.
5. Capital projects funds are used to account for
the inflows and outflows of financial resources
raised and expended to acquire major capital
assets used by the general government. This
accounting is in accordance with the flows of financial resources measurement focus adopted

461


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Ch. 10—Understanding the Issues

10. Private-purpose trust funds are used to account
for assets held by the government on behalf of
an individual, group, or organization. Perma-

nent funds record assets held, income from
which will benefit the government activities.

462


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Ch. 10—Exercises

EXERCISES
EXERCISE 10-1
(1) c

Items (a) and (b) are Other Financing Sources, while (d) is a reduction of Expenditures.

(2) d

(a), (b), and (c) represent outflows of financial resources to acquire goods and services. The
consumption, not the purchase of inventory, is an expenditure.

(3) a

Donated fixed assets are recorded in the general fixed asset account group at their fair value
when received.

(4) b

Representing potential inflow of assets, Estimated Revenues is debited.

(5) d

Taxes receivable is debited with offsetting credits to an allowance for uncollectible taxes and
revenues.

(6) d

Interfund transfers employ the other financing uses/sources accounts.

(7) c

Long-term debt related to governmental funds may be operating debt or general long-term
capital debt.

(8) b

The purchase of equipment is an outflow of resources from the general fund. An additional
entry to record the fixed asset will be made in the account group.

(9) b

Expenditures are closed along with the other nominal accounts to determine an increase or
decrease in the fund balance from the current period operations.

(10) d

When a purchase order is approved, an encumbrance is debited to reflect the expected expenditure. A reserve is also established by a credit to Fund Balance—Reserved for Encumbrances.

EXERCISE 10-2
(1) a
(2) e
(3) b
(4) c
(5) e
(6) c
(7) b

463


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Ch. 10—Exercises

EXERCISE 10-3
Estimated Revenues .......................................................................
Estimated Other Financing Sources................................................
Appropriations ...........................................................................
Estimated Other Financing Uses ...............................................
Budgetary Fund Balance...........................................................

502,000
115,000
500,000
45,000
72,000

(Note to Instructor: Property taxes paid by a proprietary fund are considered revenue.)

EXERCISE 10-4
Jan.

Feb.

Apr.

July

Cash ...................................................................................
Tax Anticipation Notes Payable .....................................
To record borrowing.

275,000

Cash ...................................................................................
Tax Liens Receivable ....................................................
Revenues ......................................................................
To record collection of tax liens.

14,000

Cash ...................................................................................
Tax Liens Receivable ....................................................
To record collection of tax liens, sale of property.

16,000

Allowance for Uncollectible Tax Liens .................................
Tax Liens Receivable ....................................................
Revenues ......................................................................
To close allowance.

23,000

Cash ...................................................................................
Delinquent Property Taxes Receivable ..........................
Revenues ......................................................................
To record collection of delinquent property taxes.

104,500

Tax Liens Receivable ..........................................................
Delinquent Property Taxes Receivable ..........................
To transfer delinquent property taxes to tax liens.

35,000

Allowance for Uncollectible Delinquent Taxes .....................
Allowance for Uncollectible Tax Liens............................
Revenues ......................................................................
To transfer allowance for uncollectible delinquent

taxes to allowance for uncollectible tax liens.

40,000

Property Taxes Receivable .................................................
Allowance for Property Taxes Receivable .....................
Revenues ......................................................................
To record current property tax levy.

422,000

464

275,000

12,000
2,000

16,000

17,000
6,000

100,000
4,500

35,000

35,000
5,000

21,100
400,900


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Ch. 10—Exercises

Exercise 10-4, Concluded
Sept. Cash ...................................................................................
Property Taxes Receivable............................................
To collect current property taxes.

365,000

Tax Anticipation Notes Payable ...........................................
Expenditures .......................................................................
Cash ..............................................................................
To pay off tax anticipation notes.

275,000
18,000

365,000

293,000

EXERCISE 10-5
(1) Cash .............................................................................................
Other Financing Sources ........................................................

To transfer from municipal trust fund.

45,000
45,000

(2) No entry in the general fund for land. Record in the general
fixed assets account group:
Land .............................................................................................
Investment in General Fixed Assets—Donations ....................
To record donation of park.

75,000

(3) Due from State .............................................................................
Revenues ...............................................................................
To record state grant.

30,000

(4) Cash .............................................................................................
Other Financing Sources ........................................................
To record sale of fire truck.

9,000

75,000

30,000

9,000

Additional entry in General Fixed Assets Group:
Investment in General Fixed Assets—General Fund Revenues ...
Equipment ..............................................................................

36,000

(5) Cash .............................................................................................
Revenues ...............................................................................
Deferred Revenue ..................................................................
To record sale of park stickers.

5,000

465

36,000

2,500
2,500


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Ch. 10—Exercises

EXERCISE 10-6
(1) Expenditures ($120,000 + $60,000 + $125,000 + $13,000) ..........
Tax Anticipation Notes Payable ....................................................
Inventory of Supplies ....................................................................
Vouchers Payable...................................................................

To record payment of vouchers.

318,000
200,000
45,000

(2) Other Financing Uses ...................................................................
Cash .......................................................................................
To transfer to debt service fund.

57,000

(3) Expenditures ................................................................................
Inventory of Supplies ..............................................................
To record consumption of inventory.

42,500

Fund Balance—Unreserved, Undesignated ..................................
Fund Balance—Reserved for Inventory ..................................
To adjust reserve to match inventory balance.

2,500

563,000

57,000

42,500

2,500

EXERCISE 10-7
(1) Encumbrances .............................................................................
Fund Balance—Unreserved, Undesignated ............................
To restore previous year’s encumbrances.

18,000

(2) Encumbrances .............................................................................
Fund Balance—Reserved for Encumbrances .........................
To record current encumbrances.

70,000

(3) Fund Balance—Reserved for Encumbrances ...............................
Encumbrances ........................................................................
To reverse encumbrances for orders received.

88,000

Inventory of Supplies ....................................................................
Vouchers Payable...................................................................
To record purchase of inventory.

87,000

(4) Expenditures ($31,000 + $87,000 – $35,000) ...............................
Inventory of Supplies ..............................................................
To record use of inventory.

83,000

Fund Balance—Unreserved, Undesignated ..................................
Fund Balance—Reserved for Inventory ..................................
To adjust reserved fund balance to match inventory.

4,000

466

18,000

70,000

88,000

87,000

83,000

4,000


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Ch. 10—Exercises

EXERCISE 10-8
(a) Estimated Revenues ....................................................................
Appropriations ........................................................................

Budgetary Fund Balance—Unreserved...................................
To record budget for the year.

520,000

(b) Taxes Receivable—Current ..........................................................
Allowance for Uncollectible Current Taxes ..............................
Revenues ...............................................................................
To record tax levy.

378,788

(c) Encumbrances .............................................................................
Fund Balance—Reserved for Encumbrances .........................
To record purchase orders authorized.

240,000

(d) Cash .............................................................................................
Taxes Receivable—Current ....................................................
To record receipt of tax payments.

280,000

(e) Fund Balance—Reserved for Encumbrances ...............................
Encumbrances ........................................................................
To reverse encumbrance entry for items invoiced.

223,000

Expenditures ................................................................................
Vouchers Payable...................................................................
To record invoices vouchered.

225,000

Expenditures ................................................................................
Vouchers Payable...................................................................
To record salaries approved for payment.

135,000

(g) Cash .............................................................................................
Revenues ...............................................................................
To record receipt of a grant-in-aid.
(h) Cash .............................................................................................
Revenues ...............................................................................
To record receipt of miscellaneous revenues.

100,000

(i)

120,000

(f)

(j)

Expenditures ................................................................................

Cash .......................................................................................
To record purchase of property. (The property would also
be entered in the general fixed assets accounts group.)

515,000
5,000

3,788
375,000

240,000

280,000

223,000

225,000

135,000

100,000
10,000
10,000

120,000

No entry. Recorded only in general fixed assets account group.

(k) Other Financing Uses ...................................................................
Due to Other Funds ................................................................

To record amount due other funds and approved for
payment.

467

12,000
12,000


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Ch. 10—Exercises

Exercise 10-8, Concluded
(l)

Due from State .............................................................................
Revenues ...............................................................................
To record share of state sales taxes receivable.

30,000

(m) Vouchers Payable ........................................................................
Cash .......................................................................................
To record vouchers paid.

175,000

(n) Budgetary Fund Balance—Unreserved ........................................
Appropriations ..............................................................................
Estimated Revenues ...............................................................

To reverse budgetary entry.

5,000
515,000

Revenues .....................................................................................
Expenditures ...........................................................................
Other Financing Uses .............................................................
Fund Balance—Unreserved, Undesignated ............................

515,000

Fund Balance—Unreserved, Undesignated ..................................
Encumbrances ........................................................................
To close nominal accounts.

17,000

30,000

175,000

520,000

480,000
12,000
23,000
17,000

EXERCISE 10-9

(a) Land .............................................................................................
Buildings .......................................................................................
Investment in General Fixed Assets—General Funds .............
To record property purchase.

325,000
975,000

(b) Land .............................................................................................
Buildings .......................................................................................
Investment in General Fixed Assets—Donations ....................
To record donated property at its fair value.

330,000
220,000

(c) Construction in Progress ..............................................................
Investment in General Fixed Assets—Capital Projects Funds
(General Obligation Bonds) ...............................................
To record cost of work to date.

800,000

(d) Machinery and Equipment ............................................................
Investment in General Fixed Assets—General Fund
Revenues..........................................................................
To record fire engine purchase at full value.

190,000

Investment in General Fixed Assets—General Fund Revenues ...
Machinery and Equipment ......................................................
To record trade-in.

100,000

(e) Infrastructure ................................................................................
Investment in General Fixed Assets—Capital Projects Funds ....
To record cost of new street.

250,000

468

1,300,000

550,000

800,000

190,000

100,000

250,000


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Ch. 10—Exercises

EXERCISE 10-10
(1) Amount to Be Provided for Compensated Absences ....................
Unfunded Compensated Absences.........................................
To record the noncurrent portion of the obligation for
vacations.
(2) Unfunded Compensated Absences ..............................................
Amount to Be Provided for Compensated Absences ..............
To reduce the long-term obligation for vacations.

2,200,000
2,200,000

400,000
400,000

(3) Amount to Be Provided for Claims and Judgments .......................
Claims and Judgments Payable ..............................................
To record the noncurrent portion of the judgment against
the city.

11,000,000
11,000,000

(4) Amount to Be Provided for Payment of Bonds ..............................
General Obligation Bonds Payable .........................................
To record the issuance of general obligation bonds at
maturity value.

100,000,000
100,000,000

(5) Amount Available in the Debt Service Fund ..................................
Amount to Be Provided for Payment of Bonds ........................
To record accumulation of resources in the Debt Service
Fund for bond principal.

1,000,000
1,000,000

(6) Amount Available in the Debt Service Fund ..................................
Amount to Be Provided for Payment of Bonds ........................
To record interest earned and appreciation in fair value
of investments in the Debt Service Fund.

4,800,000
4,800,000

EXERCISE 10-11
(1)

c

Item A is debt service, B is in the trust fund, and D is within the proprietary fund.

(2)

c

As an interest adjustment factor, the premium should be transferred to the debt service fund
that pays the interest.

(3)

a

The general fund uses modified accrual. Enterprise funds recognize revenue when earned
under full accrual accounts.

(4)

a

The entry for reinstatement is:
Encumbrances .................................................................
Fund Balance—Unreserved, Undesignated ................

(5)

a

XXX
XXX

The cash flow statement for governmental proprietary funds and nonexpendable trust funds
has four parts. Cash from operations, cash from capital financing activities, cash from noncapital financing activities, and cash from investing activities.

469


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Ch. 10—Exercises

Exercise 10-11, Concluded
(6)

d

Payments for services provided by an internal service fund within the same governmental entity are considered quasi-external transactions.

(7)

b

This is one of two reclassification entries:
Deferred Revenues ..........................................................
Revenues ...................................................................

XXX
XXX

(8)

c

The revenue is recorded by the general fund, but the debt service fund makes the payment of
principal and interest.

(9)

a

Governmental funds do not report cash flows since the amounts reported using modified accrual are near cost.

(10) b

Accounting procedures of internal service funds resemble commercial accounting.

EXERCISE 10-12
(1)

a

Permanent funds are classified as governmental and follow accounting rules similar to general
funds.

(2)

d

The debt service fund follows general fund procedures except for the usual practice of not using budgetary entries.

(3)

c

The amount to be provided is reduced with the receipt of available funds in the debt service
fund.

(4)

a

Debt service funds are used to account for the payment of interest and principal on general
government long-term debt, not short-term debt or the debt of proprietary funds.

(5)

b

With no commitment by the governmental unit, the liability is solely that of the assessed property owners. However, the amount of the bond liability may be shown in the notes to the financial statements.

(6)

b

The agency fund internally distributes monies to recipient funds.

(7)

d

This is the typical entry to record a year’s capitalizable costs of an unfinished capital project.

(8)

d

Capital projects funds are used to account for major construction activity financed by general
tax revenues or special assessments.

(9)

a

An investment trust fund is used to account for assets, liabilities, net assets, and changes in
net assets of external participants in an investment pool managed by the government.

(10)

a Permanent funds are used to account for public-purpose trusts, for which earnings are expendable for a specific purpose. Permanent funds are classified as governmental funds.

470


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Ch. 10—Exercises

EXERCISE 10-13
Fund or
Account Group
(a)

Entries

Debit

Credit

Capital
Projects

Fund

Estimated Other Financing Sources ..............................
Appropriations ..........................................................
Budgetary Fund Balance ..........................................
To record budgeted amounts for city hall
construction project.

General
Fund

The general fund budgetary entry would include
$400,000 in Estimated Other Financing Uses.

General
Fund

Other Financing Uses ...................................................
Cash .........................................................................
To record contribution to capital projects fund.

400,000

Capital
Projects
Fund

Cash .............................................................................
Other Financing Sources ..........................................
To record contribution from the general fund.

400,000

Capital
Projects
Fund

Cash .............................................................................
Expenditures .................................................................
Other Financing Uses ...................................................
Other Financing Sources ..........................................
To record proceeds from the sale of bonds.

1,975,000
5,000
20,000
2,000,000

General
Long-Term
Debt

Amount to Be Provided for Payment of Serial Bonds ....
Serial Bonds Payable ...............................................
To record liability for the serial bonds.

2,000,000
2,000,000

(d)

Capital
Projects
Fund

Encumbrances ..............................................................
Fund Balance—Reserved for Encumbrances ...........
To record signing of construction contract.

2,300,000
2,300,000

(e)

Capital
Projects
Fund

Fund Balance—Reserved for Encumbrances ...............
Encumbrances..........................................................
To record liquidation of encumbrances.

1,000,000
1,000,000

Expenditures .................................................................
Cash .........................................................................
To record expenditures for partial completion.

1,000,000

1,000,000

Construction in Progress ...............................................
Investment in General Fixed Assets—
Capital Projects Fund(s) .......................................
To record partial completion of city hall project.

1,000,000

(b)

(c)

General
Fixed Assets
Account
Group

471

2,400,000
850,000
1,550,000

400,000

400,000

1,000,000

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Ch. 10—Exercises

EXERCISE 10-14
(a) No entry is made in the Debt Service Fund.
(b) Expenditures ................................................................................
Matured Bonds Payable..........................................................
Matured Interest Payable (6% × $5,000,000) ..........................
To record matured items.

800,000

(c) Cash .............................................................................................
Other Financing Sources ........................................................
To record receipt of cash from the general fund.

800,000

(d) Cash with Fiscal Agent .................................................................
Cash .......................................................................................
To record transfer to First Bank.

800,000

(e) Matured Bonds Payable ...............................................................
Matured Interest Payable..............................................................
Cash with Fiscal Agent ...........................................................
To record payments by bank.

500,000
291,000

472

500,000
300,000

800,000

800,000

791,000


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Ch. 10—Exercises

EXERCISE 10-15
(a) Restricted Assets—Cash for Construction ....................................
Interfund Transfer from General Fund.....................................
To record restricted amount received from the
general fund.

300,000

(b) Accounts Receivable ....................................................................
Due from Other Funds ..................................................................
Operating Revenues (or Billings for Services) .........................
To record billings.

220,000
67,000

(c) Cash .............................................................................................
Due from Other Funds ............................................................
Accounts Receivable ..............................................................
To record collections.

232,000

(d) Restricted Assets—Revenue Bond Development Cash ................
Revenue Bonds Payable ........................................................
To record bond issuance with restriction on proceeds.

700,000

300,000

287,000

42,000
190,000

700,000

(e) No entry. Enterprise Funds do not use budgetary accounts
for encumbrances.
(f)

Construction in Progress ..............................................................
Contracts Payable from Restricted Assets ..............................
To record liability for work to date.

360,000

(g) Contracts Payable from Restricted Assets ....................................
Restricted Assets—Revenue Bond Development Cash ..........
To record issuance of check from restricted cash.

300,000

EXERCISE 10-16
(a) GF, GFAAG
(b) DSF, CPF, GLTDAG
(c) GF, DSF, GLTDAG
(d) DSF, GLTDAG
(e) CPF, GFAAG
(f) PF, SRF
(g) ENT, INT, GFAAG, PPT
(h) ENT
(i) CPF, DSF, GLTDAG, GFAAG

473

360,000

300,000

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Ch. 10—Exercises

EXERCISE 10-17
(1)

g

(6)

j

(2)

k

(7)

d

(3)

l

(8)

a

(4)

l

(9)

f

(5)

e

(10)

b

EXERCISE 10-18
(1)

b

(6)

g

(2)

f

(7)

a

(3)

d

(8)

d

(4)

d

(9)

i

(5)

b

(10)

h

474


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Ch. 10—Problems

PROBLEMS
PROBLEM 10-1
(1) b

The GASB stipulated that the measurement focus for governmental funds is the flow of financial resources.

(2) c

Interperiod equity seeks to determine whether current-year revenues are sufficient to pay for
current-year services or whether future taxpayers will be required to assume burdens for services previously provided. The flow of financial resources measurement focus measures the
extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period against financial resources of a governmental fund. The GASB recognized that because budgetary and fund accounting practices cause costs of government activities to be spread among a number of funds, general purpose financial reporting must also
include the measurement of the cost of services provided during a period.

(3) a

Long-term debt used to purchase fixed assets is recorded in the general fund as an other financial resource, but the debt itself is recorded in the general long-term debt account group.

(4) b

Funds are used to separate reporting of the diverse variety of governmental activities and to
meet legal provisions stipulating use of resources imposed on the governmental unit.

(5) a

The Governmental Accounting Standards Board is the authoritative body for financial reporting
standards used by state and local governments.

(6) b

Reporting outstanding encumbrances as a fund balance reserve indicates that not all of the
resources in the fund are available for new expenditures.

(7) d

Current standards specify that neither interest nor principal on long-term debt should be accrued in advance of the year in which it is due. Governments may, however, opt to accrue principal if resources are available in the debt service fund by year-end.

PROBLEM 10-2
(1) c

These notes are short-term operating debt that will be repaid out of current revenues.

(2) b

A hypothetical entry to record the tax levy is:
Taxes Receivable—Current ...............................................
Allowance for Uncollectible Current Taxes ...................
Revenues.....................................................................

100,000
4,000
96,000

Because revenues are estimated and recorded net of the uncollectible, a decrease in the allowance is a revision (in this case an increase) of revenues. This is true even if the revenues
were recorded in a prior period.
(3) a

Encumbrance control is increased when an order is placed and decreased when the voucher is
recorded.

(4) a

Grants from outside units are revenues unless they require the prior recording of an expenditure that is then reimbursed.

475


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Ch. 10—Problems

Problem 10-2, Concluded
(5) c

The appropriation still available for use is the original appropriation less expenditures and encumbrances.

(6) d

When supplies are received, the original entry to encumber the estimated cost is reversed.

(7) a

The general fixed asset account group records the fixed assets of governmental funds but not
proprietary funds or trust funds.

(8) b

Revenues are recognized when measurable and available to meet current-period expenditures.
This is interpreted to include collections of the current period or shortly after year-end (usually
within 60 days of year-end).

(9) d

The fixed asset is recorded in the account group at its fair value with a credit to Investment in
General Fixed Assets identifying the original funding source.

(10) c

Expenditures are recorded when the liability is incurred. Under modified accrual basis of accounting, the noncurrent liability is recorded in the general long-term debt account group.

PROBLEM 10-3
(a) Estimated Revenues .................................................................
Estimated Other Financing Sources ..........................................
Appropriations .....................................................................
Budgetary Fund Balance—Unreserved ...............................

xxx
xxx

(b) Taxes Receivable—Current ......................................................
Allowance for Uncollectible Current Taxes ..........................
Revenues ............................................................................

xxx

(c) Cash .........................................................................................
Allowance for Uncollectible Delinquent Taxes ...........................
Taxes Receivable—Delinquent ...........................................

xxx
xxx

(d) Encumbrances ..........................................................................
Fund Balance—Reserved for Encumbrances ......................

xxx

(e) Expenditures .............................................................................
Vouchers Payable ...............................................................

xxx

(f) Fund Balance—Reserved for Encumbrances ...........................
Encumbrances ....................................................................

xxx

Expenditures .............................................................................
Vouchers Payable ...............................................................

xxx

(g) Cash .........................................................................................
Other Financing Sources .....................................................

xxx

476

xxx
xxx

xxx
xxx

xxx

xxx

xxx

xxx
xxx

xxx


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Ch. 10—Problems

Problem 10-3, Concluded
(h) Expenditures .............................................................................
Cash ...................................................................................

xxx

(i) Cash .........................................................................................
Tax Anticipation Notes Payable ...........................................

xxx

xxx

xxx

PROBLEM 10-4
(1) At inception of the lease:
General Fund

Expenditures ...........................................................
Other Financing Sources ...................................
To record the acquisition of the
equipment under capital lease.

800,000

General
Fixed Assets
Account Group

Leased Equipment ..................................................
Investment in General Fixed
Assets—Capital Leases.................................
To record the equipment.

800,000

General
Long-Term
Debt Account
Group

Amount to Be Provided ............................................
Capital Lease Obligation ....................................
To record the capital lease
obligation.

800,000

Expenditures (interest).............................................
Expenditures (principal) ...........................................
Cash ..................................................................
To record the first lease payment
of principal and interest.

48,000
60,694

800,000

800,000

800,000

(2) First payment:
General Fund

General
Fixed Assets
Account Group

Investment in General
Fixed Assets—Capital Leases ...........................
Leased Equipment .......................................
To record the depreciation on the
leased equipment (optional entry
under current standards).

General
Long-Term
Debt Account
Group

Capital Lease Obligation..........................................
Amount to Be Provided ......................................
To record the reduction of the lease principal.
Note: Each lease payment reduces the
principal balance of the obligation. Therefore,
each subsequent payment will allocate a
smaller portion to interest and a larger
portion to principal.

477

108,694

80,000
80,000

60,694
60,694

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Ch. 10—Problems

PROBLEM 10-5
(1) Year 1:
General Fund

Expenditures ...........................................................
Cash..................................................................
To record the pension benefits
financed by current-year resources.

4,000,000
4,000,000

Amount to Be Provided ...........................................
Unfunded Pension Obligation ............................
To record the portion of the actuarial
required contribution not financed in
the current period.

2,000,000
2,000,000

General Fund

Expenditures ...........................................................
Cash..................................................................

To record the pension benefits paid
in Year 2.

6,000,000
6,000,000

General
Long-Term
Debt Account
Group

Unfunded Pension Obligation ..................................
Amount to Be Provided......................................
To record the payment of
$1,000,000 over the actuarial
required contribution in Year 2.

1,000,000
1,000,000

General
Long-Term
Debt Account
Group

(2) Year 2:

PROBLEM 10-6
(1) Expenditures
(2) Investment in General Fixed Assets—Capital Leases

(3) Amount to Be Provided for Lease Payments .............................
Capital Lease Payable ........................................................

478

150,000
150,000


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Ch. 10—Problems

PROBLEM 10-7

Entry in General Fixed
Assets Account Group

Entry in General Fund
(a) Expenditures ...........................
Voucher Payable ................
To record voucher.

Fund Balances Reserved for
Encumbrances ...................
Encumbrances ..............
To reverse encumbrance.
(b) Cash ........................................
Other Financing Sources ...
To record proceeds
from equipment sale.

75,000

75,000
75,000

70,000
70,000

5,000

(c) No entry.

(d) Expenditures ...........................
Cash ...................................
To record payment for
snow plow.

Machinery and Equipment .................
75,000
Investment in General Fixed Assets
—General Fund Revenues ......
To record purchase.

68,000

Investment in General Fixed Assets—
5,000
General Fund Revenues .........
Machinery and Equipment .......

To remove equipment sold.

15,000
15,000

Land...................................................
Investment in General Fixed
Assets—Donations ..................
To record donated land.

100,000

Construction in Progress ...................
Investment in General Fixed
Assets—Donations ..................
To record partially finished
donated building.

300,000

Investment in General Fixed Assets—
68,000
Special Revenue Funds ..........
Machinery and Equipment .......
To remove traded snow plow.
Machinery and Equipment .................
Investment in General Fixed
Assets—General Fund
Revenues ................................
To record new snow plow

acquired.

479

100,000

300,000

35,000
35,000
80,000

80,000


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Ch. 10—Problems

PROBLEM 10-8
Transaction

Fund or
Group

(a)

GLTDAG

(b)

(c)

(d)

Entry
Amount to Be Provided for Payment
of Term Bonds ...................................................
Term Bonds Payable ...................................

General
Fund

Other Financing Uses .............................................
Cash..................................................................

GLTDAG

Amount Available in Debt Service Funds—
Term Bonds.......................................................
Amount to Be Provided for Payment
of Term Bonds .......................................

General
Fund

Other Financing Uses .............................................
Cash..................................................................

GLTDAG

Amount Available in Debt Service Funds—
Serial Bonds ......................................................
Amount to Be Provided for Payment
of Serial Bonds ......................................

(f)

200,000
200,000
200,000
200,000
135,000
135,000
135,000
135,000

General
Fund

Expenditures ...........................................................
Cash..................................................................

22,000

GFAAG

Equipment ...............................................................
Investment in General Fixed Assets—
General Fund Revenues ..............................

25,000

Investment in General Fixed Assets—
General Fund Revenues ...................................
Equipment ...................................................
(e)

2,700,000
2,700,000

GLTDAG

GFAAG

22,000

25,000
15,000
15,000

Serial Bonds Payable ..............................................
Amount Available in Debt Service Funds—
Serial Bonds ................................................

135,000

Construction in Progress .........................................
Investment in General Fixed Assets—
Capital Projects Fund ..................................

450,000

480

135,000

450,000


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Ch. 10—Problems

PROBLEM 10-9
(1) a

Enterprise funds record their own debt.

(2) d

The general fund records only its transfer; the debt proceeds are recorded as other financing
sources in the capital projects fund.

(3) d

All self-sustaining activities are recorded in proprietary funds; in this case, both are enterprise
funds.

(4) a

Services to other governmental units by an internal service fund are recorded as either revenues or billings.

(5) b

The change in the fund balance is equal to (revenues plus other sources) minus (expenditures
and other uses).

(6) c

The grant is for the construction of a fixed asset.

(7) b

The capital projects fund records other financing sources and uses. The debt service fund
records other financing sources. The general long-term debt account group records the amount
available in the debt service fund for principal only. Because the premium is an adjustment to
the interest, no entry is made in the GLTDAG.

(8) b

The agency fund distributes the collections to the recipient funds.

481


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Ch. 10—Problems

PROBLEM 10-10
(1) Entries in the Internal Service Fund:
Expenses—Claims and Judgments ..............................................

Cash .......................................................................................
Claims and Judgments Liability...............................................
To record losses incurred and claims paid.

1,500,000

Cash .............................................................................................
Revenues—Insurance Premiums ...........................................
To record premium revenue from other departments.

2,000,000

1,300,000
200,000

2,000,000

(2) Entries in General Fund:
Expenditures ................................................................................
Cash .......................................................................................
To record premium transferred to insurance internal
service fund.

1,200,000
1,200,000

Entries in Utility Enterprise Fund:
Expenses .....................................................................................
Cash .......................................................................................
To record premium transferred to insurance internal

service fund.

800,000
800,000

(3) If the county elects to use a general fund for its self-insurance activity, revenue can be recognized
from other funds up to the amount of actual losses incurred ($1,500,000) or 75% of the amount actually billed and transferred from other funds. The $500,000 excess of transfers over actual losses
must be reported as an interfund transfer. Similarly, the funds transferring the premium would be
limited to their share of actual losses in the recognition of expenditures/expenses.

PROBLEM 10-11
(1) b, f
(2) b, e
(3) d, b
(4) a, c
PROBLEM 10-12
(1) General Fixed Assets Account Group

(6) Private-Purpose Trust

(2) General Fixed Assets Account Group

(7) Agency Fund

(3) General Long-Term Debt Account Group

(8) Agency Fund

(4) Internal Service Fund

(9) Permanent Fund

(5) General Long-Term Debt Account Group

(10) Special Revenue Fund

482


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Ch. 10—Problems

PROBLEM 10-13
(1) (a) Inventory of Materials and Supplies ........................................
Vouchers Payable .............................................................
To record purchases on account.

72,000

(b) Operating Expenses ...............................................................
Inventory of Materials and Supplies ..................................
To record inventory adjustment
($80,000 + $72,000 – $65,000).

87,000

(c) Operating Expenses ...............................................................
Cash .................................................................................
To record salaries and wages paid.

235,000

(d) Operating Expenses ...............................................................
Cash .................................................................................
To record payment of utility charge.

40,000

(e) Operating Expenses ...............................................................
Allowance for Depreciation—Building ...............................
Allowance for Depreciation—Computer Equipment ...........
To record depreciation.

139,500

(f) Due from General Fund ..........................................................
Due from Water and Sewer Fund ...........................................
Due from Special Revenue Fund ............................................
Operating Revenues .........................................................
To record billings.

392,000
84,000
42,000

(g) Cash .......................................................................................
Due from General Fund ....................................................
Due from Water and Sewer Fund ......................................
Due from Special Revenue Fund ......................................
To record collections.

506,000

(h) Vouchers Payable...................................................................
Cash .................................................................................
To record voucher payment
($41,000 + $72,000 – $19,000).

94,000

(2) Closing Entries:
Operating Revenues ...............................................................
Operating Expenses .........................................................
Income Summary ..............................................................
To close nominal accounts.
Income Summary....................................................................
Retained Earnings—Unreserved .......................................
To close Income Summary.

483

72,000

87,000

235,000

40,000

6,500

133,000

518,000

396,000
84,000
26,000

94,000

518,000
501,500
16,500

16,500
16,500


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Ch. 10—Problems

PROBLEM 10-14
(1) Landfill Expense ...........................................................................
Landfill Closure and Post-Closure Care Liability .......................
To record 300,000 ÷ 6,000,000 × $10,000,000.

500,000

(2) Landfill Expense ...........................................................................
Landfill Closure and Post-Closure Care Liability .....................

To record (300,000 + 300,000) ÷ 5,800,000 ×
$10,200,000 less $500,000 already recognized.

555,172

500,000

555,172

(3) If the landfill is accounted for in the general fund, then the liability would be recognized in the general long-term debt account group. No entries would be made in the general fund until actual payments are made.

PROBLEM 10-15
Fund or
Account Group

Journal Entry

(1)

General
Fund

Estimated Revenues ..................................................
Appropriations .......................................................
Budgetary Fund Balance—Unreserved..................
To record the budget.

(2)

Special

Revenue
Fund

Estimated Revenues ..................................................
Appropriations .......................................................
Budgetary Fund Balance—Unreserved..................
To record budget for gas tax.

General
Fund

Taxes Receivable—Current .......................................
Allowance for Uncollectible Current Taxes .............
Revenues ..............................................................
To record tax levy.

Capital

Cash ..........................................................................
Expenditures ..............................................................
Other Financing Uses ................................................
Other Financing Sources .......................................
To record bond sale.

(3)

(4)

Projects
Fund

(5)

General
Debt
Account
Group

Amount to Be Provided for Payment
of Term Bonds .......................................................
Term Bonds Payable .........................................
To record long-term debt.

Capital
Projects
Fund

Encumbrances ...........................................................
Fund Balance—Reserved for Encumbrances ........
To record signed contract.

484

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

264,500
250,000
14,500

1,400,000
28,000
1,372,000

985,000
5,000
10,000
1,000,000

1,000,000
1,000,000

1,000,000
1,000,000


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Ch. 10—Problems

Problem 10-15, Concluded
Fund or
Account Group
(6)

(7)

(8)

(9)

(10)

Journal Entry

Capital
Projects
Fund

Fund Balance—Reserved for Encumbrances.............
Encumbrances.......................................................
To liquidate encumbrances.

Capital
Projects
Fund

Expenditures ..............................................................
Cash ......................................................................
To record school cost.

990,000

General
Fixed Assets
Account
Group

Buildings ....................................................................
Investment in General Fixed Assets—

Capital Projects Funds ......................................
To record fixed asset.

990,000

General
Fund

Other Financing Uses ................................................
Cash ......................................................................
To record transfer to debt service fund.

100,000

Debt
Service
Fund

Cash ..........................................................................
Other Financing Sources .......................................
To record transfer from general fund.

100,000

General
Fixed Assets
Account
Group

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

Investment in General Fixed Assets—
Donations ..........................................................
To record land donation.

100,000

Special
Revenue
Fund

Cash ..........................................................................
Due from State Government ......................................
Revenues ..............................................................
Deferred Revenues................................................
To record state gas taxes.

205,000
60,000

Special
Revenue
Fund

Expenditures ..............................................................
Vouchers Payable..................................................
To record vouchers approved for payment.

210,000

485

1,000,000
1,000,000

990,000

990,000

100,000

100,000

100,000

205,000
60,000

210,000