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31
Copyright © 2013 Pearson Education, Inc.
Problem 2 – Inventory Journal Entries
A government with a beginning inventory of supplies of $100 in its General Fund and had the
following transactions during the year (all amounts are in thousands).
Transactions:
1. Ordered supplies with an estimated cost of $3,150.
2. Received supplies with an actual invoice cost of $2,920. No payment was made upon
receipt; $2,950 was the encumbered amount.
3. Paid $2,300 on account for supplies received in #2.
4. During the year, the inventory warehouse issued $2,900 in supplies to general
government departments.
5. The ending physical inventory of General Fund supplies found $150 on hand at year end.
Requirements:
A
.
Consumption method of accounting for inventory
1. Prepare the general journal entries required to account for the previous
information.
2. Indicate the effects of the general journal entries on the Balance Sheet equation.
3. Indicate amounts reported on Balance Sheet and Statement of Revenues,
Expenditures, and Changes in Fund Balance with respect to the Inventory of
Supplies.
B. Purchases method of accounting for inventory
1. Prepare the general journal entries required to account for the previous
information.
2. Indicate the effects of the general journal entries on the Balance Sheet equation.
3. Indicate amounts reported on Balance Sheet and Statement of Revenues,
Expenditures, and Changes in Fund Balance with respect to the Inventory of
Supplies.
Answers:
A1. Consumption method journal entries (assuming perpetual inventory system).
# Accounts Debit Credit
1 Encumbrances 3,150
Encumbrances Outstanding 3,150
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# Accounts Debit Credit
2b Expenditures – Operating 2,920
Vouchers Payable 2,920
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A2. Effects of journal entries on the Balance Sheet equation using regular entries (perpetual
inventory system)
Trans
# Assets
Deferred
Ouflows Liabiliies
Deferred
Inlows
Fund
Balance
1 NE NE NE NE NE
Note: Since the effects for Deferred Outflows and Deferred Inflows are all NE, you may
choose to omit those columns.
Effects of journal entries on the Balance Sheet equation using regular entries (periodic
inventory system).
Trans
# Assets
Deferred
Ouflows Liabiliies
Deferred
Inlows
Fund
Balance
1 NE NE NE NE NE
A3. Financial Statement Reporting
Balance Sheet
B1. Purchases method journal entries
# Accounts Debit Credit
1 Encumbrances 3,150
Encumbrances Outstanding 3,150
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# Accounts Debit Credit
B2. Effects of journal entries on the Balance Sheet equation
Trans
# Assets
Deferred
Ouflows Liabiliies
Deferred
Inlows
Fund
Balance
1 NE NE NE NE NE
B3. Financial Statement Reporting
Balance Sheet
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Problem 3 – Capital Leases
A general government department of the City of Rocky Flats leased specialized equipment under
a multi-year, noncancelable lease agreement that qualifies as a capital lease. The lease required a
down payment of $500 and the present value of the minimum lease payments (i.e., the
capitalizable cost of the leased asset) was $5,000. The implicit rate of interest on the lease is
10%. Subsequent lease payments of $750 are required annually beginning in 20X2. All amounts
are in thousands of dollars.
Transactions:
1. The lease was signed on March 1, 20X1.
2. Prepare any adjusting entries required at December 31, 20X1, the end of Rocky Flats
fiscal year.
3. The City made the required payment on February 28, 20X2.
Requirements:
1. Prepare the general ledger journal entries for the transactions for the General Fund. If no
entry is required, do not leave it blank. State "No Entry Required" and briefly explain
why.
2. Indicate the effects of the transaction on the accounting equations for the General Fund
and the General Capital Assets and General Long-Term Liabilities accounts. Do not
leave a cell blank.
3. How will the capital lease be reported on the General Fund financial statements for the
year ended December 31, 20X1?
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Answers:
1. Journal Entries
# Accounts Debit Credit
2. Effects on accounting equations for the General Fund and the General Capital Assets and
General Long-Term Liabilities accounts.
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
3. Capital lease reporting in the General Fund Financial Statements
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Problem 4 – Other Expenditure Transactions
Listed below are various transactions affecting the City of Highland Flats General Fund for the
fiscal year ending June 30, 20X4.
Transactions:
1. Near the beginning of the year, the City was sued by one of its residents claiming that the
resident was injured due to a hazardous sidewalk. The resident is asking for damages of
$500,000. The City expects to win the case.
2. Later in the year, the City decided to settle the aforementioned lawsuit on the advice of its
legal counsel. The government settled the suit for $300,000, paying $100,000 now, and
$50,000 on August 1 for each of the next 4 years. For these types of lawsuits, the City is
self-insured for the first $50,000 and 100% insured for the remaining payments. Because
of a cash flow issue, the city borrowed $50,000 on a 6 month, 3% note that comes due 2
months after year-end. No money was received from the insurance company by year-
end, but the total amount due was expected by August 15.
3. The city’s employees earned $25,000 in compensated absences during the year. Of this
amount, $10,000 was paid during the year. In addition, $5,000 due at the end of last year
was paid this year, and another $7,500 will be paid in the first 45 days of the following
fiscal year. Finally, $7,000 earned in earlier years was paid this year.
4. The actuarial amount owed to the City’s OPEB Plan for the year is $20,000. Of this
amount, only $5,000 – the approximate amount of retiree healthcare costs paid for the
year – was paid to the plan. The balance will be paid in later years.
Requirements:
1. Prepare the journal entries for the above events, including any necessary year-end
adjusting entries. If a transaction requires no entry, state “No entry required” and explain
why.
2. Demonstrate the effects of these transactions on the accounting equation for the General
Fund and the General Capital Assets and General Long-term Liabilities accounts.
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Answers:
1. Journal entries:
# Accounts Debit Credit
b Cash 50,000
Note Payable 50,000
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2. Effects on accounting equations for the General Fund (Deferred Outflows and Deferred
Inflows have been excluded since all are no effect) and the General Capital Assets and
General Long-Term Liabilities accounts.
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)
Problems – Chapter 7
Problem 1 – Bond Anticipation Notes
Green Mountain County had the following transactions related to the issuance of its bond
anticipation notes. All amounts are in thousands of dollars.
Transactions:
1. The county issued $5,000 of 6-month, 6% bond anticipation notes (BANs) on March 1,
20X5. The proceeds will be used to begin construction of a major courthouse addition
and improvement.
2. Prepare any entries required at December 31, 20X5, the fiscal year end.
3. The county issued $9,000 of courthouse bonds at par on August 15, 20X5. The bond
issuance costs were $100.
4. The BANs were repaid on the due date, September 30, 20X5.
Requirements:
A. (1) Prepare the journal entries required in a Capital Projects Fund to record these
transactions, assuming the bond anticipation notes do not qualify for long-term debt
treatment. If no entry is required, state “No entry required” and explain why.
(2) Indicate the effects of each transaction on the accounting equation of the Capital
Projects Fund and on the General Capital Assets and General Long-Term Liabilities
accounts. If an element is not affected, put “NE” in the appropriate box.
B. (1) Prepare the journal entries required in a Capital Projects Fund to record these
transactions, assuming the bond anticipation notes qualify for long-term debt treatment.
If no entry is required, state “No entry required” and explain why.
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