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Problem 7 – Other Interfund Transactions: Debt Refunding
Transactions:
The City of Armona has decided to refinance $8,000 of par value, general government, general
obligation bonds outstanding. The bonds had a related unamortized bond premium of $200. The
city issues $6,000 of refunding bonds and transfers $2,700,000 from the General Fund to the
Debt Service Fund. The city paid $8,700 from the Debt Service Fund into an irrevocable trust to
cover future payments on the original bonds.
Requirement: Prepare the general journal entries using standard fund-type terminology,
identifying the fund or nonfund accounts for which the entry is being prepared.
Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL,
OFS, or OFU). If no entry is required, write “No Entry Required” and briefly
explain why. Do not include formal entry explanations or dates, but include any
important assumptions made and all calculations.
Answers:
#
Fund or
Nonfund
Accounts Accounts Debit Credit
1a DSF Cash 6,000
Problem 8 – Other Liability Transactions
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Assume that the fiscal year-end for all the transactions below is June 30.
Transactions:
1. The General Fund paid $12 to a Special Revenue Fund to repay it for General Fund
employee salaries that were inadvertently recorded as expenditures in the Special
Revenue Fund.
2. The government decided to settle a lawsuit on the advice of its legal counsel. The lawsuit
came about because of damage to a citizen’s property caused by a garbage service
employee. The garbage operation is accounted for in the General Fund. The government
settled the suit for $300, paying $100 on June 1, 20X1, and $50 on August 1 for each of
the next 4 fiscal years. For these types of lawsuits, the government is self-insured for the
first $50 and 100% insured for the remaining payments. Because of a cash flow issue,
the government borrowed $200 on a 6 month, 3% note that comes due 2 months after
year-end. No money was received from the insurance company by year-end, but the total
amount due was expected by August 15. Prepare all journal entries required through the
end of the 20X1 fiscal year.
3. The government’s employees earned $25 in compensated absences during the year. Of
this amount, $10 was paid during the year and another $8 will be paid in the first 45 days
of the following fiscal year. In addition, $5 due at the end of last year was paid at the
beginning of this year.. Finally, $3 earned in earlier years was paid this year.
4. The actuarial amount owed to the government’s OPEB Plan for the year is $20,000. Of
this amount, only $5,000 – the approximate amount of retiree healthcare costs paid for
the year – was paid to the plan. The balance will be paid in later years.
Requirement: Prepare the general journal entries using standard fund-type terminology,
identifying the fund or nonfund accounts for which the entry is being prepared.
Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL,
OFS, OFU). If no entry is required, write “No Entry Required” and briefly
explain why. Do not include formal entry explanations or dates, but include any
important assumptions made and all calculations.
Answers:
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#
Fund or
Nonfund
Accounts Accounts Debit Credit
1a GF Expenditures – Operating 12
Cash 12
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Problem 9 – General Capital Assets Note Disclosure
The general capital assets balances for the City of Sugarland as end of the December 31, 20X1
fiscal year are:
Nondepreciable Capital Assets
Land............................................................................................................... 1,350
Construction in Progress................................................................................ 2,200
Depreciable Capital Assets
Buildings........................................................................................................ 16,500
Accumulated Depreciation....................................................................... 7,500
Infrastructure.................................................................................................. 186,000
Accumulated Depreciation....................................................................... 103,000
Vehicles.......................................................................................................... 8,500
Accumulated Depreciation....................................................................... 2,600
Equipment...................................................................................................... 3,450
Accumulated Depreciation....................................................................... 2,800
The following events related to the city’s capital assets occurred during fiscal year 20X2:
1. A pickup truck purchased for $30 was sold. It had accumulated depreciation of $21.
2. Land purchased many years ago for $140 was sold.
3. A new police car was purchased for $50 (5 year useful life) as was a new fire truck for
$250 (10 year useful life). Both were purchased at the beginning of the fiscal year.
Depreciation on all new buildings, vehicles, and equipment is for the nearest full year,
using the straight-line method with zero salvage value.
4. A new civic center was started in the previous fiscal year. Costs were $2,200 in the
previous year. It cost $2,800 to finish it in the current fiscal year. The center was ready
for use just in time for a Christmas pageant on December 20, 20X2.
5. New roads costing $550 were built during the year. Depreciation on new roads starts the
following fiscal year.
6. Depreciation expenses for FY 20X2 on capital assets on hand at the beginning of the year
are: Building, $500; Infrastructure, $2,500; Vehicles, $415; and Equipment, $200.
7. Depreciation on all capital assets except infrastructure is allocated to government
functions as follows: general government, 30%; public safety, 50%; streets and roads,
20%. Infrastructure depreciation is charged to the function responsible for maintaining it.
Requirement: Using the information presented above, complete the general capital asset note
disclosure for FY 20X2. Note, the incomplete note is in this Excel file:
Ch09P-9.xlsx
Answers: The solution is in this Excel File: Ch09P-9S.xlsx
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Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)
Problems – Chapter 10
Problem 1 – Enterprise Fund Transactions
Listed below are selected transactions for the Rhea County Garbage Service, which is accounted
for in an Enterprise Fund. All amounts are in thousands of dollars.
Transactions:
1. Services of $5,000 were provided and billed to outside customers.
2. Services of $750 were provided and billed to the General Fund.
3. $750 was collected from other funds, and $4,000 was collected on account.
4. $20 of accounts receivable were written off as uncollectible.
5. Estimated bad debts for the year were $100.
Requirements:
4. Prepare the journal entries required in the Enterprise Fund. If no entry is required, state
“No entry required” and explain why.
5. Compute the amount of sales revenues that should be reported for the Enterprise Fund.
6. Indicate the effects of each transaction on the accounting equation of the Enterprise Fund
accounts. If an element of the equation is not affected or if the net effect is zero, put
“NE” in the appropriate box.
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Answers:
Requirement #1
# Accounts Debit Credit
1 Accounts Receivable 5,000
Sales 5,000
Requirement #2
Gross Sales (5,000 + 750) 5,750
Less Increase in Allowance for Doubtful Accounts 100
Net Sales 5,650
Requirement #3
Trans
#
Current
Assets
Noncurrent
Assets
Deferred
Outflows
Current
Liabilities
Noncurrent
Liabilities
Deferred
Inflows
Net
Position
Problem 2 – Advance Refunding of Debt
Dayton County decided to refund an outstanding term bond issue in its Enterprise Fund. The old
bonds have a par value of $3,200 and an unamortized premium of $120. These bonds are
scheduled to mature in 6 more years.
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Transactions:
1. On January 2, 20x2, the County issued refunding bonds at par, $3,700. The bonds bear
interest at 5% payable annually and mature in five years. The bond issuance costs were
$250.
2. On January 2, The County paid $3,800 into an irrevocable trust in order to defease in
substance the previously outstanding bonds payable of the Enterprise Fund.
3. The annual interest payment on the new bonds was made on December 31 when due.
Requirements:
1. Prepare the journal entries required in an Enterprise. 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 Enterprise Fund
accounts. If an element of the equation is not affected or if the net effect is zero, put
“NE” in the appropriate box.
Answers:
Requirement #1
# Accounts Debit Credit
1 Cash 3,450
Expenses – Bond Issue Costs 250
Requirement #2
Trans
#
Current
Assets
Noncurrent
Assets
Deferred
Outflows
Current
Liabilities
Noncurrent
Liabilities
Deferred
Inflows
Net
Position
1 3,450 NE NE NE 3,700 NE (250)
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Problem 3 – Grant Accounting and Reporting
Over the course of one year, Obed County received two grants:
$10,000 grant (in cash) to be used to finance half the cost of expanding the town’s water
treatment plant. All eligibility requirements have been met.
$40 grant to educate users on water conservation measures and to monitor water usage by
a study group.
Transactions:
1. Received the grant to assist in expanding the water treatment plant.
2. Signed a contract with Swann & Hall Construction to build the water treatment plant
expansion, $20,000. The construction project is expected to take less than one year.
3. Received a $5,000 transfer from the General Fund to cover part of the cost of expanding
the treatment plant.
4. Received an invoice from S&H Construction for 30% of the project. Paid the contractor
the invoiced amount less a 10% retainage.
5. Received the grant to do the water study.
6. Issued $5,000 in bonds at mid-year at par to provide part of the financing for the
treatment plant expansion. The bond issue costs were 1% of the face value. The bonds
bear interest at 6%, payable semiannually.
7. Received a second invoice for 50% of the project. Paid the contractor the invoiced
amount less a 10% retainage.
8. Expenses incurred and paid during the year under this second grant total $30.
9. Received the final invoice from the contractor. The expansion project was finished on-
time and in accordance with the contract. Paid the contractor all amounts owed.
10. Make any necessary year-end adjusting entries.
Requirements:
1. Prepare the journal entries required in an Enterprise. 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 Enterprise Fund
accounts. If an element of the equation is not affected or if the net effect is zero, put
“NE” in the appropriate box.
3. How would these grants be reported in the statement of revenues, expenses, and changes
in net position of the Enterprise Fund?
4. Assuming year-end had occurred after transaction #4, how would the grant and transfer
affect the Statement of Net Position for the Enterprise Fund.
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Answers:
Requirement #1
# Accounts Debit Credit
1 Cash 10,000
Capital Contributions 10,000
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Requirement #2
Trans
#
Current
Assets
Noncurrent
Assets
Deferred
Outflows
Current
Liabilities
Noncurrent
Liabilities
Deferred
Inflows
Net
Position
1 10,000 NE NE NE NE NE 10,000
Requirement #3
Requirement #4
Problem 4 – Preparation of the Statement of Cash Flows
The following transactions occurred in the City of Jimtown Enterprise Fund:
1. Equipment belonging to the Enterprise Fund was sold for $300.
2. The proceeds from the sale of the asset were transferred to the General Fund.
3. Cash, $2,800, was paid for construction costs. The cash was paid out of unrestricted cash
available for any Enterprise Fund purpose—i.e., was not set aside strictly for capital asset
construction or acquisition.
4. Paid principal, $18, and interest, $59, on a mortgage note.
5. The Enterprise Fund collected $12,500 from external customers and $2,500 from the
General Fund for services.
6. The City signed a lease for equipment. The present value of the future payments and fair
value of the equipment is $5,000, and the City made a down payment of $500
7. Proceeds of bonds issued to refund previously outstanding bonds which had been issued
to finance plant expansion several years earlier, $18,000.
8. Interest paid on the refunding bonds, $1,080.
9. Cash proceeds from sale of investments, $900. Investments were purchased with the
proceeds of debt issued to finance construction of specialized equipment that is almost
completed.
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