41. (True or false)
State whether each of the following is true or false regarding the financial
reporting entity. Explain why the false statements are false.
a. An example of a state’s ability to impose its will on the operations of a legally
separate toll road is its ability to approve the road’s proposed increases in toll
rates.
b. The relationships between two primary governments and a third organization may
be such that the third organization can be a component unit of both primary
governments.
c. Only general-purpose governments, like states, cities, counties, towns, and
villages can be primary governments. Special purpose governmental entities, like
school districts and hospitals, can never be primary governments.
d. When an organization is part of a primary government’s financial reporting entity,
the accounts of the former are always “blended” with the accounts of the latter;
that is, the individual funds of the component unit are added to the funds of the
primary government.
42. (Classification of financing sources in financial statements)
Martin Township decides to construct a new city hall. Based on the following
data, prepare a statement of revenues, expenditures, and changes in fund balance
for Martin Township’s Capital Projects Fund. All transactions occur within the
calendar year 2013.
a. The Fund starts and ends the year with a zero fund balance.
b. The Fund’s financing sources for the city hall project were: long-term bond
proceeds – $5 million; operating transfer from the General Fund – $2 million; state
grant – $1 million; interest from the temporary investment of cash – $70,000.
c. Total outlays for constructing the new city hall were: construction costs –
$7,200,000; design and construction supervision fees – $600,000.
d. City laws require that, whenever bonds are used, any remaining difference
between total financing sources and construction costs must be transferred to the
Debt Service Fund. Therefore, $270,000 was transferred to the Debt Service
Fund.
43. (Preparation of closing entries and fund level financial statements)
Following is a trial balance of City of Peachville’s General Fund at December 31,
2013. Prepare: (a) closing entries; (b) a post-closing trial balance; (c) a statement
of revenues, expenditures, and changes in fund balance for the year ended
December 31, 2013; and (d) a balance sheet at December 31, 2013.
Debits Credits
Cash $ 20,000
Property taxes receivable 30,000
Due from other funds 10,000
Vouchers payable $ 15,000
Unassigned fund balance, January 1, 2013 25,000
Revenues – property taxes 325,000
Revenues – other 35,000
Expenditures – salaries 280,000
Expenditures – materials 20,000
Transfer out to Debt Service Fund 40,000
Encumbrances – materials 4,000
Budgetary fund balance reserved for encumbrances 4,000
Estimated revenues – property taxes 325,000
Estimated revenues – other 40,000
Appropriations – salaries 290,000
Appropriations – materials 25,000
Appropriations – transfer to Debt Service Fund 40,000
Budgetary fund balance . 10,000
Totals $769,000 $769,000
44. (Selected journal entries for several funds)
Prepare entries to record the following selected transactions. Identify the fund affected by the
transaction. If a transaction affects more than one fund, prepare entries for all affected funds.
Use these abbreviations for the funds:
GF – General Fund CPF – Capital Projects Fund
DSF- Debt Service Fund PF – Permanent Fund
UEF – Utility Enterprise Fund WEF – Water Enterprise Fund
ISF – Internal Service Fund LSRF – Library Special Revenue Fund
PSRF – Parks Special Revenue Fund PTF – Pension Trust Fund. .
a. The city’s utility fund sends an invoice for $10,000 to the General Fund for electricity
provided to the city’s agencies, and the General Fund receives the invoice.
b. The General Fund sends its annual $150,000 cash subsidy to the water enterprise fund.
c. To undertake a major capital project, the city issues $950,000 of 10-year serial bonds.
The bonds are sold at a discount, so the city realizes bond proceeds of $935,000.
d. A wealthy citizen donates $500,000 to the city. In a formal trust agreement, the citizen
requires that the funds be held intact in perpetuity, but that any income from the funds
must be used to buy books for the city library. The city invests the $500,000. The fund
earns revenue of $23,000 from investing the donation and sends the cash to the Library
Special Revenue Fund.
e. To provide retirement benefits for its employees, the city makes a cash payment
of $400,000 to its pension fund. The pension fund immediately invests the cash.
At year-end, the pension fund investments have a fair value of $420,000.
f. The city receives a $300,000 invoice from a construction contractor. The invoice
is approved, after deducting 10 percent retainage.
g. General Fund property taxes receivable at year-end were $100,000. The entity’s
allowance for uncollectible property taxes has a zero balance. Year-end adjusting
entries are needed: (a) to report the receivables as delinquent; and (b) to record the
fact that, of the $100,000, it is expected that $65,000 will be collected in the first
60 days of the next year, $30,000 will trickle in during the rest of the year, and
$5,000 will probably need to be written off as uncollectible.
h. The law requires park entrance fees to be used only for park maintenance. Record
the budget, which provides for estimated fees of $45,000 and a maintenance
appropriation for $40,000. Also, record a budgetary amendment increasing the
appropriation to $42,000.
i. The General Fund pays an electric bill for $12,000. It sends an invoice for $1,000
to the fund that provides central printing services to city agencies for that fund’s
share of the bill.
j. The General Fund had previously ordered supplies amounting to $24,000. The
supplier ships half the order and sends an invoice for $12,500. The supplier also
advises the city that it plans to ship the rest of the order in 60 days and will charge
the city $12,500 for that portion as well. The city approves the first invoice and
agrees to the price on the rest of the order.
45. (Journal entries for several funds)
Prepare entries to record the following transactions, showing which funds are affected. If a
transaction affects more than one fund, prepare entries for all affected funds.
a. The county adopts the following budget for its General Fund on January 1, 2013.
Estimated revenues:
Property taxes $520,000
Sales taxes 80,000
Appropriations:
Salaries 480,000
Supplies and other 60,000
Transfer to Debt Service Fund 50,000
b. The county sends property tax invoices to all property owners. To raise the needed
$520,000, the county sends tax bills for $525,000, anticipating that some will not pay.
c. Property owners pay taxes amounting to $500,000. The county writes off $5,000
in taxes as uncollectible. The remaining taxpayers are declared delinquent, and the
county adds interest and penalties of $1,000 to their tax bills. The county believes
that all delinquent taxpayers will pay their bills between April 1 and June 30,
2014.
d. The county issues a purchase order for $22,000 to acquire a police sedan. It charges the
General Fund appropriation for “supplies and other.”
e. The police sedan arrives in good order, together with an invoice for $21,000. The
supplier says he got a good deal on the price, so he is passing to reduced cost on
to the county. The county approves the invoice for payment.
f. Debt service of $50,000 (interest of $20,000 and bond principal of $30,000)
comes due. The debt service will be paid out of the Debt Service Fund.
g. The General Fund transfers $50,000 cash to the Debt Service Fund, and the Debt
Service Fund immediately makes payment of the debt service.
h. The county needs two sanitation trucks. It decides to finance the trucks by issuing
10-year bonds. The bond proceeds, amounting to $200,000, are deposited in the
Capital Projects Fund.
46. (Preparation of governmental funds financial statements)
Following are December 31, 2013 pre-closing trial balances (budgetary accounts excluded) for the
General Fund, Debt Service Fund, and Capital Projects Fund for Hebert County. Prepare a
governmental funds balance sheet and a statement of revenues, expenditures, and changes in fund
balances as of and for the year ended December 31, 2013. The General Fund had encumbrances of
$25 outstanding on December 31, 2013. (All amounts are in thousands of dollars.)
Debits Credits
General Fund
Cash $1,900
Property taxes receivable – delinquent 330
Allowance for uncollectible property taxes $ 10
Accounts payable 120
Deferred revenues 250
Unassigned fund balance, January 1, 2013 1,720
Revenues – property taxes 3,200
Revenues – licenses and fees 350
Revenues – parks admissions fees 40
Investment income 220
Expenditures – general government 360
Expenditures – public safety 1,800
Expenditures – public works 840
Expenditures – parks and culture 350
Transfer out to Debt Service Fund 250
Transfer out to Capital Projects Fund 80 ____
Totals $5,910 $5,910
Debt Service Fund
Cash $70
Assigned fund balance, January 1, 2013 $60
Expenditures – bond principal 110
Expenditures – interest 130
Transfer in from General Fund ___ 250
Totals $310 $310
Capital Projects Fund
Cash $240
Expenditures – capital outlay 420
Transfer in from General Fund $80
Proceeds of bonds ___ 580
Totals $660 $660
