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Answers to Problems
1. A (Both the asset and liability are reported at the present value of the
minimum lease payments.)
6. D
7. C (The liability must be increased from 8 percent of $1 million to 19
percent. The 11 percent jump is recorded as expense.)
10. B (The present value of the pension payments that have been earned to
11. D (Changes in the amount of the pension liability that are necessary
because of a change in economic or demographic assumptions are not
16. D
17. B
26. C
27. (12 Minutes) (Accounting for lease on government-wide financial statements
and fund financial statements)
The lease signed by the Enterprise Fund is accounted for in the same way on
the government-wide financial statements (as a business-type activity) and
the fund financial statements (as a Proprietary Fund).
Leased Asset (present value) $28,750
payment less $2,875 interest) 3,125
Liability ($28,750 less $3,125) 25,625
**
The lease signed by the General Fund will be accounted for in the following
manner for the government-wide financial statements (as a governmental
activity).
Leased Asset (present value) $33,350
Reduction in Liability ($8,000
payment less $3,335 interest) 4,665
Liability ($33,350 less $4,665) 28,685
This same lease will be accounted for in the following manner on the fund
financial statements (as a General Fund).
Initial Recording:
—Expenditures $33,350
28. (12 Minutes) (Journal entries for lessee on government-wide financial
statements and fund financial statements)
a.
GOVERNMENT-WIDE FINANCIAL STATEMENTS (the two leases are
combined here)
January 1, 2015
Assets—Capital Lease 49,600
Capital Lease Obligation
49,600
December 31, 2015
b.
FUND FINANCIAL STATEMENTS
Enterprise Fund
January 1, 2015
Assets—Capital Lease 30,600
Capital Lease Obligation 30,600
General Fund
Expenditures—Leased Assets 19,000
Other Financing Sources—
Capital Lease 19,000
Cash 3,000
29. (15 Minutes) (Journal entries for lessee on government-wide financial
statements and fund financial statements)
a.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
January 1, 2015
Truck—Capital Lease 87,800
Cash 22,000
Capital Lease Obligation 65,800
17,560
December 31, 2016 (obligation is now $49,064 or $65,800 less $16,736)
Interest Expense ($49,064 x 8%) 3,925
Capital Lease Obligation ($22,000 - $3,925) 18,075
Cash 22,000
17,560
b.
FUND FINANCIAL STATEMENTS
General Fund
January 1, 2015
Expenditures—Leased Asset 87,800
Other Financing Sources—Capital Lease 87,800
29. (continued)
December 31, 2016
Expenditures—Interest (above) 3,925
Expenditures—Lease Obligation 18,075
Cash 22,000
c.
FUND FINANCIAL STATEMENTS
Proprietary Fund (should be same as handling in government-wide
statements)
January 1, 2015
Depreciation Expense 17,560
Accumulated Depreciation 17,560
December 31, 2016
Interest Expense ($49,064 x 8%) 3,925
30. (20 Minutes) (Journal entries for landfill on government-wide financial
statements and fund financial statements)
a.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
Accounted for as an Enterprise Fund (within the Business-type Activities)
December 31, 2015
Expense—Landfill Closure (3% of $1.9 million) 57,000
Landfill Closure Liability 57,000
Cash 50,000
b.
GOVERNMENT-WIDE FINANCIAL STATEMENTS (same as above in a.)
Accounted for within the General Fund (part of the Governmental Activities)
December 31, 2015
Expense—Landfill Closure 57,000
Landfill Closure Liability 57,000
Landfill Closure Liability 50,000
Cash 50,000
30. (continued)
c.
FUND FINANCIAL STATEMENTS (same as above in a.)
Accounted for as an Enterprise Fund (within the Proprietary Funds)
December 31, 2015
Expense—Landfill Closure 57,000
Landfill Closure Liability 57,000
Landfill Closure Liability 132,000
Landfill Closure Liability 50,000
Cash 50,000
d.
FUND FINANCIAL STATEMENTS
Accounted for within the General Fund (one of the Governmental Funds)
December 31, 2015
Expenditures—Landfill Closure 50,000
There are no other claims to the current financial resources held by the
government.
31. (10 Minutes) (Reporting a landfill in both government-wide financial
statements and fund financial statements)
a. GOVERNMENT-WIDE FINANCIAL STATEMENTS
December 31, 2015
b. FUND FINANCIAL STATEMENTS
December 31, 2015
Despite the huge eventual liability, nothing is reported at the end of 2015
because no claim to current financial resources exists at this time.
32. (15 Minutes) (The reporting of a defined benefit pension plan by a state or
local government)
a. To determine the balance to be reported as a state or local government’s
net pension liability, an estimation is made of the total benefits that
will have to be eventually paid. The portion of that amount that relates to
wide financial statements as the net pension liability.
b. For a state or local government, the amount of pension expense to be
recognized in the current period is made up of several components
including the service cost for the current period, interest expense on the
debt, and projected earnings on plan investments. Any increases or
c. Because pension plans often establish payments that will not be made
33. (8 Minutes) (Reporting the donation of an artwork)
a. GOVERNMENT-WIDE FINANCIAL STATEMENTS (recognize donation at fair
value)
Museum Piece—Artwork 300,000
Revenue—Donation 300,000
b. GOVERNMENT-WIDE FINANCIAL STATEMENTS (Depreciation recognized)
c. GOVERNMENT-WIDE FINANCIALSTATEMENTS (gift not recognized as
asset)
Revenue – Donation 300,000
Expense – Artwork 300,000
34. (5 Minutes) (Purchase of artwork with capitalization required)
a. GOVERNMENT-WIDE FINANCIAL STATEMENTS (Governmental Activities)
January 1, 2015
Accumulated Depreciation 3,000
b. FUND FINANCIAL STATEMENTS (General Fund)
January 1, 2015
Expenditures—Artwork 60,000
Cash 60,000
35. (8 Minutes) (Accounting for infrastructure in government-wide financial
statements)
GOVERNMENT-WIDE FINANCIAL STATEMENTS
One possibility: Infrastructure assets are capitalized with depreciation
recorded
Infrastructure Assets—Street Lights 300,000
Cash 300,000
(There is no indication that any part of this cost should be capitalized.
However, if this work extends the life of the assets beyond the original
expectation, the debit here would be to Accumulated Depreciation.)
Infrastructure Assets—Street Lights 78,000
Cash 78,000
35. (continued)
Second possibility: Infrastructure assets capitalized with government using
the modified approach
Infrastructure Assets—Street Lights 300,000
Cash 300,000
