20
instructor prefers to have files submitted electronically, in which case you will
submit the .pdf versions of your trial balance.]
Before closing the City of Smithville it is recommended that you save a backup copy of
your work to another location by clicking on [File] and [Save As].
21
Chapter 6 Transactions Affecting General Long-term Liabilities and
Debt Service
The City of Smithville created a Street Improvement Bond Debt Service Fund to be used
to retire the bonds issued for the purposes described in Chapter 5 of this cumulative
problem, and to pay the interest on the bonds. The $3,000,000 face value of bonds issued
during 2023 are dated January 1, 2023, but were not issued until February 1, 2023.
Because bondholders will receive six months of interest on July 1, 2023 in the total
Bond covenants related to this bond issue require the city to levy property taxes sufficient
to make principal and interest payments until the bonds have been retired. The city
council has approved a resolution to enable the property tax levy, beginning in fiscal year
2024. As the bond issue did not occur until February 2023, the city will not levy debt
service property taxes until next year.
a. Prepare general journal entries, as necessary to record the transactions described
1. [Para. 6-a-1] In early February 2023, an amendment to the annual budget for
2023 was approved by the city council for inflows and outflows in the Street
Improvement Bond Debt Service Fund related to the bond issue. The debt service
fund budget amendment provides for estimated other financing sources of
$30,000 for the premium on bonds sold, estimated other financing sources of
$38,750 for a transfer from the General Fund that will be used to help pay interest
due on July 1, 2023 and January 1, 2024, estimated revenues of $6,250 for
accrued interest on bonds sold, and appropriations in the amount of the one
interest payment of $37,500 to be made during 2023. (The payment that is due on
July 1, 2023.)
Required: Record the budget for the Street Improvement Bond Debt Service
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2. [Para. 6-a-2] On February 1, 2023, the premium and accrued interest on bonds
sold were received by the Street Improvement Bond Debt Service Fund. (See
Transaction 5-a-2 in the Street Improvement Fund.)
Required: Record this transaction in the debt service fund. No entry is required
3. [Para. 6-a-3] To permit payment of the $37,500 interest payments due on July 1,
2023 and January 1, 2024, the Street Improvement Bond Debt Service Fund
received $38,750 from the General Fund.
Required: Record the interfund transfer in the debt service fund journal only.
This transaction was previously recorded in the General Fund in Chapter 4 of this
occurs between two governmental funds.
4. [Para. 6-a-4] The July 1, 2023, interest payment was made in the amount of
$37,500.
Required: Record the interest payment in both the debt service fund and the
governmental activities general journals. Since Expense—Interest on Long-Term
Debt was credited for $6,250 in 5-a-2 in the governmental activities general
5. [Para. 6-a-5] Accrue six months of interest payable on the 2.5% deferred serial
bonds from the July 1 interest payment until the end of the fiscal year, December
31, 2023.
Required: Make the required journal entry in the governmental activities general
journal. For this entry, assume that the appropriate amount of amortization of the
6. Verify the accuracy of journal entries, including dates and paragraph numbers,
and, if you have not already done so, post all entries to the general ledger of both
the Street Improvement Bond Debt Service Fund and governmental activities by
clicking on [Post entries]. Make the entries needed to close the budgetary and
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operating statement accounts at the end of fiscal year 2023. Budgetary and
operating statement accounts should be closed to Budgetary Fund Balance and
Fund Balance—Restricted, as appropriate. Make this entry only in the Street
b. Go to [File/Export] and export Excel files of the pre-closing and post-closing trial
balances for the Street Improvement Bond Debt Service Fund as of December 31,
2023, and use them to prepare a balance sheet; statement of revenues, expenditures,
and changes in fund balances; schedule of revenues, expenditures, and changes in
fund balances—budget and actual for the Street Improvement Bond Debt Service
c. As given later in Chapter 8 of this project, the assessed valuation of property within
the City of Smithville is $342,581,818. Assuming the legal general obligation debt
limit is 8 percent of assessed valuation, prepare in good form a schedule showing the
legal debt limit, debt outstanding subject to the limit, and the legal debt margin of the
Fiscal year 2024 Transactions:
d. On January 2, 2024, the City of Smithville approved the issuance of additional street
improvement bonds in the total amount of $6,000,000. The new bonds will be serial
bonds and will bear interest at the nominal annual rate of 2.75 percent. These bonds
are dated January 1, 2024, and will be issued during the next few months when the
city’s bond underwriters believe market conditions are most favorable.
24
interest payment date thereafter until all bonds of the 2024 issue have been retired.
To give you some additional practice on accounting for a debt service fund record the
following events and transactions that are presumed to occur in fiscal year 2024. The
transactions are to be recorded in the Street Improvement Bond Debt Service
Fund only.
1. [Para. 6-d-1] On January 2, 2024, the Street Improvement Bond Debt Service
Fund budget for 2024 is legally adopted. The budget should provide for estimated
property tax revenue of $645,000, of which $300,000 will be invested to
accumulate resources over the next four years for the $750,000 principal payment
that will be due on January 1, 2028 for the 2.5% deferred serial bonds. The budget
should include estimated investment earnings of $4,000 during 2024. Property tax
revenues are intended to help pay $75,000 interest due during 2024 on the 2.5%
deferred serial bonds (due January 1 and July 1), as well as the $82,500 interest
payment that will be due on the 2.75% serial bonds on July 1, 2024. The property
tax levy will also provide resources to help pay interest of $120,000 due on
January 1, 2025 ($37,500 interest on the 2.5% deferred serial bonds and $82,500
on the 2.75% serial bonds). No premium or accrued interest on bonds sold is
included in the 2024 estimated other financing sources or estimated revenues. If
the Street Improvement Debt Service Fund does receive such items the budget
will be amended accordingly to reflect such items.
Required: Record the budget for FY 2024 in the general journals for the Street
2. [Para. 6-d-2] Property taxes were levied in the amount of $650,000, of which
$5,000 was estimated to be uncollectible.
Required: Prepare the journal entry to record the taxes levied and related
estimated uncollectible.
3. [Para. 6-d-3] Bond interest due on January 1, 2024 in the amount of $37,500 was
paid for the 2.5% deferred serial bonds.
25
4. [Para. 6-d-4] On March 1, 2024, the Street Improvement Debt Service Fund
received $27,500 for two months of accrued interest from the sale of the
additional $6,000,000 street improvement bonds (see first paragraph of section d).
Required: Prepare journal entries to record the receipt of $27,500 in cash. Also,
prepare a journal entry to amend the FY 2024 budget to reflect the amount of the
5. [Para. 6-d-5] By June 30, 2024, property taxes had been collected in the amount
of $475,000; $300,000 was invested in temporary investments that earn 2.6
percent per annum.
Required: Prepare the journal entry to record the amount invested.
6. [Para. 6-d-6] Bond interest of $37,500 due July 1, 2024 on the deferred serial
bonds issued in 2023 and $82,500 on the 2.75% serial bonds issued in 2024 was
paid on July 1.
Required: Prepare the journal entry to record the payment of interest.
7. [Para. 6-d-7] During the second half of 2024, property taxes were collected in the
amount of $150,000.
8. [Para. 6-d-8] At year-end, the uncollected amount of current property taxes
receivable and related estimated uncollectible amount were reclassified as
delinquent.
Interest and penalties of $875 were also levied, of which $131 was estimated as
uncollectible and $684 was classified as a deferred inflow of resources, the
remainder was recognized as revenue.
9. [Para. 6-d-9] Of the amount of current property taxes classified as delinquent in
6-d-8, it was determined based on history that $7,440 would not be collected
within 60 days of the fiscal year end.
Required: Reclassify the revenues as deferred inflows of resources.
26
10. [Para. 6-d-10] Investment earnings received in cash during the year amounted to
$3,900.
Required: Prepare the journal entry to record the investment earnings received.
11. After verifying the accuracy of the preceding entries, post the amounts to the
general ledger accounts by clicking [Post entries]. Prepare closing entries for the
Street Improvement Bond Debt Service Fund as of December 31, 2024. For each
account closed, be sure and click on the check mark for [Closing Entry] and that
“Closing Entry” appears in the [Add description] box. Post the closing entries to
the general ledger by clicking [Post entries].
e. Export the post-closing trial balance (click on [File/Export]) for year 2024 to Excel
to prepare a balance sheet for the Street Improvement Bond Debt Service Fund as of
December 31, 2024.
g. Use the same trial balance exported in item f above to prepare a schedule of revenues,
expenditures, and changes in fund balance—budget and actual for the Street
Improvement Bond Debt Service Fund for the year ended December 31, 2024.
27
Chapter 7 Recording Transactions Affecting the Enterprise Fund and
Business-type Activities
The City of Smithville accounts for its solid waste collection and disposal activities in an
enterprise fund. The balance sheet for the Solid Waste Disposal Fund as of December 31,
2022 appears below.
CITY OF SMITHVILLE
Solid Waste Disposal Fund
Post-closing Trial Balance
As of December 31, 2022
Account Title Debits Credits
Cash $ 245,000
Customer Accounts Receivable 117,100
Allowance for Doubtful Accounts $ 4,752
Buildings 1,650,000
Accumulated Depreciation—Buildings 791,250
Equipment 1,340,400
Accumulated Depreciation—Equipment 604,512
Vouchers Payable 45,180
Due to Other Funds 4,600
Accrued Payroll and Fringe Benefits 166,720
Required
a. Open a general journal as of December 31, 2022, for the Solid Waste Disposal Fund
by entering each of the accounts and amounts shown in the above post-closing trial
balance. Enter 2022 from the drop-down [Year] menu. Each of the account titles will
be found in the drop-down menu [Account] in the [Journal] view of the program.
Be sure to enter 7-a as your paragraph number in the [Add description] box and
enter the appropriate paragraph number for all subsequent journal entries. Verify the
28
focus. Thus, the same information recorded in the accounts of the enterprise fund can
also, with only slight modification, be reported as business-type activities at the
government-wide level.
b. Record the following events and transactions, which occurred during the year ended
December 31, 2023. Be sure that 2023 appears in the [Year] menu.
1. [Para. 7-b-1] Billings to customers for Charges for Services of the Solid Waste
2. [Para. 7-b-2] Equipment costing $459,600 was purchased on July 1, 2023. Cash
in the amount of $159,600 was paid at the time of purchase; the vendor accepted
revenue anticipation notes in the amount of $300,000 to finance the remainder of
the equipment. Of this amount, $150,000 of the notes will be payable on July 1,
3. [Para. 7-b-3] Vouchers for materials and supplies to be used in the operations of
the fund were issued in the total amount of $896,320 (debit Inventories).
4. [Para. 7-b-4] Collections from customers totaled $2,639,850 during 2023. This
amount included $42,800 collected from the General Fund (see 7-a balance and 7-
b-1 above).
6. [Para. 7-b-6] Vouchers in the amount of $855,900 and the amount Due to Other
Funds were paid during the year.
7. [Para. 7-b-7] Accrued salaries and fringe benefits at year-end amounted to
$27,429. Inventories of materials and supplies used in operations during the year
amounted to $875,797, at cost.
9. [Para. 7-b-9] Interest of $4,875 had accrued on the notes payable as of year-end
(see transaction 7-b-2).
29
10. [Para. 7-b-10] Management decided to increase the allowance for doubtful
accounts by $973 at year-end.
11. After verifying the accuracy of all entries for the preceding transactions, post
amounts to the general ledger accounts by clicking [Post entries].
d. Click on [File/Export] to export a post-closing trial balance for year 2023 and use
Excel to prepare a statement of net position (see Illustration 7-6 in textbook) for the
Solid Waste Disposal Fund as of December 31, 2023.
e. Export a pre-closing trial balance for year 2023, and use Excel to prepare a statement
of revenues, expenses, and changes in net position (see Illustration 7-7 in textbook)
for the Solid Waste Disposal Fund for the year ended December 31, 2023. Interest
expense should be considered a nonoperating item.
[Note: Retain a printout of all worksheets and your financial statements in your
cumulative file until directed by your instructor to submit them, unless your
instructor specifies that you should submit computer files electronically, in which
case you will need to save a .pdf version of you trial balances.]
Before closing the City of Smithville it is recommended that you save a backup copy of
your work to another location by clicking on [File] and [Save As].
30
Chapter 8 Recording Transactions Affecting a Fiduciary Fund—a Tax
Custodial Fund
The City of Smithville currently administers a tax custodial fund that bills and collects
property taxes levied by the governing bodies of the Smithville Consolidated School
District (CSD), Smith County, and the Smith County Fire Protection District (FPD), in
CITY OF SMITHVILLE
Tax Custodial Fund
Post-closing Trial Balance
As of December 31, 2022
Account Title Debits Credits
Taxes Receivable for Other Funds and $1,977,075
Governments—Delinquent
Due to Other Funds $ 443,488
Net Position—Restricted for Other Governments 1,533,587
Totals $1,977,075 $1,977,075
Required
a. Open a general journal as of December 31, 2022, for the Tax Custodial Fund by
entering the three accounts and amounts shown in the above post-closing trial
balance. Enter 2022 from the drop-down [Year] menu. Each of the account titles will
be found in the drop-down menu [Account] in the [Journal] view of the program. Be
sure to enter 8-a as your paragraph number in the [Add description] box. Verify the
b. The following schedule shows the tax rates that have been established by the various
taxing authorities for fiscal year 2023.
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Tax Rates Applicable to Governments
Served by the Tax Custodial Fund
Fiscal Year 2023
(All amounts rounded to next higher dollar)
Tax Rate
(Per $100 Assessed Tax
Governments/Funds of Assessed Valuation) Valuation Levy
City of Smithville:
General Fund $0.55 $341,581,818 $ 1,878,700
Total city rate and levy $0.55 $ 1,878,700
Smith County:
General Fund $0.64 $408,024,970 $ 2,611,360
Total county rate and levy $0.64 $ 2,611,360
Grand Total tax rates and levies* $3.69 $14,690,684
* Note: Each property owner will receive a tax bill equal to the tax rates of all taxing
Record the following transactions that occurred during 2023 in the general journal of
the Tax Custodial Fund.
1. [Para. 8-b-1] On January 2, 2023, the city’s tax administrator mailed annual tax
bills to all property owners in the total amount of $14,690,684 (see preceding
table). The tax administrator maintains a detailed tax ledger to track amounts
billed to and collected from each taxpayer and total amounts applicable to each
fund and government.
Required: Record in the general journal the total taxes receivable, the amount
2. [Para. 8-b-2] Delinquent taxes (including any interest and penalties assigned to
the delinquent taxes) were collected during the year for the taxing authorities
shown below:
Governments/Funds: Delinquent Taxes
City of Smithville General Fund $ 421,471
Smithville CSD 780,460
Smith County 676,990
Total collected $1,878,921
Required: Record the cash collection of delinquent taxes. The Tax Custodial
Other Funds and Governments—Delinquent account.
3. [Para. 8-b-3] The 1 percent collection fee was assessed on the Smithville CSD
and the Smith County collections made in transaction 8-b-2.
Required: Calculate the 1 percent collection fee on the amounts collected for the
Smithville CSD and Smith County; the total collection fee for these two
governments should be recorded as Deductions—Administrative Fee and as a
4. [Para. 8-b-4] All cash collected in paragraph 8-b-2 was transferred to the city
and the other two governments in the amounts calculated, adjusted for the 1
percent collection fee deducted from cash distributions to the Smithville CSD
and the Smith County. The collection fee is added to the distribution to the City
of Smithville (see Para. 8-b-3).
Required: Record the payment of cash to the city, Smithville CSD, and Smith
County.
5. [Para. 8-b-5] Current taxes were collected during the year for the funds and
governments shown below:
Current Taxes
Funds/Governments: Collected
City of Smithville General Fund $ 1,596,895
Smithville CSD 8,670,530
Smith County 2,219,656
Total collected $12,487,081
6. [Para. 8-b-6] The 1 percent collection fee was assessed on the Smithville CSD
and the Smith County collections.
33
Required: Calculate the 1 percent collection fee on the amounts due to other
dollar.) Make these entries only in the Tax Custodial Fund general journal.
7. [Para. 8-b-7] All cash collected in paragraph 8-b-6 was transferred to the city
and the other two governments, adjusted for collection fees deducted or added.
(Note: For simplicity, Chapter 4 of Smithville did not address this collection of
fees by the custodial fund.)
8. [Para. 8-b-8] Make the year-end journal entry to reclassify all uncollected
current taxes as delinquent. Add to the receivable amount interest and penalties
of $66,108 on the reclassified amount. The interest and penalties portion of the
9. [Para. 8-b-9] Make the year-end closing journal entry to close deductions and
additions to Net Position—Restricted—Other Governments. Be sure that the
check mark for [Closing Entry] is on for each account being closed and that
“Closing Entries” appears in the [Add description] box. Post the closing entries
to the general ledger by clicking on [Post entries].
c. Post the journal entries for all the preceding transactions.
Export a post-closing trial balance for 2023 to prepare a statement of fiduciary net
position for the Tax Custodial Fund (for an example of a custodial fund statement, see
the last column of Illustration 8-6 of the textbook). You should deduct the city’s
d. Export a pre-closing 2023 trial balance to prepare a statement of changes in fiduciary
net position for the Tax Custodial Fund (for an example of a custodial fund statement,
see the last column of Illustration 8-7 of the textbook).
[Note: Retain the post-closing trial balances as of December 31, 2023, the
statement of fiduciary net position, and the statement of changes in fiduciary net
position in your cumulative folder, unless your instructor requests electronic
34
submission of your documents, in which case you will need to save a .pdf version
of you trial balances.]
Before closing the City of Smithville it is recommended that you save a backup copy of
your work to another location by clicking on [File] and [Save As].
Chapter 9 Adjusting and Closing Entries for Governmental Activities,
Government-wide Level; Preparation of Government-wide and Major
Fund Financial Statements
a. Prior to preparing financial statements at the end of FY 2023, it is necessary to record
depreciation expense for the year for governmental activities at the government-wide
level.
Based on general capital assets assigned to specific functions, depreciation expense
related to equipment, infrastructure, and buildings is allocated to functions as shown
below:
Equipment Infrastructure Buildings
General Government $ 50,811 $ 41,969
Public Safety 203,246 73,446
Public Works 127,029 $ 98,020 46,166
Health and Welfare 50,811 20,985
Culture and Recreation 76,217 27,280
Totals $ 508,114 $ 98,020 $ 209,846
b. Closing Entries. Although closing entries were made in each fund in Chapters 4
through 6 of this cumulative problem, they have not yet been recorded at the
government-wide level.
Required: Record the journal entries required on December 31, 2023, to close all
temporary accounts for governmental activities at the government-wide level. These
entries should also recognize changes in the accounts Net Position—Net Investment
in Capital Assets, Net Position—Restricted for Public Safety (see General Fund), Net
Position—Restricted for Capital Projects (see Capital Projects Fund to calculate net
Before closing the City of Smithville it is recommended that you save a backup copy
of your work to another location by clicking on [File] and [Save As].
36
c. Use the exportable trial balances used in Chapters 2 through 7 of this problem and
export the pre-closing trial balance and post-closing trial balance for governmental
activities to prepare required government-wide, governmental fund financial
statements, and reconciliations that the City of Smithville must present for its basic
financial statements to be in conformity with generally accepted accounting
principles. (See Illustrations 9-3 through 9-8 and A2-1 through A2-9 of the Reck,
Lowensohn, and Neely textbook for examples of these statements.) We recommend
that you use Excel to prepare these financial statements. Since the Solid Waste
Disposal Fund is the only fund in the proprietary funds category, you may reprint the
37
Chapter 10 Analysis of Financial Condition
(Optional, unless assigned by your instructor)
Prepare a written evaluation of the City of Bingham’s financial position and condition
as of December 31, 2023. Begin by calculating some of the following ratios found in
Chapter 10 of the textbook:
From Illustration 10-3 From Illustration 10-4
Revenue Measures: Financial Position:
Intergovernmental revenues Unrestricted net position
Financial Capability:
Debt Indicators: Bonded debt per capita
Current liabilities Available legal debt limit
Debt service
Chapter 11 Preparation of Audit Report
(Optional, unless assigned)
Prepare the audit report you believe would be appropriate for a certified public
accountant to express on the financial statements of the City of Smithville, assuming
that only generally accepted auditing standards (GAAS) promulgated by the AICPA
apply to the City of Smithville. Explain the rationale for the nature of the audit report
(unmodified or qualified) rendered.
—The End—