Acct 11 Chapter18 Solutions

Chapter 18 Governmental Entities: Other Governmental Funds and Account Groups

True/False Questions

1. Capital projects funds of a governmental entity record the receipt and payment of cash for all the entity's plant assets other than those financed by the general fund.

Answer: False

2. Proceeds from the issuance of general obligation bonds of a governmental entity are recorded in a debt service fund.

Answer: False

3. Special assessment bonds may be issued by a governmental entity to finance construction projects prior to the collection of special assessments receivable from benefited property owners.

Answer: True

4. Bonds issued to finance a plant asset construction project of a governmental entity are recorded as a liability in a capital projects fund.

Answer: False

5. The purpose of debt service funds is to account for the accumulation of resources for the payment of principal and interest on all long-term debt of a governmental entity.

Answer: False

6. All plant assets of a governmental entity are recorded in a voluntarily maintained general capital assets account group.

Answer: False

7. Typically, a Special Assessments Receivable ledger account is included in the accounting records of a governmental entity's special revenue fund.

Answer: True

8. The Unreserved and Undesignated Fund Balance ledger account of a capital projects fund is credited for interest revenue on that fund's investments.

Answer: False

Larsen, Modern Advanced Accounting, Ten Edition 224


9. An Investment in General Capital Assets ledger account is debited in the journal entry to record depreciation of plant assets accounted for in a governmental entity's voluntarily maintained general capital assets account group.

Answer: True

10. A note to the financial statements of a governmental entity must be used to disclose changes in the entity's general capital assets during a fiscal year.

Answer: True

11. Special assessment bonds for which a governmental entity is obligated in some manner are disclosed only in a note to the governmental entity's financial statements.

Answer: False

Multiple Choice Questions

12. Which of the following accounting units of a governmental entity might voluntarily use encumbrance accounting? A) Capital projects fund B) Debt service fund C) General capital assets account group D) General long-term debt account group E) All of the foregoing

Answer: A

13. Part of the proceeds of a governmental entity's general obligation bonds was used to pay for the cost of a new city hall as soon as construction was completed. The remainder of the proceeds was transferred to repay the bonds. Journal entries to record these transactions are needed in: A) The general fund and the voluntarily maintained general long-term debt account

group B) The general fund, the general long-term debt account group, and a debt service

fund C) A trust fund, a debt service fund, and the voluntarily maintained general capital

assets account group D) The general long-term debt account group, a debt service fund, the general capital

assets account group, and a capital projects fund

Answer: D

225 Larsen, Modern Advanced Accounting, Ten Edition


14. In a governmental entity's capital projects fund, proceeds of general obligation bonds issued to finance the project are credited to: A) Appropriations B) Unreserved and Undesignated Fund Balance C) Bonds Payable D) Some other ledger account or accounts

Answer: D Rationale: (Other Financing Sources)

15. Interest on general obligation bonds payable is recorded in a debt service fund: A) At the end of the fiscal year if the interest due date does not coincide with the end

of the fiscal year B) When bonds are issued C) When legally payable D) When paid

Answer: C

16. Cash obtained by a governmental entity from property tax revenues was transferred for the eventual payment of principal and interest on general obligation bonds. The bonds had been issued when land had been acquired several years ago for a city park. When the cash was transferred, a journal entry was not recorded in the: A) Debt service fund B) General capital assets account group (voluntarily maintained)C) General long-term debt account group (voluntarily maintained)D) General fund

Answer: B

Use the following information to answer questions 17 and 18:

The following events relate to the City of Willow's debt service funds, which occurred during the fiscal year ended December 31, 2003:

Debt principal matured $2,000,000Unmatured (accured) interest on outstanding debt, Jan. 1, 2006 50,000Interest on matured debt 900,000Unmatured (accured) interest on outstanding debt, Dec. 31, 2006 100,000Interest revenue from investments 600,000Cash transferred from general fund for payment of debt principal 1,000,000Cash tranferred from general fund for payment of matured interest 900,000

All principal and interest amounts payable in 2006 were paid on time.



17. The total amount of expenditures that Willow's debt service funds recognize for the year ended December 31, 2006, is: A) $900,000 B) $950,000 C) $2,900,000 D) $2,950,000 E) Some other amount

Answer: C Rationale: ($2,000,000 + $900,000 = $2,900,000)

18. The total amount of revenues that Willow's debt service funds recognize for the year ended December 31, 2006, is: A) $600,000 B) $1,600,000 C) $1,900,000 D) $2,500,000 E) Some other amount

Answer: A

19. Queen Village issued the following bonds during the fiscal year ended June 30, 2006: Revenue bonds to be repaid from admission fees collected by the Queen Village Zoo

Enterprise Fund $200,000General obligation bonds issued for the Queen Village Water and Sewer Enterprise Fund, which will service the debt 300,000

The amount of these bonds to be accounted for in Queen Village's voluntarily maintained General Long-Term Debt Account Group is: A) $0 B) $200,000 C) $300,000 D) $500,000

Answer: A



Questions 20 and 21 deal with the following:

On December 31, 2006, Dingle Township paid a contractor $2,000,000 for the total cost of a new fire station built in 2006 on township-owned land. Financing was by means of $1,500,000 general obligation bonds that were issued at face amount on December 31, 2006, and $500,000 transferred from the General Fund on that date.

20. The amounts to be reported in Dingle Township's financial statements for the Capital Project Fund are: A) Revenues, $1,500,000; Expenditures, $1,500,000 B) Revenues, $1,500,000; Other financing sources, $500,000; Expenditures,

$2,000,000 C) Revenues, $2,000,000; Expenditures, $2,000,000 D) Other financing sources, $2,000,000; Expenditures, $2,000,000

Answer: D

21. To be reported in Dingle Township's financial statements for the General Fund is (are): A) Expenditures, $500,000 B) Other financing uses, $500,000 C) Revenues, $1,500,000; Expenditures, $2,000,000 D) Revenues, $1,500,000; Other financing uses, $2,000,000

Answer: B

22. Fred Bosin donated land and a building to Palma City in 2006. Bosin's cost of the land and building was $100,000. Accumulated depreciation of the building on the date of the gift amounted to $60,000. Current fair value of the land and building on the date of the gift was $300,000. In a journal entry for the voluntarily maintained general capital assets account group, the total amount to be recorded for the donated plant assets is: A) $300,000 B) $100,000 C) $40,000 D) $0

Answer: A



23. A special revenue fund of a governmental entity is an example of a(n): A) Governmental fund B) Proprietary fund C) Internal service fund D) Fiduciary fund

Answer: A

24. Which of the following funds of a governmental entity might voluntarily use a general capital assets account group to account for plant assets with which the fund is associated? A) Internal service B) Enterprise C) Special revenue D) Trust E) None of the foregoing

Answer: C

25. Which of the following is not a governmental fund? A) Special revenue fund B) Internal service fund C) Capital projects fund D) Debt service fund

Answer: B

26. The appropriate journal entry (explanation and amount omitted) for a capital projects fund's entering into a contract with an architect is: A) Expenditures

Vouchers Payable B) Architect's Fee Expense

Contracts Payable C) Appropriations

Payable to Architect D) None of the foregoing

Answer: D Rationale: (Debit Encumbrances, Credit Fund Balance Reserved for Encumbrances)



Problems

27. Among the activities of Wilburtown for the fiscal year beginning July 1, 2005, and ending June 30, 2006, were the following; Wilburton uses encumbrance accounting:

July 1 Approved the following annual budget for the special revenue fund as follows: Appropriations, $600,000; estimated revenues, $640,000.

5 Executed a contract for the construction of a new town hall at a total cost of $5,000,000.

Aug. 1 Authorized a special assessment of $400,000 on residents of the town for construction of sidewalks. The special assessment was to be payable in five annual installments beginning September 1, 2006, with interest at 7% a year on the unpaid installments.

Sept. 1 Acquired from proceeds of general tax revenues equipment costing $20,000 (the related purchase order was for $19,600). The equipment was to be used by the general government of Wilburtown.

Prepare journal entries (omit explanations) for the foregoing activities of Wilburtown assuming use of encumbrance accounting. Identify by initials the funds or voluntarily maintained account groups (for example, GF, SRF, CPF, GCAAG) in which the journal entries are recorded.

Answer: 2005SRF July 1 Estimated Revenues 640,000

Appropriations 600,000Budgetary Fund Balance 40,000

CPF July 5 Encumbrances 5,000,000Fund Balance Reserved for Encumbrances 5,000,000

SRF Aug. 1 Special Assessments ReceivableCurrent 80,000Special Assessments ReceivableDeferred 320,000

Revenues 80,000Deferred Revenues 320,000

GF Sept. 1 Expenditures 20,000Vouchers Payable 20,000

Fund Balance Reserved for Encumbrances 19,600



Encumbrances 19,600



GCAAG Sept. 1 Machinery and Equipment 20,000Investment in General Capital Assets from General Fund Revenues 20,000

28. Indicate for each of the ledger accounts listed below, by a check mark in the appropriate column or columns, the funds of a governmental entity in which each account generally is used:

Ledger AccountsGeneral

Fund

Special Revenue

Fund

Debt Service Fund

Capital Projects

FundEnterprise

FundEncumbrances (and Fund

Balance Reserved for Encumbrances) used voluntarily

AppropriationsGeneral Obligation

Bonds PayableEstimated RevenuesMachinery and Equipment

Answer:

Ledger AccountsGeneral

Fund

Special Revenue

Fund

Debt Service Fund

Capital Projects

FundEnterprise

FundEncumbrances (and Fund

Balance Reserved for Encumbrances) used voluntarily

X X X

Appropriations X XGeneral Obligation

Bonds PayableX X

Estimated Revenues X XMachinery and Equipment X



29. St. Charles Township had the following transactions and events, among others, during the fiscal year ended June 30, 2006 (the township uses account groups):

(1) On June 30, 2006, the township paid the first serial maturity of $80,000 on 6% general obligation bonds that had been issued at face amount of $400,000 on June 30, 2005, to mature serially June 30, 2006 through 2010. Accrued interest on the bonds also was paid on June 30, 2006. There was no fiscal agent.

(2) Special Revenue Fund expenditures on July 26, 2005, included $11,100 applicable to purchase orders of $10,900 issued in the fiscal year ended June 30, 2005. The township uses encumbrance accounting.

(3) On June 28, 2006, the State Revenue Department informed St. Charles Township that its share of a state-collected, locally shared tax was $340,000.

Prepare journal entries for the foregoing transactions and events of St. Charles Township for the year ended June 30, 2006. Omit explanations, but identify by initials the fund or account group (GF, DSF, GCAAG, etc.) in which each journal entry is recorded.

Answer: (1) DSF 2006

June 30 Expenditures 104,000Matured Bonds Payable 80,000Matured Interest Payable ($400,000 x 0.06) 24,000

30 Matured Bonds Payable 80,000Matured Interest Payable 24,000

Cash 104,000

GLTDAG 2006June 30 Bonds Payable 80,000

Amount Available in Debt Service Fund 80,000

(2) SRF 2005July 26 Fund Balance Reserved

for Encumbrances 10,900Unreserved and Undesignated Fund Balance 200

Vouchers Payable 11,100(3) GF 2006

June 28 Receivable from State Government 340,000

Other Financing Sources 340,000



30. During your audit of the financial statements of Larrabee County on June 30, 2006, you discovered the following errors:

(1) The Accounts Receivable ledger account of the General Fund included $6,900 receivable from the county's Enterprise Fund for the Enterprise Fund's disposal of excess supplies on the General Fund's behalf. A Payable to General Fund ledger account with a balance of $6,900 was included in the accounting records of the Enterprise Fund.

(2) During the year ended June 30, 2006, obsolete equipment with a carrying amount (residual value) of $18,700 was disposed of for $4,800. In addition, new equipment was acquired for $120,000. Both transactions were recorded only in the General Fund in the General Property ledger account, which had a debit balance of $115,200 on June 30, 2006. All items of equipment had been acquired from general fund revenues.

(3) During the year ended June 30, 2006, land with a current fair value of $650,000 was donated to Larrabee County for use as an industrial park. No journal entry had been prepared for the donation of the land.

Prepare journal entries on June 30, 2006, to correct the foregoing errors in all affected funds and voluntarily maintained account groups of Larrabee County. Omit explanations, but identify by initials (GF, DSF, GCAAG, etc.) the fund or account group in which each journal entry is recorded.

Answer: (1) GF Receivable from Enterprise Fund 6,900

Accounts Receivable 6,900

(2) GF Expenditures 120,000General Property 115,200Revenues 4,800

GCAAG Investment in General Capital Assets from General Fund Revenues 18,700

Machinery and Equipment 18,700

GCAAG Machinery and Equipment 120,000Investment in General Capital Assets from General Fund Revenues 120,000

(3) GCAAG Land 650,000Investment in General Capital

Assets from Donations 650,000



31. The following journal entries were included in the accounting records of the Farmville Township General Fund for the fiscal year ending June 30, 2006:

2006Mar. 3 Expenditures 20,000

Vouchers Payable 20,000To record acquisition of new fire truck.

Mar. 31 Other Financing Uses 88,000Cash 88,000

To record transfer to Debt Service Fund for maturing principal and interest on general obligation serial bonds.

Apr. 5 Cash 120,000Unreserved and Undesignated Fund Balance 120,000

To record unexpended cash received from Capital Projects Fund after completion of library addition.

Prepare related journal entries (omit explanations) in other funds or voluntarily maintained account groups of Farmville Township. Identify the funds or account groups in headings for the entries.

Answer: FARMVILLE TOWNSHIP GENERAL CAPITAL ASSETS

ACCOUNT GROUPJournal Entry

2006Mar. 3 Machinery and Equipment 20,000

Investment in General Capital Assets from General Fund Revenues 20,000

FARMVILLE TOWNSHIP DEBT SERVICE FUNDJournal Entry

2006Mar. 31 Cash 88,000

Other Financing Sources 88,000

FARMVILLE TOWNSHIP CAPITAL PROJECTS FUNDJournal Entry

2006Apr. 5 Unreserved and Undesignated Fund Balance 120,000

Cash 120,000



Case

32. In a classroom discussion of accounting standards for the voluntarily maintained general capital assets account group of a governmental entity, student Raul questioned the logic of recording depreciation on plant assets accounted for in that accounting unit. Said Raul: "The general capital assets account group is not a fund; therefore, it has no need to make memorandum journal entries for depreciation."

Do you agree with student Raul? Explain.

Answer: Student Raul's argument is sound if one bases it solely on the fact that the general capital assets account group is not a fund. However, taking that argument to the extreme, one might allege that there is no need for general capital assets account group itself, its not being a fund. However, there is need for a governmental entity to have a record, including subsidiary ledger accounts, for its plant assets not recorded in a proprietary-type fund or in a nonexpendable private-purpose trust fund. Under that premise, to assist entity management in decisions on plant asset repairs, replacements, and retirements, depreciation accounting for plant assets in a voluntarily maintained general capital assets account group may be justified.


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Acct 11 Chapter18 Solutions