Chapter005

CHAP CHAPTE TER R 5:

ACCO ACCOUN UNTI TING NG FOR FOR GE GENE NERA RAL L CAPI CAPITA TAL L ASS ASSET ETS S AND AND CAPITAL PROJECTS OUTLINE

Number

Questions: 5-1

5-2 5-3 5-4 5-5 5-6 5-7 5-8 5-9 5-10

Topic

Type/Task

Status (re: 13/e)

Distinguishing general capital assets from fund capital assets Capital asset disclosures Modified approach for infrastructure Capital lease accounting Asset impairment Use of capital projects funds Encumbrances Construction work in progress Multiple capital projects Special assessment capital projects

Describe

New

Explain Describe Describe Explain Explain Explain Explain Explain Explain

New New 5-8 revised New 5-4 revised Same New Same New

Evaluate, write Evaluate, explain Evaluate, explain

5-2 New 5-1 retitled

Examine Multiple Choice Journal Entries Financial Statement Calculate; JEs JEs; Reporting JEs and Explain Compute; FS JEs & FS JEs & FS

5-1 revised 5-2 revised Same 5-4 revised New New 5-6 revised 5-5 5-7 revised 5-8 revised

Cases: 5-1 5-2 5-3

Modified approach for infrastructure assets Options for financing public infrastructure Political versus economic factors in financing capital improvements Exercises/Problems: 5-1 Examine the CAFR 5-2 Various 5-3 General capital assets 5-4 Capital asset disclosure statement 5-5 Lease classification and accounting 5-6 Asset impairment 5-7 Special assessment financing 5-8 Statement of revenues and expenditures 5-9 Construction fund 5-10 Capital project transactions

5-1

CHAP CHAPTE TER R 5:

ACCO ACCOUN UNTI TING NG FOR FOR GE GENE NERA RAL L CAPI CAPITA TAL L ASS ASSET ETS S AND AND CAPITAL PROJECTS

Answers to Questions 5-1.

General capital assets are those that are acquired with the resources of governmental funds and that are reported only in the Governmental Activities column of the government-wide financial statements. Capital assets acquired with with the resources of proprietary or fiduciary funds are reported in the financial statements of those funds, as well as in the Business-type Activities column of the government-wide financial statements for enterprise fund capital assets.

5-2.

Capital Capital asset asset disclo disclosures sures required required by the GASB GASB are are quite quite well illustrat illustrated ed by the City City and County of Denver’s capital asset asset disclosures shown in in Illustration 5-2. In brief, the disclosures should include policies for capitalizing assets and for estimating the useful lives of depreciable assets. In addition, the disclosures disclosures should include: (1) beginning-ofyear and end-of-year balances showing accumulated depreciation separate from historical cost, (2) capital acquisitions during the year, (3) sales or other dispositions during the year, (4) depreciation expense showing amounts charged to each function in the statement of activities, and (5) disclosures regarding collections of art or historical treasures.

5-3.

The modified approach permits a government an alternative to depreciation of certain eligible infrastructure assets. Eligible assets are parts of major networks of infrastructure infrastructure assets or subsystems of networks, where a network might be a highway system, for example. If the government meets two two requirements it can avoid reporting reporting depreciation on its eligible infrastructure infrastructure assets. The two requirements are: (1) (1) management of eligible infrastructure assets using a management system that includes an up-to-date inventory of eligible assets, condition assessments and results using a measurement scale, and estimates of annual costs to maintain assets at the established and disclosed condition level, and (2) documentation that the assets are being preserved at or above the established condition level. If the government fails to maintain the assets assets at or above the established condition level, it must revert to reporting depreciation for its infrastructure assets and discontinue use of the modified approach.

5-4. 5-4.

If the the lea lease se meet meetss one one or more more of the the FAS FASB B SFAS 13 criteria for a capital lease, as discussed in this chapter, the the lease must be reported as a capital lease. If the lease is deemed to be a capital lease, the governmental fund journal entry on the date of inception will include a debit to Expenditures and a Credit to Other Financing Sources—Capital Lease Agreements. The journal entry at the the government-wide level will be the same same as that used in business accounting—a debit to Equipment and a credit to Capital Lease Obligations Payable.

5-2

Ch. 5, Answers (Cont’d) 5.5.

Disagree. GASBS 42 requires the government to assess assets for which value might have become impaired. If impairment is judged to have occurred, then the amount of 42. impairment loss must be estimated using one of the approaches described in GASBS 42. The amount of loss will be recorded as an expense of the appropriate function or program and as a reduction in the carrying value of the asset.

5-6. 5-6.

The use use of a capit capital al projec projects ts fund fund is usua usually lly requi required red for for major major cons constru tructi ction on projec projects ts requiring large amounts of financing. financing. The use of a capital projects projects fund may also be useful for purchases of high-cost items such as acquisitions of land, buildings, and highcost equipment. A capital projects fund must also be used whenever required by law or grant provisions.

5-7.

To facili facilitate tate prepar preparation ation of financi financial al statem statements ents at at the the end of the the fiscal fiscal year, all operat operating ing and budgetary accounts should be closed, including Encumbrances. However, since the project is still underway and contractual commitments still exist to pay contractors when billed, it is essential that Encumbrances be reestablished at the beginning of the next year in order to maintain budgetary control over outstanding commitments.

5-8. 5-8.

All ordin ordinary ary and and necess necessary ary costs costs to to constru construct ct the asse assett are appro appropri priate ately ly repor reported ted as construction work in progress. This includes all legal costs, costs, engineering and architectural services, site preparation, materials used, and billings from contractors, among other items. Interest incurred during construction construction is not capitalized for general capital assets, however. Construction Work in Progress is found in the ledger for governmental activities at the government-wide level for general capital assets, and not in the ledger for the capital projects fund. In the capital projects fund, all capitalizable items are debited debited to Construction Expenditures.

5-9. 5-9.

For a multip multiple-p le-proj roject ectss fund, encum encumbra brance ncess and constru constructi ction on expendit expenditure uress should should be identified in a manner that will indicate to which project each applies. This can be accomplished by adding a project identifier to the Encumbrances and Construction Expenditures accounts, such as Encumbrances  Street Project or Construction Expenditures  Project No. 10. Identifying encumbrances and expenditures by project facilitates comparisons to budget for particular projects and presentation of cash and expenditure statements for multi-project multi-project operations. For example, the City of Smithville Continuous Computerized Problem that accompanies this text h as two capital projects funds named the Springer Street Project and the Alzmann Street Project.

5-10. Capital Capital projects projects fund accounti accounting ng for special special assessme assessments nts is virtual virtually ly identical identical in both both of these situations. The only difference is that the credit entry for issuance of special assessment bonds is to Other Financing Sources—Contribution from Property Owners if the government assumes no responsibility for the debt, rather than to Other Financing Sources—Proceeds of Special Assessment Bonds w ith Governmental Commitment.

5-3

Solutions to Cases 5-1.

a. Discuss with students various methods of obtaining financial statements and getting “benchmark” data to make comparisons across entities. Professional associations such as the Government Finance Officers Association, National Association of State Auditors, Controllers and Treasurers, and Association of School Business Officials publish “best practices” for various areas of public finance, accounting, and financial reporting. Since each student will have a different list of cities, ask them to compare their results with other students and look for patterns in which types and sizes of governments make similar choices in accounting methods, particularly, in this case, regarding choice of infrastructure asset accounting methods. b. An important communication skill for students to master is to convey technical financial accounting information in an effective way so that decision makers find the information useful for making informed decisions. You may wish to ask students to show their memo or essay to a finance director of a city and get their opinion about whether the student has captured the fundamental issues relating to infrastructure and communicated it in a professional and informative manner. c. During the implementation years of GASBS 34, the GFOA and some state auditors released policy statements indicating to governments that they did not have to capitalize infrastructure assets to meet minimum standards for the GFOA’s Certificate of Achievement for Excellence in Financial Reporting or the states’ reporting compliance regulations. Despite such statements, most governments that sought a “clean” audit opinion voluntarily developed inventories of infrastructure and followed GAAP for infrastructure reporting. For most general purpose governments, omitting infrastructure assets would cause their statement of net assets to be materially misstated resulting in a qualified or adverse audit opinion—likely the latter. A government receiving an adverse audit opinion may experience a downgrading of its bond rating and thus face considerably higher cost of borrowing.

5-2

a. Option (1), the sales tax approach, offers the advantage of spreading the burden for infrastructure improvements across a larger number of taxpayers, including many non-residents who visit or shop in Desert City. From an equity standpoint, the sales tax approach has appeal because infrastructure improvements enhance the city for visitors and shoppers, as well as for residents. Disadvantages of this approach are the necessity of scheduling and conducting a special election and the political risk of advocating for a tax increase. Option (2), the development fee approach, has the advantage of being relatively “invisible” to the public and efficient to administer since the number of developers will be relatively small. Although real estate developers can be expected to pass the development fee to new homeowners and businesses, property values may be increased by enhanced infrastructure (e.g., improved streets and highways, adequate storm drainage, and so forth). As a result, taxpayers may recoup a portion of the development fee. The main disadvantage is the potential inequity of the development

5-4

Ch. 5, Solutions, Case 5-2 (Cont’d)

fee since a relatively high financial burden is imposed on new homeowners and new businesses for infrastructure expansion and improvement that may substantially benefit the entire city. A city council member may prefer the development fee approach since it holds less political risk than asking residents to approve a tax increase. The city manager may prefer the sales tax approach as retail sales may be less volatile than new construction, which can be strongly impacted by the local, regional, and national economies. Since the city manager is responsible for ensuring that infrastructure stays abreast of population and new developmen t, he or she may prefer a more stable source of infrastructure financing. Current homeowners and businesses might be expected to prefer the development fee approach since those fees would not directly impact on their property and would place the incidence of the tax on others. It would be surprising if new homeowners or new bu sinesses favored the development fee approach as they would probably view it as inequitable. b. Accounting and financial reporting would be minimally impacted by which option is ultimately chosen. Either way, there is revenue to be recognized in a capital projects fund (a tax in one case and development fee in the other). Accounting for infrastructure construction would not be affected by the source of financing. 5-3.

a. Regardless of how a student voted, he or she had plenty of company. With a record voter turnout for such an election, the half-cent sales tax was barely approved. Only 51.7 percent of the voters in Brown County voted for the tax. As expected, 56.5 percent of the voters in the City of Brownville voted against it. Except for a few precincts in other cities and towns, voters outside Brownville voted overwhelmingly in support of the tax. While there is no "right" answer to this question, each student should have provided a rationale similar to one of the arguments provided in the case. A few students may develop unique arguments in support of their vote. Generally, the students who voted for the proposed tax must have thought the county-wide benefits of improved roads and bridges were worth the extra tax costs and outweighed the possible detrimental effects on the City's financial flexibility. Those who voted against it presumably did so using the rationale expressed b y some voters in exit polls, "why should I pay more for roads that will benefit rural county residents more than me." b. Although some students may profess an altruistic motivation for their vote, most are expected to reflect economic rationality. That is, they wou ld likely vote for the sales tax increase if they were an owner of a large commercial or manufacturing property, and would therefore realize a net economic benefit from the property tax rollback and sales tax increase. Even then some students may justify the "yes" vote on the basis of the county-wide benefits of improved infrastructure rather than their financial selfinterest.

5-5

Ch. 5, Solutions, Case 5-3 (Cont’d)

c.

Again, there is no right answer to this question. Students (Brownville voters) who voted against the tax probably would argue that residents who primarily benefit should pay for the improvements (i.e., special assessment financing should have been used). Those who voted for the tax probably would argue that the broader (county-wide) economic benefits of improved county infrastructure justifies financial support by all county residents. Some who voted for the tax may have preferred special assessment financing but possibly feared that failure to approve the sales tax would doom the needed improvements altogether.

d.

The County's procedures for accounting for the financing and the capital projects activities will differ slightly for the option approved by the voters compared with those that would have been used if special assessment financing had been used. But, as explained in Chapter 5, the procedures for accounting for special assessment-financed capital projects are quite similar to those for other capital projects, especially when, as is often the ca se, the government is committed in some manner for repaying debt issued for the project. Since bond financing is typically used for special assessment capital projects, accounting for both special assessment taxes and debt service would have been required for an extended period, probably ten years or more. Whether these differences would be termed "significant" accounting issues is a matter of conjecture; they might be considered significant by the financial staff of the County.

Solutions to Exercises and Problems 5-1.

Each student will have a different annual report, so he or she will have different answers to questions in this exercise. The various kinds of capital assets and capital projects, wide variety of financing mechanisms, and different accounting policies used in and by governments should generate interesting classroom discussions.

5-2.

1. 2. 3. 4. 5.

a. d . c. a b.

6. 7. 8. 9. 10.

c. d . c. a. c.

5-6

Ch. 5, Solutions (Cont’d)

5-3. 1.

Debits

Credits

Governmental Activities :

CASH

2,380,000

BONDS PAYABLE

1,800,000

PROGRAM REVENUES—PUBLIC WORKS —CAPITAL GRANTS AND CONTRIBUTIONS

580,000

BUILDINGS

7,620,000

CONSTRUCTION WORK IN PROGRESS

5,240,000

CASH

2,380,000

Capital Projects Fund :

CASH

2,380,000

OFS—PROCEEDS OF BONDS

1,800,000

REVENUES—FEDERAL GRANT CONSTRUCTION EXPENDITURES

580,000 2,380,000

CASH 2.

2,380,000


CASH

100,000

LAND

50,000

TRANSFER FROM BUSINESS-TYPE ACTIVITIES General Fund: CASH

50,000 100,000

OFS—INTERFUND TRANSFER IN

50,000

OFS—PROCEEDS FROM TRANFER OF CAPITAL ASSET

50,000

Note: The required entry in the Enterprise Fund was not requested for this problem. If it had been required that entry would have reflected a debit to Land for only $50,000 as GASB Standards preclude establishing a new cost basis for a capital asset transferred within the government.

5-7

Ch. 5, Solutions, 5-3 (Cont’d)

Debits 3.

Credits


EQUIPMENT—COMPUTER

2,500

ACCUMULATED DEPRECIATION

1,000

EQUIPMENT—COMPUTER

1,000

CASH

2,200

GAIN ON TRADE OF EQUIPMENT

300

Special Revenue Fund :

EXPENDITURES—CAPITAL OUTLAY

2,200

CASH 4.

2,200


EQUIPMENT

247,500

CASH LIST PRICE

247,500 $250,000

LESS: 1% FOR PROMPT PAYMENT NET COST OF EQUIPMENT

2,500 $247,500

Special Revenue Fund: EXPENDITURES

247,500

CASH

247,500

5-8


5. Debits

Credits

Governmental Activities: BUILDINGS

574,300

EXPENSES—PUBLIC WORKS

49,400

CASH

623,700

LOSS ON REMODELING OF BUILDINGS

62,900

ACCUMULATED DEPRECIATION—BUILDINGS

21,700

BUILDINGS

84,600

General Fund :

EXPENDITURES

623,700

CASH

623,700

Note: No entry required in the Capital Projects Fund. 6. Governmental Activities:

INFRASTRUCTURE (SUBSIDIARY DETAIL OMITTED)

3,150,000

LAND

200,000

PROGRAM REVENUES—PUBLIC WORKS—CAPITAL GRANTS AND CONTRIBUTIONS

3,350,000

(Note: The Program Revenues in this case would ultimately result in an increase to Net Assets – Invested in Capital Assets, Net of Related Debt. GASB standards require that all changes in net assets must flow through the operating statement.)

5-9


5-4. TOWN OF LYNNWOOD CAPITAL ASSET DISCLOSURES – GOVERNMENTAL ACTIVITIES FISCAL YEAR ENDED APRIL 30, 2008 Beginning Balance $1,326,780 7,282,680 3,027,790

Additions (1,5,6)

Retirements (7)

Ending Balance $2,454,780 7,470,680 3,826,856

Land $1,140,000 $( 12,000) (5) (7,8) Buildings 301,600 (113,600) (2) Improvements Other 799,066 than Buildings (3,4) (8) Equipment 1,733,820 590,700 (20,000) 2,304,520 (1) Construction work in 680,000 (2) (401,130) progress 401,130 680,000 (8) Infrastructure 3,500,000 (119,200) 3,380,800 Total, at historical cost 17,272,200 3,511,366 (665,930) 20,117,636 Less: Accumulated Depreciation Buildings (1,439,200) (440,000) 51,000 (1,828,200) Improvements Other (922,600) (320,000) 102,000 (1,140,600) than Buildings Equipment (837,500) (210,000) 5,000 (1,042,500) Infrastructure (1,000,000) (105,000) _______ (1,105,000) Total accumulated (4,199,300) (1,075,000) 158,000 (5,116,300) depreciation Governmental $13,072,900 $2,436,366 $(507,930) $15,001,336 activities capital assets Notes: A schedule showing how depreciation expense was charged to governmental functions is required, but not shown in this problem. Superscripts refer to the transaction numbers in the problem.

5-10


5-5. a.

The present value of Crystal City’s minimum lease payments is the initial payment of $847,637 plus $847,637 X the present value of an annuity for 29 periods at 6 percent, or $847,637 + ($847,637 X 13.590721) = $847,637 + $11,519,998 = $12,367,635. Since the present value of the minimum lease payments is $12,367,635 ÷ $13,000,000, or 95.1 percent of the fair value, this meets one criterion for a capital lease (i.e., present value equals or exceeds 90 percent of fair value). In addition, the lease term is exactly 75 percent of the estimated useful life of the building, so that criterion is met as well. So, this lease must be recorded as a capital lease.

b.

Debits Capital Projects Fund: EXPENDITURES OTHER FINANCING SOURCES— CAPITAL LEASE AGREEMENTS Governmental Activities: BUILDINGS CAPITAL LEASE OBLIGATIONS PAYABLE

5-11

Credits

12,367,635 12,367,635 12,367,635 12,367,635

Chapter 5, Solutions (Cont’d)

5-6. a.

Because Sunshine City is located in an area that is susceptible to hurricanes, the unusual criterion would not be met for the loss to be reported as extraordinary. To be reported as a special item requires that the event be either unusual or infrequent in occurrence (but not both) and be within management’s control. Since this is the first hurricane to hit the city in 48 years, the infrequent criterion would appear to be met, but hurricanes may be considered frequent for the broader geographic area. Moreover, the hurricane was clearly beyond management’s control, so this event cannot be reported as a special item. In addition to reporting the item as an ordinary expense, it should be disclosed in the notes to the financial statement if it is deemed to be significant and infrequently occurring.

b.

Debits Governmental Activities: EXPENSES—PARKS AND RECREATION

230,000

BUILDINGS c.

Credits

230,000

GASBS 42 requires that the $120,000 insurance recoveries be reported

as program revenues (presumably of the Parks and Recreation function in the Capital Grants and Contributions column under governmental activities) on the government-wide statement of activities. In addition, it should be reported as an other financing source by the General Fund. 5-7. a. Capital Projects Fund:

CASH

5,000,000

OTHER FINANCING SOURCES— PROCEEDS OF BONDS

5,000,000

5-12

Note: The $75,000 of premium and accrued interest would be recorded as an Other Financing Source and Revenue, respectively, in the Debt Service Fund.

5-13

Chapter 5, Solutions, 5-7 (Cont’d)

Debits

Credits


CASH

5,075,000

SPECIAL ASSESSMENT BONDS PAYABLE

5,000,000

PREMIUM ON BONDS PAYABLE

50,000

ACCRUED INTEREST PAYABLE (OR EXPENSES—INTEREST ON BONDS)

25,000

b. The proceeds should be invested in high-quality, easily marketable,

interest-bearing instruments, with due care to conform to arbitrage rules. c . The accounting implications are that assets will be held temporarily in a

form other than cash and that revenue will be earned that may belong to the capital projects fund or to a debt service fund; the finance officer should get professional advice from the government’s legal counsel to determine which fund should receive the interest. The financial implications are that the investment revenue earned adds to the amount available for the capital facilities (if the revenue belongs to the capital projects fund), or reduces the amount of other financing sources or revenues, which must be used for debt service (if the revenue belongs to the debt service fund).

5-14

Chapter 5, Solutions (Cont’d)

5-8. a. 1. The City of Pineville's Capital Projects Fund would report the proceeds of each grant as revenue for 2007; the proceeds of the bond issue should be reported under the Other Financing Sources caption. Revenues: Grant from federal government Grant from state government Total Revenues Other Financing Sources: Proceeds of Bonds Total Revenues and Other Financing Sources

$200,000 200,000 $ 400,000 4,000,000 $4,400,000

2. Since Fund Balance as of December 31, 2007, is $1,500,000, Expenditures during the year must have totaled $2,900,000 ($4,400,000$1,500,000). 3. Cash receipts: Grant from federal government $ 200,000 Grant from state government 200,000 Proceeds of bonds 4,000,000 Total cash receipts, 2007 Less: Cash expenditures Cash invested as of December 31, 2007

$4,400,000 2,900,000 $1,500,000

Note: Under GASB standards, the remaining $800,000 to be received in 2008 from the federal grant would not be recognized until cash is received because of the stipulated time requirements. CITY OF PINEVILLE Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for the Year Ended December 31, 2008 Revenues: b.

Interest on temporary investments

$ 16,000

Expenditures: Construction expenditures

1,350,000

Excess of Expenditures over Revenues

1,334,000

Fund Balance, January 1, 2008

1,500,000

Fund Balance, December 31, 2008

$ 166,000

5-15

Ch. 5, Solutions

5-9. a.

TOWN OF DEXTER RECREATION CENTER CONSTRUCTION FUND GENERAL JOURNAL Debits

1.

Credits

Recreation Center Construction Fund:

CONSTRUCTION EXPENDITURES

60,000

VOUCHERS PAYABLE

60,000

Governmental Activities:


60,000

VOUCHERS PAYABLE

60,000


2.

ENCUMBRANCES

30,600

RESERVE FOR ENCUMBRANCES

30,600


NO ENTRY REQUIRED Recreation Center Construction Fund:

3.

ENCUMBRANCES

2,500,000


2,500,000


NO ENTRY REQUIRED 4.



30,600


30,500

ENCUMBRANCES

30,600

VOUCHERS PAYABLE

30,500


CONSTRUCTION WORK IN PROGRESS VOUCHERS PAYABLE

30,500 30,500

5-16


Debits 5.

Credits



40,000

DUE TO WATER UTILITY FUND

40,000



40,000

INTERNAL BALANCES 6.

40,000



1,600,000


1,600,000

ENCUMBRANCES

1,600,000

CONTRACTS PAYABLE

1,600,000



1,600,000

CONTRACTS PAYABLE 7.

1,600,000


CASH

3,000,000

OTHER FINANCING SOURCES— PROCEEDS OF BONDS

3,000,000


CASH

3,025,000

BONDS PAYABLE

3,000,000

ACCRUED INTEREST PAYABLE

5-17

25,000


Debits 8.

Credits


DUE TO WATER UTILITY FUND

40,000

CASH

40,000


INTERNAL BALANCES

40,000

CASH 9.

40,000

Recreation Center Construction Fund and Governmental Activities:

CONTRACTS PAYABLE

1,600,000

CONTRACTS PAYABLE—RETAINED PERCENTAGE

64,000

VOUCHERS PAYABLE 10.

1,536,000


VOUCHERS PAYABLE

1,625,200

CASH

1,625,200

(COMPUTATION: $60,000 + $30,500 + $1,536,000 - $1,300 = $1,625,200) 11.


INVESTMENTS

1,300,000

CASH

1,300,000

5-18


Debits 12.

Credits


OFS—PROCEEDS OF BONDS

3,000,000


1,730,500

ENCUMBRANCES

900,000

FUND BALANCE

369,500


NO CLOSING ENTRY REQUIRED AS THERE ARE NO TEMPORARY ACCOUNT BALANCES. IF SUFFICIENT INFORMATION HAD BEEN GIVEN, IT WOULD HAVE BEEN APPROPRIATE TO ACCRUE ADDITIONAL INFORMATION ON THE BONDS PAYABLE. BUT SINCE NO SUCH INFORMATION IS PROVIDED, THAT ENTRY IS IGNORED.

5-19


TOWN OF DEXTER RECREATION CENTER CONSTRUCTION FUND GENERAL LEDGER (NOT REQUIRED) CASH (7)

3,000,000

CONTRACTS PAYABLE (8)

40,000

(9) 1,600,000

(6) 1,600,000

(10) 1,625,200 (11) 1,300,000 INVESTMENTS (11)

VOUCHERS PAYABLE

1,300,000

(10) 1,625,200

(1)

60,000

(4)

30,500

(9) 1,536,000 CONTRACTS PAYABLE DUE TO WATER UTILITY FUND (8)

40,000

(5)

RETAINED PERCENTAGE

40,000

(9)

FUND BALANCE (12)

64,000

ENCUMBRANCES 369,500

(2)

30,600

(4)

30,600

(3) 2,500,000 (6) 1,600,000 (12) 900,000 RESERVE FOR ENCUMBRANCES (4)

30,600

(6) 1,600,000 CONSTRUCTION EXPENDITURES (1)

60,000

(4)

30,500

(5)

40,000

(2)

30,600

(3) 2,500,000

OFS—Proceeds of Bonds

(12) 1,730,500

(12) 3,000,000

5-20

(7A) 3,000,000

(6)

1,600,000

5-21


b.

TOWN OF DEXTER RECREATION CENTER CONSTRUCTION FUND BALANCE SHEET DECEMBER 31, 2008 ASSETS

CASH

$

INVESTMENTS

34,800

1,300,000

TOTAL ASSETS

$1,334,800 LIABILITIES AND FUND BALANCES

LIABILITIES: VOUCHERS PAYABLE CONTRACTS PAYABLE

$ RETAINED PERCENTAGE

TOTAL LIABILITIES

1,300 64,000 65,300

FUND BALANCES: RESERVED FOR ENCUMBRANCES

900,000

FUND BALANCE

369,500

TOTAL FUND BALANCES

1,269,500

TOTAL LIABILITIES AND FUND BALANCES

5-22

$1,334,800


c .

TOWN OF DEXTER RECREATION CENTER CONSTRUCTION FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE PERIOD ENDED DECEMBER 31, 2008

EXPENDITURES: CONSTRUCTION EXPENDITURES

$ 1,730,500

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES

(1,730,500)

OTHER FINANCING SOURCES: PROCEEDS OF BONDS

3,000,000

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES

1,269,500

FUND BALANCES, JANUARY 1, 2008

-0-

FUND BALANCES, DECEMBER 31, 2008 d .

$ 1,269,500

In the Governmental Activities column of the statement of net assets, the construction expenditures of $1,730,500 for this year will appear in the capital assets, net of depreciation row. The capital assets disclosure in the notes to the financial statements will break this total down by class, such as construction work in progress (in this case) if the project is not yet complete, or specific amounts for buildings, equipment and land improvement. The Governmental Activities column of the statement of activities will show the depreciation expense on the recreation center when it is completed, most likely in the functional expense category (row) called parks and recreation.

5-23

Ch. 5, Solutions

5-10. a.

FALTS CITY STREET IMPROVEMENT FUND

JOURNAL ENTRIES FOR 2008 Debits 1.

CASH

Credits

100,000

OTHER FINANCING SOURCES—PROCEEDS OF BOND ANTICIPATION NOTES 2. DUE FROM FEDERAL GOVERNMENT

100,000 750,000

REVENUES

750,000

Note: the $750,000 to be received the following year is a time requirement and would not be accrued (per GASBS 33 ). 3.

ENCUMBRANCES

2,700,000

RESERVE FOR ENCUMBRANCES 4.

2,700,000


60,000

DUE TO OTHER FUNDS 5.

60,000


69,000

CASH 6.

69,000


18,500

VOUCHERS PAYABLE 7.

18,500


1,000,000


1,000,000

ENCUMBRANCES

1,000,000

CONTRACTS PAYABLE

1,000,000

5-24


8.

Debits

Credits

CASH

3,250,000

DUE FROM FEDERAL GOVERNMENT

750,000

OTHER FINANCING SOURCES— PROCEEDS OF BONDS 9.

2,500,000

OTHER FINANCING USES—REPAYMENT OF BANs

100,000

INTEREST EXPENDITURES (NOTE A)

3,000

CASH

103,000

(BANs = BOND ANTICIPATION NOTES) NOTE A: INTEREST DUE IS CALCULATED AS FOLLOWS: $100,000 x .06 x 180/360 = $3,000; PER GASBS 37 , INTEREST IS NOT CAPITALIZED FOR GENERAL CAPITAL ASSETS. 10. CONTRACTS PAYABLE

1,000,000

CONTRACTS PAYABLE—RETAINED PERCENTAGE

50,000

CASH

950,000

11. INVESTMENTS

1,800,000

CASH

1,800,000

5-25


Debits

Credits

12. OTHER FINANCING SOURCES— PROCEEDS OF BONDS

2,500,000

OTHER FINANCING SOURCES— PROCEEDS OF BANs

100,000

REVENUES

750,000

FUND BALANCE

399,500

ENCUMBRANCES

1,700,000

OTHER FINANCING USES—REPAYMENT OF BANs CONSTRUCTION EXPENDITURES INTEREST EXPENDITURES

100,000 1,147,500 3,000

5-26


FALTS CITY STREET IMPROVEMENT FUND GENERAL LEDGER (NOT REQUIRED) CASH (1)

100,000

(8)

3,250,000

(5) (9)

69,000 103,000

(10)

950,000

(11)

1,800,000

INVESTMENTS (11)

1,800,000 DUE FROM FEDERAL GOVERNMENT

(2)

750,000

(8)

750,000

VOUCHERS PAYABLE (6)

18,500

(7)

1,000,000

CONTRACTS PAYABLE (10)

1,000,000

CONTRACTS PAYABLE RETAINED PERCENTAGE (10)

50,000

(4)

60,000

DUE TO OTHER FUNDS

5-27


FUND BALANCE (12)

399,500

(2)

750,000

(8)

2,500,000

REVENUES (12)

750,000 OFS—PROCEEDS OF BONDS

(12)

2,500,000

OFS—PROCEEDS OF BOND ANTICIPATION NOTES (9)

100,000

(1)

100,000

(7)

1,000,000

(12)

1,700,000

(3)

2,700,000

(12)

1,147,500

(12)

3,000

ENCUMBRANCES (3)

2,700,000

RESERVE FOR ENCUMBRANCES (7)

1,000,000 CONSTRUCTION EXPENDITURES

(4)

60,000

(5)

69,000

(6)

18,500

(7)

1,000,000 INTEREST EXPENDITURES

(9)

3,000

OTHER FINANCING USES—REPAYMENT OF BANs _ _______ (9)

100,000

(12) 5-28

100,000


b.

FALTS CITY STREET IMPROVEMENT FUND BALANCE SHEET, DECEMBER 31, 2008 ASSETS

CASH

$ 428,000

INVESTMENTS

1,800,000

TOTAL ASSETS

$2,228,000 LIABILITIES AND FUND BALANCES

LIABILITIES: VOUCHERS PAYABLE

$

18,500

DUE TO OTHER FUNDS

60,000

CONTRACTS PAYABLE RETAINED PERCENTAGE

50,000

TOTAL LIABILITIES

128,500

FUND BALANCES: RESERVED FOR ENCUMBRANCES

$1,700,000

FUND BALANCE

399,500

TOTAL FUND BALANCES

2,099,500

TOTAL LIABILITIES AND FUND BALANCES

5-29

$2,228,000

Chapter005

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