Chapter 19 ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS — GOVERNMENTAL FUNDS Questions The governmental fund accounting equation is: Current Assets – Current Liabilities = Fund Balance Taxpayers are billed the full $200,000 The amount recorded as Revenue would be $194,000 with $6,000 recorded as Allowance for Uncollectible Taxes Encumbrance means “commitment,” and encumbrance accounting records commitments made for goods on order and for unperformed contracts in order to provide additional control over expenditures The required governmental fund financial statements include a statement of net assets or balance sheet and a statement of revenues, expenditures, and changes in fund balance The fund financial statements for the governmental funds are prepared on the modified accrual basis of accounting Capital projects funds are used to account for the financing and acquisition of major general government capital facilities (general fixed assets) of a governmental unit They are not used to account for the acquisition of capital facilities financed through internal service or enterprise funds General fixed assets may be purchased through the general fund or special revenue funds General fixed assets may be acquired by donation in which case the capital projects fund would not likely be involved Capital projects funds may receive resources from numerous sources such as the proceeds of general obligation bond issues, state and federal grants, shared revenues, and transfers from other funds A CPF is terminated when the capital facilities have been acquired and project liabilities settled This may involve a short period of time in the case of assets acquired by purchase and several years in the case of assets acquired by construction Assets remaining after a capital project has been completed and paid for are ordinarily transferred to the general fund or to the debt service fund with responsibility for servicing the debt issued to finance the project A government may treat supply acquisitions as expenditures either when purchased (purchases method) or when used (consumption method), as long as it reports significant amounts of inventory in the balance sheet While the consumption method is similar to the manner in which commercial businesses record supplies, the purchases method better allows for comparison of expenditures and appropriations Under the purchases method, a government with significant inventory balances at year end will recognize the balances as assets in the fund balance sheet and establish an accompanying reservation of fund balance to reflect the fact that the supply amount is not an available financial asset This reservation of fund balance is optional under the consumption method Debt service funds may be used to account for debt service on any long-term, general government liabilities including debt service on special assessment debt for which the government is obligated in some manner Debt issued for and intended to be repaid from resources of enterprise, internal service, or trust funds is accounted for in those funds © 2009 Pearson Education, Inc publishing as Prentice Hall 19-1 19-2 A transfer of resources by the general fund to the debt service fund to be used to retire all or a portion of the general long-term debt would affect the general fund and the debt service fund at the same time Assuming that the amount of the transfer is $10,000, the entries would be: GF Nonreciprocal operating transfer to debt service fund Cash DSF Cash 10,000 10,000 10,000 Nonreciprocal operating transfer from general fund 10,000 10 Special assessment levies are charges made against specific property owners (or citizens) to pay for improvements (or services) that provide special benefits to the property owners Such improvements are usually requested by those who receive the benefits and agree to pay their share of the cost General tax levies are levied against all citizens of the governmental unit on a uniform basis to finance the general cost of government General tax levies are determined by elected officials, apply to all (or virtually all) property in the jurisdiction, and may have little or no relationship to the actual benefits received by individual taxpayers A final difference is that property taxes are levied each year for that year (or sometimes the following year) Special assessment levies often are for amounts to be collected over several years 11 Capital project funds are used to account for the construction activities of general government special assessment projects and the debt service fund is used to account the related debt service if the government is obligated in some manner Debt service for special assessment liabilities for which the government is not obligated in any manner is accounted for in agency funds, with the special assessment obligation being disclosed in notes to the financial statements 12 When governments enter into capital lease agreements, the governmental fund acquiring the general fixed asset records an expenditure and other financing source, as if long-term debt had been issued At the same time, the town notes a liability (capital lease payable) in the general long-term debt account records for the amount remaining due and adds an asset to the general fixed asset account records at the present value of the minimum lease payments determined by FASB 13 criteria The asset and liability, as well as associated depreciation, will appear in the government-wide financial statements; however, only an expenditure and other financing source appear in the governmental fund statements The town may record future capital lease payments as expenditures of principal and interest in the general fund or transfer resources to the debt service fund, which will recognize the expenditures The notes to the financial statements disclose minimum lease payments for each of the following five years and in five-year increments thereafter 13 Expenditures Supplies Inventory To adjust the supplies inventory and supplies expenditures accounts 14 20,000 20,000 Governments record details of the planned revenues (such as property taxes, sales taxes, and license revenue) and appropriations (such as police supplies, mayor’s office expenses, and maintenance of the town hall) in subsidiary revenue and expenditure ledgers The detail allows for better control over expenditures, as appropriations can be compared to expenditures and encumbrances at any time © 2009 Pearson Education, Inc publishing as Prentice Hall 19-3 15 The amount that city officials can order prior to year end is $75,000 ($250,000 – $175,000) If they have not spent the full $250,000 in appropriations prior to year end, depending on the laws of the Village of Lester, all appropriations lapse at the end of the year for which they are made, with the exception of committed appropriations (encumbrances outstanding), which can continue to serve as authorizations for items on order or under contract Since total expenditure and encumbrance amounts are closed to fund balance at year end, reserve for encumbrance credits remain in the accounting records as reservations of fund balance within the governmental fund statements 16 Reserve for encumbrances Reserve for encumbrances – prior year To reclassify encumbrances from the prior year 60,000 Expenditures – prior year Vouchers Payable To record expenditures for prior year 59,800 Reserve for encumbrances – prior year Expenditures – prior year Unreserved fund balance To close excess reserve to fund balance 60,000 60,000 59,800 59,800 200 17 Permanent funds (PF) account for contributions for which the grantor specifies that a principal amount must be maintained but for which interest accumulation or asset appreciation, or both, are to be used for a specified purpose Funds that are expendable are accounted for in a special revenue fund If contributions benefit parties external to the government, they are accounted for in private purpose trust funds 18 The general fund is always a major fund Other funds are considered major funds if they meet both of the following criteria: Total assets, liabilities, revenues, or expenditures/expenses (excluding extraordinary items) of that individual governmental or enterprise fund are at least 10% of the corresponding total (assets, liabilities, etc.) for all funds of that category or type Total assets, liabilities, revenues, or expenditures/expenses (excluding extraordinary items) of that individual governmental or enterprise fund are at least 5% of the corresponding total for all governmental and enterprise funds combined 19 A budgetary comparison schedule, which is required supplementary information for the general fund and for all special revenue funds with legally adopted budgets, includes columns for the original budget, the final budget, actual balances (on the budgetary basis) and variances (optional) The budgetary comparison schedule includes the same classifications as the GAAP operating statement, however, the amounts reported for revenues, expenditures, and fund balances often differ between the two statements Differences exist when a government uses a non-GAAP basis of accounting for budgeting purposes 20 Since the government-wide statements are prepared on the accrual basis of accounting while the fund financial statements for the governmental funds are prepared on the modified accrual basis of accounting, governments must convert governmental fund financial information to the accrual basis of accounting for inclusion in the government-wide statements of activities and net assets A conversion worksheet is an optional tool that facilitates reconciliation of the two statements 21 Examples of items that might appear on the reconciliation between the governmental fund balance sheet and the government-wide statement of net assets include: Governmental fund fixed assets are recorded as expenditures in the fund statements and must be recorded at cost in the government-wide statements The depreciation associated with the governmental fixed assets must be recorded in the government-wide statements © 2009 Pearson Education, Inc publishing as Prentice Hall 19-4 Capital project fund construction expenditures should be recorded as “construction in progress” in the government-wide statements Examples of items that might appear on the reconciliation between the governmental fund operating statement and the government-wide statement of activities include: Governments must also adjust for instances where revenue recognition differs between the modified accrual and accrual bases of accounting It is necessary to eliminate interfund balances within the governmental funds Bond proceeds provide current financial resources in the fund statement, but issuing debt increases long-term liabilities in the statement of net assets EXERCISES E19-1 E19-2 a b b a c a c d a a E19-5 [AICPA adapted] c c b c c E19-4 E19-3 [AICPA adapted] c d a a b b d d d a E19-6 [AICPA adapted] c b c, if u/c relates to 2009&10 b b © 2009 Pearson Education, Inc publishing as Prentice Hall 19-5 E19-7 Journal entries to account for property taxes in the general fund March 21, 2008 Taxes receivable — current Allowance for uncollectible current taxes Revenue To record the property tax levy May 4, 2008 Cash 2,500,000 50,000 2,450,000 1,900,000 Taxes receivable — current To record collection of property taxes Taxes receivable-delinquent Allowance for uncollectible current taxes Taxes receivable — current Allowance for uncollectible delinquent taxes To reclassify uncollected taxes as delinquent May 5-December 31, 2008 Cash Taxes receivable — delinquent To record collection of property taxes November 1, 2008 Allowance for uncollectible taxes — delinquent Taxes receivable — delinquent To write off tax receivable determined to be uncollectible 1,900,000 600,000 50,000 600,000 50,000 150,000 150,000 5,000 5,000 Adjusting Entry Revenue 312,250 Deferred revenue 312,250 To record deferred revenues for taxes not collected within 60 days after year end ($2,500,000 $1,900,000 - $150,000 - $5,000 - $45,000 - $87,750) January 1, 2008 — February 28, 2008 Cash Taxes receivable — delinquent To record collection of 2006 taxes 87,750 87,750 Jedville Township Partial Balance Sheet December 31, 2008 Assets Taxes receivable — delinquent (net of $45,000 estimated uncollectible taxes) $ 400,000 Liabilities Deferred tax revenues $ 312,250 © 2009 Pearson Education, Inc publishing as Prentice Hall 19-6 Revenue would equal tax levy less uncollectible amounts less amounts not collected within 60 day period Since governmental units rarely complete the closing process within 60 days of year end, the amounts collected within 60 days of year end will be known ($2,500,000 - $50,000 - $312,250 = $2,137,750) E19-8 Closing entries: Unreserved fund balance Appropriations Estimated revenues To reverse entry to record budget 500 17,500 Reserve for encumbrances — prior year Revenues Nonreciprocal transfer in Expenditures — current year Expenditures — prior year Encumbrances Unreserved fund balance To close accounts, including the prior year’s reserve for encumbrances 2,000 17,380 3,200 18,000 16,450 1,900 1,000 3,230 E19-9 Millar City General Fund Balance Sheet June 30, 2008 Assets Cash Taxes receivable Less: Allowance for uncollectible Accounts Due from other funds Supplies inventory Total assets Liabilities and Fund Balance Liabilities: Vouchers payable Due to other funds Total liabilities Fund balance: Reserved for: Encumbrances Inventory of supplies Unreserved fund balance Total fund balance Total liabilities and fund balance $12,000 $30,000 2,000 28,000 3,000 4,000 $47,000 $15,000 5,000 $20,000 $ 6,000 4,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 10,000 17,000 27,000 $47,000 19-7 Check: Estimated revenues Encumbrances Expenditures Expenditures—prior year Adjust—Reserve for inventory of supplies Ending balance Unreserved Fund Balance $300,000 $ 10,000 6,000 300,000 290,000 5,000 5,000 305,000 2,000 17,000 $620,000 Preclosing balance Appropriations Reserve for encumbrances— prior year Revenues $620,000 E19-10 McGwire City General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for the year ended December 31, 2008 Revenues Expenditures Excess of revenues over expenditures Other financing sources (uses): Reciprocal transfers in Nonreciprocal transfers out Excess of revenues and other financing sources over (under) expenditures and other financing uses Total fund balance, January 1, 2008 Total fund balance, December 31, 2008 Estimated revenues Encumbrances Expenditures Expenditures—prior year Nonreciprocal transfers out Ending balance Unreserved Fund Balance $100,000 $ 25,000 4,000 95,000 94,000 5,000 4,800 101,000 18,000 27,000 32,200 $253,000 $253,000 $101,000 98,800 2,200 27,000 (18,000) $ 11,200 25,000 $ 36,200 Preclosing balance Appropriations Reserve for encumbrances— prior year Revenues Reciprocal transfers in Total ending fund balance = $32,200 + $4,000 (Reserve for encumbrances) = $36,200 © 2009 Pearson Education, Inc publishing as Prentice Hall 19-8 E19-11 Journal entries in the general fund: Estimated revenues Appropriations Unreserved fund balance To record the annual budget 250,000 Taxes receivable—current Revenues Allowance for uncollectible taxes—Current To record tax levy for the year (1% estimated uncollectible) 200,000 Cash 150,000 248,000 2,000 198,000 2,000 Taxes receivable—current To record tax collections 150,000 Due from special revenue fund Cash To record loan to SRF 15,000 Encumbrances 18,000 15,000 Reserve for encumbrances To encumber orders for supplies 18,000 Reserve for encumbrances Encumbrances To reverse encumbrance entry on receipt of supplies ordered 18,000 Expenditures 18,150 18,000 Vouchers payable To record purchase of supplies Expenditures 18,150 800 Due to stores fund (ISF) To record materials acquired from the stores fund Operating transfer to debt service fund Cash To record payment to DSF for debt service Expenditures 800 5,000 5,000 15,000 Cash To record purchase of equipment 10 Cash 15,000 3,000 Revenues To record collection of license revenue 11 Taxes receivable—delinquent Allowance for uncollectible taxes—current Taxes receivable—current Allowance for uncollectible taxes—delinquent To reclassify uncollected current taxes as delinquent 3,000 50,000 2,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 50,000 2,000 19-9 E19-11 (continued) 12 Cash 30,000 Taxes receivable—delinquent To record collection of delinquent taxes 30,000 Revenues ($20,000 - $2,000)/2 9,000 Deferred revenues To defer revenue recognition on taxes expected to be collected after the 60 day revenue recognition cutoff 9,000 E19-12 Cash 75,000 Tax anticipation notes payable To record issuance of short-term notes Encumbrances 75,000 33,000 Reserve for encumbrances To record order of equipment Reserve for encumbrances Expenditures Encumbrances Vouchers payable To record receipt of equipment Operating transfer to DSF Cash To record transfer to debt service fund Property taxes receivable—current Allowance for uncollectible current Taxes Deferred revenues Revenues To record property tax levy Cash 33,000 33,000 33,250 33,000 33,250 200,000 200,000 1,000,000 50,000 50,000 900,000 100,000 Deferred revenues To record receipt of restricted grant Expenditures $100,000 75,000 Vouchers payable (or cash) To record expenditures for grant program Deferred revenues Revenues To record revenues to date on the grant 75,000 75,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 75,000 19-10 E19-13 CPF Cash 769,000 Other financing sources—proceeds from bond issue To record issuance of bonds 769,000 CPF Other financing uses—nonreciprocal transfer to DSF Cash To transfer the premium to the debt service fund DSF Cash 19,000 19,000 19,000 Other financing sources— nonreciprocal transfer from CPF To record receipt of bond premium 19,000 SRF Cash (or Grants receivable) 33,000 Grant revenue 33,000 To record grant revenue (This entry assumes that the appropriate expenditures will take place within the same fiscal year.) GF Other financing uses—(non)reciprocal transfer to CPF Cash To record transfer to establish CPF 500,000 500,000 CPF Cash 500,000 Other financing sources— (non)reciprocal transfer from GF To record the transfer from the GF PF Cash 500,000 10,000,000 Revenue – contribution/endowment To record a permanent fund contribution GF Expenditures 10,000,000 375,000 Vouchers payable (or cash) To record vehicle purchases GF Cash 375,000 30,000 Other financing sources – sale of assets 30,000 To record the sale of governmental assets (This is a governmental fund entry Under accrual accounting, the asset would be removed and a gain on sale recognized.) © 2009 Pearson Education, Inc publishing as Prentice Hall 19-15 P19-3 Journal entries for the Town of Tyler Estimated Revenues Appropriations Unreserved Fund Balance To record the budget for the year July 1, 2008 to June 30, 2009 Reserve for Encumbrances Reserve for Encumbrances–prior year To reclassify the prior year reserve a Taxes Receivable 400,000 395,000 5,000 9,000 9,000 200,000 Revenue — Taxes Allowance for uncollectible taxes To record tax levy for the year b Cash 198,000 2,000 190,000 Taxes Receivable — current Taxes Receivable — delinquent To record cash collections for the year c d Allowance for uncollectible taxes — Delinquent Taxes Receivable — delinquent To record write-off of uncollectible account Cash 176,000 14,000 1,000 1,000 20,000 Licenses and Permits To record hunting licenses e Cash 20,000 200,000 Miscellaneous Revenues To record Miscellaneous revenues f Expenditures 200,000 20,000 Vouchers Payable To record salaries for the year g Encumbrances 20,000 15,000 Reserve for encumbrances To record order of equipment h i Reserve for encumbrances Expenditures Encumbrances Vouchers Payable To record receipt of equipment 15,000 15,000 14,000 15,000 14,000 Expenditures–prior year 9,500 Vouchers Payable 9,500 To record receipt of equipment ordered during the prior year and chargeable against the prior year’s reserve for encumbrances © 2009 Pearson Education, Inc publishing as Prentice Hall 19-16 P19-3 (continued) j Encumbrances 11,000 Reserve for encumbrances To record the purchase order for operating supplies k 11,000 Reserve for encumbrances Encumbrances To reverse the encumbrance entry upon receipt of the supplies 5,000 Supplies inventory Vouchers Payable To record receipt of operating supplies 5,000 Note Payable 5,000 5,000 15,000 Cash To record payment of note payable l Expenditures 15,000 348,040 Cash To record payment of various expenditures m Expenditures 348,040 8,000 Supplies inventory To adjust the supplies inventory & expenditures n Taxes Receivable–delinquent Allowance for uncollectible taxes–current Taxes Receivable — current Allowance for uncollectible taxes–delinquent To reclassify past-due taxes receivable as delinquent 8,000 24,000 2,000 24,000 2,000 Closing Entries o Appropriations Unreserved Fund Balance Estimated Revenues 395,000 5,000 Revenues Expenditures Encumbrances Unreserved Fund Balance 418,000 Unreserved Fund Balance Reserve for encumbrances–prior year Expenditures–prior year 400,000 390,040 6,000 21,960 500 9,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 9,500 19-17 P19-3 (continued) Town of Tyler General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Budgetary Basis) For the year ended June 30, 2009 Original Budget Final Budget Actual (Budgetary Basis) Variance Positive (Negative) Revenues Taxes Licenses and permits Miscellaneous revenue Total Revenues $250,000 20,000 130,000 400,000 $250,000 20,000 130,000 400,000 $198,000 20,000 200,000 418,000 $(52,000) 70,000 18,000 Expenditures Total expenditures (not detailed) $395,000 $395,000 $396,040* (1,040) 5,000 16,000 5,000 16,000 21,960 16,000 16,960 - $ 21,000 $ 21,000 (9,500) 28,460 (9,500) $ 7,460 Excess of revenues over expenditures Budgetary fund balance June 30, 2008 Less excess prior year’s encumbrance over actual expenditure Budgetary Fund Balance at June 30, 2008 Encumbrances outstanding Fund balance June 30, 2009 * 6,000 $ 34,460 Actual expenditures on a budgetary basis includes the $6,000 supplies purchase commitment chargeable against the 2008-9 appropriations, but excludes the $9,500 expenditures chargeable against the prior year’s carryover appropriation Given the limited information, the reconciling items which are certain include the playground equipment in item h and the other equipment in item i © 2009 Pearson Education, Inc publishing as Prentice Hall P19-4 Cash and cash equivalents Investments Taxes receivable Accounts receivable Due from other governments Supplies inventory Vouchers payable Contracts payable Deferred revenue Fund balance/Net Assets, beg Revenues Expenditures OFS—Bond proceeds OFS—Capital lease OFS—Transfers in OFU—Transfers out DR 541,100 520,000 520,000 187,500 364,970 290,000 CR 379,500 47,500 55,000 912,720 3,507,450 Adjustments DR 75,250 5,542,420 Statement of Activities DR Statement of Activities CR Statement of Net Assets DR 541,100 520,000 520,000 187,500 364,970 290,000 b) 30,000 f) 55,000 a) 9,000 c) 20,000 3562450 3,014,600 d) 500,000 e) 65,000 g) 75,250 0 0 g) 75,250 5,542,420 a) 9,000 b) 95,000 Fixed Assets 104,000 b) 65,000 Accumulated Depreciation Construction in Progress Bonds Payable Capital leases payable 65,000 c) 20,000 819,250 11,084,840 Statement of Net Assets CR 379,500 47,500 942,720 f) 55,000 3,043,600 500,000 65,000 75,250 Adjustments CR 20,000 d) 500,000 e) 65,000 819,250 500,000 65,000 11,084,840 2,547,570 1,999,720 547,850 2,547,570 2,547,570 547,850 Change in net assets New net asset balance = 942,720 + 547,850 = 1,490,570 a) Assume no depreciation in the first year, since no depreciation policy is provided © 2009 Pearson Education, Inc publishing as Prentice Hall 19-1 P19-5 [AICPA adapted] Oslo School District General Fund Transactions July 1, 2007 — June 30, 2008 a b Estimated revenues Appropriations Unreserved fund balance To record the budget for the year 3,000,000 Taxes receivable 2,870,000 2,980,000 20,000 Revenues — taxes Allowance for uncollectible taxes To record tax levy for the year c d Estimated uncollectible taxes Taxes receivable To write-off uncollectible taxes Cash 2,800,000 70,000 40,000 40,000 2,940,000 Taxes receivable Miscellaneous revenues To record cash collections for the year e Vouchers payable 2,810,000 130,000 2,640,000 Cash To record cash payments for the year f Encumbrances 2,640,000 2,700,000 Reserve for encumbrances To record encumbrances g h 2,700,000 Reserve for encumbrances Encumbrances To reverse encumbrances 2,700,000 Expenditures 2,700,000 2,700,000 Vouchers payable To record vouchers for payment of current operations i j k l 2,700,000 Expenditures — prior year Vouchers payable To record expenditures for prior year 58,000 Reserve for encumbrances Expenditures — prior year Unreserved fund balance To close excess reserve to fund balance 60,000 Due to other funds Vouchers payable To record vouchers for payment to other funds 58,000 58,000 2,000 210,000 142,000 Due to other funds To record expenditures for amounts due other funds © 2009 Pearson Education, Inc publishing as Prentice Hall 19-1 210,000 Expenditures 142,000 19-211 m Encumbrances 91,000 Reserve for encumbrances To record encumbrances for new contract 91,000 P19-6 [AICPA adapted] Journal entries for the City of Lahti General Fund Estimated revenues Appropriations Unreserved fund balance To record the budget 2,000,000 Taxes receivable 1,870,000 1,940,000 60,000 Revenues Allowance for uncollectible taxes To record the property tax levy Allowance for uncollectible taxes Taxes receivable To write off uncollectible taxes receivable Cash 1,860,000 10,000 8,000 8,000 1,820,000 Taxes receivable To record property tax collections Encumbrances 1,820,000 1,070,000 Reserve for encumbrances To record purchase commitments 1,070,000 Reserve for encumbrances Expenditures Encumbrances Vouchers payable To record actual expenditures 1,000,000 1,840,000 Vouchers payable 1,852,000 1,000,000 1,840,000 Cash To record payment of vouchers 1,852,000 Revenues Unreserved fund balance Estimated revenues To close revenues accounts 1,860,000 140,000 Appropriations 1,940,000 2,000,000 Expenditures Encumbrances Unreserved fund balance To close expenditure — related accounts © 2009 Pearson Education, Inc publishing as Prentice Hall 1,840,000 70,000 30,000 19-212 P19-7 Volendam County General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the year ended December 31, 2008 Revenues: Taxes Licenses and permits Intergovernmental grants Total revenues Expenditures: Current operating: General government Public safety Judicial Health and welfare Total current operating Capital outlay Total expenditures $10,000,000 2,000,000 300,000 $12,300,000 $ 8,000,000 1,500,000 1,000,000 1,200,000 11,700,000 600,000 12,300,000 Excess of revenues over expenditures Other financing sources (uses): Operating transfer to debt service fund (320,000) Excess (Deficiency) of revenues and other sources over expenditures and other uses (320,000) Fund balance, January 1, 2008 Residual equity transfer from other fund Fund balance, December 31, 2008 3,130,000 2,000,000 $ 4,810,000 Note: The short-term note affects only the balance sheet The interfund collection affects the balance sheet only © 2009 Pearson Education, Inc publishing as Prentice Hall 19-213 P19-8 Cash ($3,000,000 ´ 06 ´ 5) OFS - Nonreciprocal transfer from GF To record transfer from general fund 90,000 Expenditures — interest Cash To record interest payment 90,000 Cash 90,000 90,000 1,090,000 OFS - Nonreciprocal transfer from GF To record transfer from general fund Expenditures — interest Expenditures — principal retirement Cash To record payment of principal and interest 1,090,000 90,000 1,000,000 1,090,000 None Cash ($2,000,000 ´ 06 ´ 5) OFS - Nonreciprocal transfer from GF To record transfer from general fund 60,000 Expenditures — interest Cash To record interest payment 60,000 60,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 60,000 19-214 P19-9 October 1, 2008 GF OFU – nonreciprocal transfer to CPF Cash To record transfer of cash to CPF CPF Cash 200,000 200,000 200,000 OFS – (Non)reciprocal transfer from general fund To record receipt of cash from GF November 1, 2008 CPF Encumbrances 200,000 580,000 Reserve for encumbrances To record encumbrances for the amount of the contract April 15, 2009 CPF Cash 580,000 401,000 Proceeds from bond issue To record sale of bonds CPF DSF 401,000 OFU - nonreciprocal transfer to debt service fund Cash To transfer of bond premium to the DSF 1,000 Cash 1,000 1,000 OFS - nonreciprocal transfer from CPF To record receipt of bond premium May 2, 2009 CPF Expenditures — capital outlay Contracts payable To record expenditures on the municipal building project Reserve for encumbrances Encumbrances To remove encumbrances when construction is complete 1,000 580,000 580,000 580,000 580,000 May 12, 2009 CPF Contracts payable 580,000 Cash To record payment to Crooked Construction for building contract CPF CPF Residual equity transfer to general fund Cash To record transfer to general fund OFS - nonreciprocal transfer from general fund Proceeds from bond issue Expenditures Residual equity transfer to general fund OFU - nonreciprocal transfer to debt service fund To close the books of the CPF 580,000 20,000 20,000 200,000 401,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 580,000 20,000 1,000 19-215 GF Cash 20,000 Residual equity transfer from CPF To record receipt of cash from CPF 20,000 P19-10 Journal entries for Malmo City July 1, 2008 CPF Encumbrances 480,000 Reserve for encumbrances To encumber the construction contract CPF Cash 480,000 255,000 OFS - Proceeds from bond issue To record proceeds of bond issue CPF DSF 255,000 OFU - nonreciprocal transfer to debt service fund Cash To transfer premium to the DSF (This premium transfer is commonly presumed in problems.) 5,000 Cash 5,000 5,000 OFS - nonreciprocal transfer from CPF To record receipt of premium transferred from CPF December 20, 2008 CPF Reserve for encumbrances Encumbrances To reduce encumbrances for work completed CPF Expenditures 5,000 160,000 160,000 160,000 Contracts payable To record expenditures for one-third of Gunnarsson contract January 1, 2009 CPF Contracts payable 160,000 160,000 Contracts payable — retained percentage Cash To record partial payment on the contract GF OFS - nonreciprocal transfer to debt service fund Cash To transfer funds to DSF for January 1, 2009 interest payment 16,000 144,000 2,500 © 2009 Pearson Education, Inc publishing as Prentice Hall 2,500 19-216 P19-10 (continued) DSF Cash ($250,000 ´ 06 ´ 5) - $5,000 2,500 OFS - nonreciprocal transfer from general fund To receive funds from GF for the January 1, 2009 interest payment 2,500 Expenditures–interest 7,500 Cash To record the January 1, 2009 interest payment on the 6% serial bonds ($250,000 ´ 6% ´ 1/2 year) 7,500 DSF June 30, 2009 CPF Encumbrances 160,000 Reserve for encumbrances To reduce encumbrances for work completed CPF 160,000 Expenditures — capital outlay Contracts payable To record billing for work completed 160,000 160,000 Closing entry CPF OFS - Proceeds from bond issue Unreserved fund balance Expenditures–capital outlay Encumbrances OFU - nonreciprocal transfer to debt service fund To close the books of CPF at end of fiscal year 255,000 230,000 320,000 160,000 5,000 At June 30, 2009 the balance sheet of the CPF would appear as follows: Assets Cash $106,000 $106,000 Total assets Liabilities Contracts payable Contracts payable — retained percentage Fund balance Reserve for encumbrances Unreserved* Total liabilities and fund balance * $160,000 16,000 $160,000 (230,000) $176,000 (70,000) $106,000 This deficit will be provided for by issuing the additional $250,000 of bonds © 2009 Pearson Education, Inc publishing as Prentice Hall 19-217 P19-11 [AICPA adapted] City of Cerone Civic Center Construction Fund General Journal July 1, 2008 (1) Cash 500,000 Due to general fund To record the loan from the general fund (2) Expenditures 500,000 320,000 Cash To record payment of engineering and planning costs December 1, 2008 (3) Cash 320,000 10,100,000 OFS - Proceeds from bond issue To record receipt of proceeds from 6% bond issue OFU - nonreciprocal transfer to DSF Cash To transfer bond premium to debt service fund 10,100,000 100,000 100,000 March 15, 2009 (4) Encumbrances 12,000,000 Reserve for encumbrances To record construction commitment to Candu Construction Company (5) Encumbrances 55,000 Reserve for encumbrances To record commitment for materials on order April 1, 2009 (6) Cash 55,000 2,500,000 Deferred grant revenue To record receipt of state grant for construction (7) 12,000,000 2,500,000 Expenditures 51,000 Reserve for encumbrances 55,000 Vouchers payable Encumbrances To record receipt of materials and elimination of encumbrances Vouchers payable 51,000 55,000 51,000 Cash To record payment of voucher © 2009 Pearson Education, Inc publishing as Prentice Hall 51,000 19-218 P19-11 (continued) June 15, 2009 (8) Expenditures 2,000,000 Contracts payable — current Contracts payable — retained percentage To record progress billing on contract with a 6% retained percentage Reserve for encumbrances Encumbrances To reduce encumbrances for amounts billed (9) 120,000 2,000,000 2,000,000 Due to general fund Cash To record repayment of initial financing to the general fund June 30, 2009 Deferred grant revenue Revenue To recognize grant revenue earned 1,880,000 500,000 500,000 2,371,000 2,371,000 Note that the entry recognizing grant revenue presumes that the first $5 million of expenditures will be recoverable from the state In some cases, the grantor only agrees to pay a certain percentage of the cost, up to some maximum If this were the case in this problem, the amount of revenue recognized would be onethird of $2,371,000, or approximately $790,000 Closing entries Revenue OFS - Proceeds from bond issue Expenditures OFU - nonreciprocal transfer to DSF Encumbrances To close the books at June 30, 2009 2,371,000 10,100,000 2,371,000 100,000 10,000,000 City of Cerone Civic Center Construction Fund Balance Sheet June 30, 2009 Assets Cash Total assets Liabilities and Fund Balance Deferred state grant Contracts payable — current Contracts payable — retained percentage Total liabilities Fund balance: Reserve for encumbrances Unreserved Total fund balance Total liabilities and fund balance $12,129,000 $12,129,000 $ 129,000 1,880,000 120,000 $ 2,129,000 $10,000,000 10,000,000 $12,129,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 19-219 P19-12 CPF Cash 510,000 OFS - Proceeds from bonds To record issuance of bonds at a premium DSF 510,000 OFU - nonreciprocal transfer to debt service fund Cash To record transfer of bond premium to DSF 10,000 Cash 10,000 10,000 OFS - nonreciprocal transfer from CPF To record transfer of bond premium CPF Encumbrances 10,000 960,000 Reserve for encumbrances To encumber contract awarded for construction CPF 960,000 Reserve for encumbrances Encumbrances To reduce encumbrances for work completed 320,000 Expenditures 320,000 320,000 Contracts payable To record expenditures for work completed CPF Contracts payable 320,000 320,000 Contracts payable — retained percentage Cash To record partial payment on construction contract GF DSF 32,000 288,000 OFU - nonreciprocal transfer to DSF Cash To record transfer to DSF 30,000 Cash 30,000 30,000 OFS - nonreciprocal transfer from GF To record transfer from GF DSF CPF Expenditures–interest Cash To record payment of interest (500,000 ´ 08 ´ 5) 30,000 20,000 20,000 Reserve for encumbrances Encumbrances To reduce encumbrances for work completed 320,000 Expenditures 320,000 320,000 Contracts payable To record expenditures for work completed GF OFU - nonreciprocal transfer to DSF Cash To record transfer to DSF 320,000 90,000 © 2009 Pearson Education, Inc publishing as Prentice Hall 90,000 19-220 P19-12 (continued) DSF Cash 90,000 OFS - nonreciprocal transfer from GF To record transfer from GF 10 DSF 90,000 Expenditures — interest Expenditures — principal retirement Cash To record debt service payment CPF 20,000 50,000 70,000 Cash 500,000 OFS - Proceeds from bonds To record issuance of bonds 500,000 City of Catalina Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Fund Balance for the year ended June 30, 2009 Other financing sources: Proceeds from bonds Expenditures: Capital outlay $1,010,000 $640,000 Other financing uses OFS - nonreciprocal transfer out Total expenditures and other financing uses Excess of revenues and other financing sources over expenditures and other financing uses Fund balance, July 1, 2008 Fund balance June 30, 2009 10,000 650,000 360,000 $ 360,000 City of Catalina Capital Projects Fund Balance Sheet June 30, 2009 Assets Cash $ 712,000 $ 712,000 Total assets Liabilities and Fund Balance Liabilities: Contracts payable Contracts payable — retained percentage Fund balance: Reserve for encumbrances Unreserved Total liabilities and fund balance $320,000 32,000 $320,000 40,000 $ 352,000 360,000 $ 712,000 © 2009 Pearson Education, Inc publishing as Prentice Hall ... levies are determined by elected officials, apply to all (or virtually all) property in the jurisdiction, and may have little or no relationship to the actual benefits received by individual taxpayers... when a government uses a non-GAAP basis of accounting for budgeting purposes 20 Since the government-wide statements are prepared on the accrual basis of accounting while the fund financial statements... are prepared on the modified accrual basis of accounting, governments must convert governmental fund financial information to the accrual basis of accounting for inclusion in the government-wide