Prepare Journal Entries For The City Of Mansion's Government ✓ Solved
Prepare journal entries for the City of Mansion’s governmental
Prepare journal entries for the City of Mansion’s governmental funds to record the following transactions, first for fund financial statements and then for government-wide financial statements.
- A new truck for the street department was ordered at a cost of $51,700.
- The city print shop did $2,640 worth of work for the public school system (but has not yet been paid).
- A $6.05 million bond was issued to build a new bridge.
- Cash of $308,000 is transferred from the General Fund to provide permanent financing for a municipal swimming pool that will be viewed as an Enterprise Fund.
- The truck ordered in (a) is received at an actual cost of $53,900. Payment is not made at this time.
- Cash of $70,400 is transferred from the General Fund to the Capital Projects Fund.
- A state grant of $66,000 is received that must be spent to promote recycling.
- The first $16,500 of the state grant received in (g) is appropriately expended.
For each of the following, indicate whether the statement is true or false and include a brief explanation for your answer.
- A pension trust fund will be disclosed in the government-wide financial statements but not in the fund financial statements.
- Permanent funds are disclosed as one of the governmental funds.
- A police department placed orders of $44,000 for equipment. The equipment has been received but at a cost of $45,760. In compliance with requirements for fund financial statements, an encumbrance of $44,000 was recorded when the order was placed, and an expenditure of $45,760 was recorded when the order was received.
- The government reported a biomass energy plant as an enterprise fund. At the end of Year 1, the government estimated that the biomass project will cost $962,500 to clean up when it is eventually closed. Currently, it is 12 percent expended. At the end of Year 2, the estimation was changed to $1,056,000 when it was 20 percent expended. No payments are due for several years. Fund financial statements for Year 2 should report a $95,700 expense.
- A city reports a landfill in the General Fund. At the end of Year 1, the government anticipated the landfill would cost $1,320,000 to clean up when it is full and reported that it was 11 percent filled. At the end of Year 2, the estimates were changed to $1,265,000 and 20 percent filled. No payments are due for several years. Government-wide financial statements for Year 2 should report a $107,800 expense.
- A lease for a communications system (that has a six-year life) is signed on January 1, Year 1, with six annual payments of $16,500. The police department will use the communications system. The first payment is to be made immediately. The present value of the $99,000 in cash flows is $71,862 based on a 10 percent rate. Fund financial statements for Year 1 should report total expenditures of $16,500.
- An agency fund has neither revenues nor expenses but reports expenditures.
- A lease for a communications system (that has a six-year life) is signed on January 1, Year 1, with six annual payments of $16,500. The communications system is to be used by the police department. The first payment is to be made immediately. The present value of the $99,000 in cash flows is $71,862 based on a 10 percent rate. Government-wide financial statements for Year 1 should report expenses of $22,036.
Paper For Above Instructions
The following paper provides a comprehensive representation of journal entries for the City of Mansion’s governmental funds in order to record the specified transactions for both fund financial statements and government-wide financial statements. This paper also evaluates the provided statements as true or false, with corresponding explanations.
Journal Entries for Fund Financial Statements
1. Truck Ordered (Cost: $51,700)
Debit: Encumbrance - Truck $51,700
Credit: Reserve for Encumbrances $51,700
2. Work Completed by City Print Shop
Debit: Due from School System $2,640
Credit: Revenue - Services $2,640
3. Bond Issued for Bridge Construction ($6.05 million)
Debit: Cash $6,050,000
Credit: Bonds Payable $6,050,000
4. Transfer from General Fund for Swimming Pool
Debit: Enterprise Fund - Swimming Pool $308,000
Credit: Cash - General Fund $308,000
5. Truck Received (Actual Cost: $53,900)
Debit: Vehicle Inventory $53,900
Credit: Accounts Payable $53,900
6. Transfer from General Fund to Capital Projects Fund
Debit: Capital Projects Fund $70,400
Credit: Cash - General Fund $70,400
7. State Grant Received for Recycling Promotion
Debit: Cash $66,000
Credit: Grant Revenue $66,000
8. Expenditure from State Grant
Debit: Expenditure - Recycling Promotion $16,500
Credit: Cash $16,500
Journal Entries for Government-Wide Financial Statements
1. Truck Ordered
The previous entry remains applicable as the encumbrance is not recognized on a government-wide basis.
2. Work Completed by City Print Shop
Same as the fund financial statements.
3. Bond Issued for Bridge Construction
Same as the fund financial statements.
4. Transfer of Cash for Swimming Pool
Same as the fund financial statements.
5. Truck Received (Cost: $53,900)
Debit: Capital Assets - Vehicles $53,900
Credit: Accounts Payable $53,900
6. Transfer from General to Capital Projects Fund
Not directly recorded as governments to net position in their Statement of Net Position.
7. State Grant Received - Government-Wide Reporting
Same accounting treatment as above for reporting grants.
8. Expenditure for Recycling Promotion
Same accounting treatment for government-wide accounting where expenditures are shown directly.
Evaluation of Statements
1. True: A pension trust fund should be disclosed as part of the government-wide financial statements, as it reflects the government’s long-term benefits and liabilities.
2. True: Permanent funds are indeed governmental funds and are used for purposes consistent with their limitations.
3. True: It is correct as an encumbrance is incurred when an order is placed while the expenditure reflects the actual delivery cost.
4. False: The amount reported should reflect actual expenditures, not just estimated cleanup costs.
5. False: The adjusted estimate does not directly alter the reported expenses for the landfill, as accounting principles dictate reporting based on actual incurred obligations and estimates at closure.
6. True: The statement accurately describes the expense reporting under the fund financial statement expectations.
7. False: Agency funds do not report expenses; they hold and pass on funds with no revenue or expenditure accounting.
8. True: The expense calculation is based on the present value calculation of the future payments due.
Conclusion
The government of Mansion has several transactions required for its governmental fund financial statements and government-wide financial statements. The manifestations of these transactions are crucial in providing a true and fair representation of the entity's financial position.
References
- Governmental Accounting Standards Board (GASB). (2020). Statement No. 34: Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments.
- Hendriksen, E. S., & Van Breda, M. F. (2020). Accounting Theory. McGraw-Hill Education.
- Wolk, H. I., & Tearney, M. G. (2021). Accounting: Theory and Practice. Cengage Learning.
- Nelson, S. B. (2019). Government Accounting: An Introduction to Interpretation and Analysis. Routledge.
- National Council on Governmental Accounting (NCGA). (2021). Statements and Interpretations.
- International Public Sector Accounting Standards Board (IPSASB). (2020). IPSAS 17: Property, Plant and Equipment.
- Hewitt, H. (2021). Understanding Governmental Accounting. Taylor & Francis.
- Diesing, P. R. (2018). Government Accounting: A Primer for Academics, Practitioners, and Students. Apress.
- Marsh, C. A. (2020). Fundamentals of Governmental Accounting. Macmillan Higher Education.
- American Institute of CPAs (AICPA). (2019). Audit and Accounting Guide: State and Local Governments.