Chapter 16, Problem 16.12.1P

To determine

Introduction: An Internal Service Fund is a fund used in government accounting to track goods or service shifted between departments on a cost reimbursement basis. An example of an internal service fund is a maintenance department that provides equipment maintenance services to another department.

To prepare: Journal Entries for the period of July 1, 2018 to July 30, 2019.

Explanation of Solution

Journal Entries for the period of July 1, 2018 to July 30, 2019 are as follows:

Journal entries

Serial number	Account title & explanation	Post ref.	Debit ($)	Credit ($)
a	Operating Expenses		87,000
	……Inventory of Material and Supplies			87,000
	(to record inventory adjustment) Note: 1
b	Operating Expenses		235,000
	……Cash			235,000
	(to record the payment of salaries and wages)
c	Operating Expenses		40,000
	……Cash			40,000
	(to record the payment of utility charge)
d	Operating Expenses		139,500
	…… Depreciation on Building			6,500
	…… Depreciation on equipment			133,000
	(to record depreciation on building & equipment)
e	Due from General Fund		392,000
	Due from Water and Sewer Fund		84,000
	Due from Special Revenue Fund		42,000
	……Operating revenue			518,000
	(to record the billing to other departments for service)
f	Cash		506,000
	…… Receive from General fund (note:2)			396,000
	…… Receive from Water and Sewer Fund (note:3)			84,000
	…… Receive from special revenue Fund (note:4)			26,000
	(to record the collections)
g	Voucher Payable		94,000
	……Cash (note:5)			94,000
	(to record voucher payment)

Notes:

1)

Journal entry for transaction a & b is combined in a.

Inventory used during the year is calculated as:

  $\begin{array}{c}\text{Inventory}\text{used}=\left(\begin{array}{l}\text{opening}\text{inventory}+\text{purchase}\text{during}\text{the}\text{year}\\ -\text{closing}\text{inventory}\end{array}\right)\\ =\left(\$80,000+\$72,000-\$65,000\right)\\ =\$87,000\end{array}$

2)

Cash received from general fund is calculated as:

  $\begin{array}{c}\text{Cash}\text{received}=\left(\begin{array}{l}\text{opening}\text{receivable}+\text{receivable}\text{during}\text{the}\text{year}\\ -\text{closing}\text{receivable}\end{array}\right)\\ =\left(\$140,000+\$392,000-\$136,000\right)\\ =\$396,000\end{array}$

3)

Cash received from water and sewer fund is calculated as:

  $\begin{array}{c}\text{Cash}\text{received}=\left(\begin{array}{l}\text{opening}\text{receivable}+\text{receivable}\text{during}\text{the}\text{year}\\ -\text{closing}\text{receivable}\end{array}\right)\\ =\left(\$0+\$84,000-\$0\right)\\ =\$84,000\end{array}$

4)

Cash received from special revenue fund is calculated as:

  $\begin{array}{c}\text{Cash}\text{received}=\left(\begin{array}{l}\text{opening}\text{receivable}+\text{receivable}\text{during}\text{the}\text{year}\\ -\text{closing}\text{receivable}\end{array}\right)\\ =\left(\$0+\$42,000-\$16,000\right)\\ =\$26,000\end{array}$

5)

Cash paid for voucher during the year is calculated as:

  $\begin{array}{c}\text{Cash}\text{paid}\text{for}\text{voucher}\text{payable}=\left(\begin{array}{l}\text{opening}\text{voucher}\text{payable}+\text{voucher}\text{payable}\text{during}\text{the}\text{year}\\ -\text{closing}\text{voucher}\text{payable}\end{array}\right)\\ =\left(\$41,000+\$72,000-\$19,000\right)\\ =\$94,000\end{array}$