Chapter 17, Problem 27P

On January 1, 2017, the City of Hastings created a solid waste landfill that it expects to reach capacity gradually over the next 20 years. If the landfill were to be closed at the current time, closure costs would be approximately $1.2 million plus an additional $700,000 for postclosure work. Of these totals, the city must pay $50,000 on December 31 of each year for preliminary closure work.

  At the end of 2017, the landfill reached 3 percent of capacity. At the end of 2018, the landfill reached 9 percent of capacity. Also at the end of 2018, a reassessment is made; total closure costs are determined to be $1.4 million rather than $1.2 million.

    a.    Assuming that the landfill is viewed as an enterprise fund, what journal entries are made in 2017 and 2018 on the government-wide financial statements?

    b.    Assuming that the landfill is reported within the general fund, what journal entries are made in 2017 and 2018 on the government-wide financial statements?

    c.    Assuming that the landfill is viewed as an enterprise fund, what journal entries are made in 2017 and 2018 on fund financial statements?

    d.    Assuming that the landfill is reported within the general fund, what journal entries are made in 2017 and 2018 on fund financial statements?

To determine

Record the journal entries when the landfill is treated as an enterprise fund.

Explanation of Solution

Journal entries on the government wide- financial statement of H, when landfill is treated as enterprise fund.

Date	Account Title and Explanation	Post Ref.	Debit    ($)	Credit     ($)
31-12-2017	Expense – landfill closure		57000
	Landfill closure liability			57000
	(To record the landfill expense for the current year)
31-12-2017	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)
31-12-2018	Expense – landfill closure		132,000
	Landfill closure liability			132,000
	(To record the landfill expense for the current year)
31-12-2018	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)

Table: (1)

Working note:

• Year 1:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}\\ \text{= (\$1,200,000}\text{+}\text{\$7,000,000) }\times \text{ 3\%}\\ \text{= \$57,000}\end{array}$

• Year 2:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}-\text{Last year expense}\\ \text{= (\$1,400,000+\$7,000,000) }\times \text{ 9\%}-\text{57,000}\\ \text{= \$132,000}\end{array}$

To determine

Record the journal entries when the landfill is treated as a journal fund.

Explanation of Solution

Journal entries on the government wide- financial statement of H, when landfill is treated a journal fund.

Date	Account Title and Explanation	Post Ref.	Debit    ($)	Credit     ($)
31-12-2017	Expense – landfill closure		57000
	Landfill closure liability			57000
	(To record the landfill expense for the current year)
31-12-2017	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)
31-12-2018	Expense – landfill closure		132,000
	Landfill closure liability			132,000
	(To record the landfill expense for the current year)
31-12-2018	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)

Table: (2)

Working note:

• Year 1:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}\\ \text{= (\$1,200,000}\text{+}\text{\$7,000,000) }\times \text{ 3\%}\\ \text{= \$57,000}\end{array}$

• Year 2:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}-\text{Last year expense}\\ \text{= (\$1,400,000}\text{+}\text{\$7,000,000) }\times \text{ 9\%}-\text{57,000}\\ \text{= \$132,000}\end{array}$

To determine

Record the journal entries when the landfill is treated as an enterprise fund.

Explanation of Solution

Journal entries on the fund financial statement of H, when landfill is treated an enterprise fund.

Date	Account Title and Explanation	Post Ref.	Debit    ($)	Credit     ($)
31-12-2017	Expense – landfill closure		57000
	Landfill closure liability			57000
	(To record the landfill expense for the current year)
31-12-2017	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)
31-12-2018	Expense – landfill closure		132,000
	Landfill closure liability			132,000
	(To record the landfill expense for the current year)
31-12-2018	Landfill closure liability		50,000
	Cash			50,000
	(To record the payment of landfill expense)

Table: (3)

Working note:

• Year 1:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}\\ \text{= (\$1,200,000}\text{+}\text{\$7,000,000) }\times \text{ 3\%}\\ \text{= \$57,000}\end{array}$

• Year 2:

$\begin{array}{c}\text{Expense = Total landfill cost }\times \text{ Capacity reached}-\text{Last year expense}\\ \text{= (\$1,400,000}\text{+}\text{\$7,000,000) }\times \text{ 9\%}-\text{57,000}\\ \text{= \$132,000}\end{array}$

To determine

Record the journal entries when the landfill is treated as a journal fund.

Explanation of Solution

Journal entries on the fund financial statement of H, when landfill is treated a journal fund.

Date	Account Title and Explanation	Post Ref.	Debit    ($)	Credit     ($)
31-12-2017	Expenditures – landfill closure		50,000
	Cash			50,000
	(To record the payment of landfill closure)
31-12-2018	Expenditures – landfill closure		50,000
	Cash			50,000
	(To record the payment of landfill closure)

Table: (4)