Chapter 18, Problem 18.13P

Entries for Funds [AICPA Adapted]
Olivia Village was recently incorporated and began financial operations on July 1, 20X2, the beginning of its fiscal year. The following transactions occurred during this first fiscal year, July 1, 20X2, to June 30, 20X3:

1. The village council adopted a budget for general operations for the fiscal year ending June 30, 20X3. Revenue was estimated at $400,000. Legal authorizations for budgeted expenditures totaled $394,000.
2. Property taxes of $390,000 were levied; 2 percent of this amount was estimated to be uncollectible. These taxes are available to finance current expenditures as of the date of levy.
3. During the year, a village resident donated marketable securities valued at $50,000 to the village under the terms of a trust agreement that stipulated that the principal amount be kept intact. The use of revenue generated by the securities is restricted to financing college scholarships for needy students. Revenue earned and received on these marketable securities amounted to $5,500 through June 30, 20X3.
4. A general fund transfer of $5,000 was made to establish an internal service fund to provide for a permanent investment in inventory.
5. The village decided to install lighting in the village park financed through an authorized special assessment project at a cost of $75,000. The city is obligated if the property owners default on their special assessments. The village issued special assessment bonds in the amount of $72,000 and levied the first year’s special assessment of $24,000 against the village’s property owners. The remaining $3,000 for the project will be contributed from the village’s general fund.
6. The special assessments for the lighting project are due over a three-year period, and the first year’s assessments of $24,000 were collected. The $3,000 transfer from the village’s general fund was received by the lighting capital projects fund.
7. A contract for $75,000 was let for the lighting installation. The capital projects fund was encumbered for the contract. On June 30, 20X3, the contract was completed, and the contractor was paid.
8. During the year, the internal service fund purchased various supplies at a cost of $1,900.

The general fund cash collections recorded during the year as follows:

The allowance for estimated uncollectible taxes is adjusted to $4,000.

The village council decided to build a village hall at an estimated cost of $500,000 to replace space occupied in rented facilities. The village does not record project authorizations. The council decided to issue general obligation bonds bearing interest at 6 percent. On June 30, 20X3, the bonds were issued at face value of $500,000, payable in 20 years. No contracts have been signed for this project, no expenditures have been made, nor has an annual operating budget been prepared.

The voucher for purchasing a fire truck for $15,000 was approved and paid by the general fund. This expenditure previously had been encumbered for $ 15,000.

Required
Prepare journal entries to record property each of these transactions in the appropriate fund or funds of Olivia Village for the fiscal year ended June 30, 20X3.
Use the following funds; general fund, capital projects fund, debt service fund, internal service fund, and private-purpose trust fund. Each journal entry should be numbered to correspond to the transactions. Do not prepare closing entries for any fund. Your answer sheet should he organized using the following format:

To determine

Introduction:

Government funds: It is the financial resources of government established by the government for money collected for a government project. These funds are created to provide an extra level of transparency and accountability to taxpayers that their tax dollars are used for the appropriate purpose. Governmental funds use the modified accrual basis of accounting, and proprietary and fiduciary funds use accrual basis.

The entries to record each of these transactions in appropriate fund.

Explanation of Solution

Fund	Entry	Debit $	Credit $
1. General Fund	Estimated revenues control	400,000
	Appropriations control		394,000
	Budgetary fund balance - unreserved		6,000
	(Budget, and budgeted expenditure for the year adopted)
2. General fund	Taxes receivable − current	390,000
	Revenue − taxes		382,200
	Allowances for uncollectible - current
	(Tax revenue receivable recognized)
3. Private − Purpose trust fund	Investments	50,000
	Contributions		50,000
	(Received contributions in the form of investments)
	Cash	5,500
	Additions − interest		5,500
	(Received interest on securities)
4. General fund	Other financing uses − transfer out of internal service fund	5,000
	Cash		5,000
	(Paid cash to establish internal service fund)
5. Capital projects	Cash	72,000
	Other financing sources − bond issue		72,000
	(Received cash for lighting installation using bond issue)
	Due from general fund	3,000
	Other financing sources − transfer in from general fund		3,000
	(Remaining funds contributed from general fund)
Debt service fund	Special assessments receivable	24,000
	Revenue − special assessments		24,000
	(First year special assessments levied)
6. General fund	Other financing uses − transfer out to capital projects funds	3,000
	Due to capital projects fund		3,000
	(Due to capital project fund recognized)
General fund	Due to capital projects fund	3,000
	Cash		3,000
	(Paid cash for capital project funds)
7. Capital projects funds	Cash	3,000
	Due from general fund		3,000
	(Transferred from general fund to capital project funds)
Debt service fund	Cash	24,000
	Special assessments receivable		24,000
	(First year assessment for collected)
Capital projects fund	Encumbrances	75,000
	Budgetary fund balance − reserved for encumbrances		75,000
	(Encumbrances for lighting installation created)
	Budgetary fund balance − reserved for encumbrances	75,000
	Encumbrances		75,000
	(entry reversed when the goods received)
	Expenditures	75,000
	Contracts payable		75,000
	(expenditure recognized on receipt of goods)
	Contracts payable	75,000
	Cash		75,000
	(Cash paid for goods expenditure on lighting installation)
8. Internal service fund	Inventory of supplies	1,900
	Cash		1,900
	(Cash paid on goods received)
9. General fund	Cash	393,000
	Taxes Receivable − Current		386,000
	Revenue − Licenses and fees		7,000
	(Received cash on taxes receivable)
	Allowances for Uncollectible − current	3,800
	Revenue − Taxes		3,800
10. Capital project fund	Cash	500,000
	Other financing sources − bond issue		500,000
	(Issued bonds to build village hall)
11. General fund	Budgetary fund balance − reserved for encumbrances	15,000
	Encumbrances		15,000
	(Encumbrance for purchase of truck reversed on receipt)
	Expenditures	15,000
	Cash		15,000
	(Cash paid on receipt of truck)

Correction of uncollectible - current:

Estimate	$7,800
Actual	($4,000)
Correction	$3,800