Chapter 2, Problem 1P

1. a. Analyze the effects of each of the following transactions on each of the funds and/or the nonfund accounts of the city of Nancy. Identify the fund that typically would be used to record the transaction. (For any borrowing transactions, reflect any necessary year-end interest accruals in your responses.)
2. b. Indicate how each transaction would be reported in the operating statement for each fund affected.

Example: Cash received for licenses during 20X1, $8,000.

Answer:

Revenues of $8,000 are reported in the General Fund statement of revenues, expenditures, and changes in fund balance.

1. 1. Salaries and wages for firefighters and police officers incurred but not paid. $75,000.
2. 2. The city borrowed $9,000,000 to finance construction of a new city executive office building by issuing bonds at par.
3. 3. The city paid $5,000,000 to the office building contractor for work performed during the fiscal year.
4. 4. The city purchased several notebook computers by issuing a $60,000, 6%, 6-month note to the vendor. The note is due March 1 of the next fiscal year, which is the calendar year. (The note is considered a fund liability.)
5. 5. General Fund resources of $8,000,000 were paid to a newly established Airport Enterprise Fund to provide initial start-up capital.
6. 6. A $3,000,000 personal injury lawsuit has been filed against the city. The comptroller determines that it is probable that a judgment in that amount will be made in the future but does not expect to have to pay the judgment for another 3 years. The incident relates to general government activities.
7. 7. The city repaid one-half ($10,000,000) of general obligation bonds that had been issued several years before to finance construction of a school building. Interest of $1,000,000 matured and was paid.
8. 8. The city sold general capital assets with an original cost of $50,000 and a $1,000 book value for $1,500. There are no restrictions on the use of the money.