Chapter 5, Problem 23EP

a.

To determine

Journalize the entries for the given information under general fund and governmental activities.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit: A debit is an accounting term that refers to the left side of an account. The term debit is be denoted by (Dr). The recording amount on the left side of the account is known as debiting.

Credit: A credit is an accounting term that refers to the right side of an account. The term credit is denoted as (Cr). The recording amount on the right side of the account is known as crediting.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all the increase in the assets, the expenses and the dividends, all the decrease in liabilities, revenues and the stockholders’ equities.
• Credit, all the increase in the liabilities, the revenues, and the stockholders’ equities, and all decreases in the assets, and the expenses.

Pass the journal entries for the given transactions:

Date	Description	Debit	Credit
1	Construction fund:
	Cash	$100,000
	Other Financing sources - Proceeds of Bonds Anticipation Notes		$100,000
	(To record the bonds issued)
	Governmental Activities:
	Cash	$100,000
	Bonds Anticipation Notes Payable		$100,000
	(To record the issue of bonds)
2	Construction fund:
	Construction Expenditures - Police	$30,000
	Construction Expenditures - Fire	$30,000
	Vouchers Payable		$60,000
	(To record the architect and engineering costs)
	Governmental Activities:
	Construction Expenditures - Police	$30,000
	Construction Expenditures - Fire	$30,000
	Vouchers Payable		$60,000
	(To record the architect and engineering costs)
3	Construction fund:
	Encumbrances - Police	$21,000,000
	Encumbrances - Fire	$11,000,000
	Encumbrances Outstanding - Police		$21,000,000
	Encumbrances Outstanding - Fire		$11,000,000
	(To record the construction contract)
	Governmental Activities:
	No Entry is required as Budgetary transactions are not recorded in the journal.
4	Construction fund:
	Cash	$30,000,000
	Other financing sources - Proceeds of Bond		$30,000,000
	(To record the bonds issued)
	Governmental Activities:
	Cash	$30,300,000
	Bonds Payable		$30,000,000
	Premium on Bonds Payable		$300,000
	(To record the bonds issued)
5	Construction fund:
	Other financing uses - Retirement of BAN	$100,000
	Interest expenditures	$3,000
	Encumbrances outstanding		$103,000
	(To record the payment made for Bonds)
	Governmental Activities:
	Bonds Anticipation Notes Payable	$100,000
	Expenses - Interest on BAN	$3,000
	Cash		$103,000
	(To record the payment made for Bonds)
6	Construction fund:
	Encumbrances Outstanding - Police	$10,000,000
	Encumbrances Outstanding - Fire	$6,000,000
	Encumbrances - Police		$10,000,000
	Encumbrances - Fire		$6,000,000
	(To record the receipt of contract invoice)
	Encumbrances Expenditures - Police	$10,000,000
	Encumbrances Expenditures - Fire	$6,000,000
	Contract Payable		$16,000,000
	(To record the receipt of contract invoice)
	Governmental Activities:
	Encumbrances Work in Progress - Police	$10,000,000
	Encumbrances Work in Progress - Fire	$6,000,000
	Contract Payable		$16,000,000
	(To record the receipt of contract invoice)
7	Construction fund:
	Cash	$500,000
	Revenues		$500,000
	(To record the receipt of federal grant)
	Governmental Activities:
	Cash	$500,000
	Program Revenue — Economic Development — Capital Grants and Contributions		$500,000
	(To record the receipt of federal grant)
8	Construction fund:
	Contract Payable	$16,000,000
	Contract Payable - Retained Percentage		$800,000
	Cash		$15,200,000
	(To record the payment of initial construction invoice)
	Governmental Activities:
	Contract Payable	$16,000,000
	Contract Payable - Retained Percentage		$800,000
	Cash		$15,200,000
	(To record the payment of initial construction invoice)
9	Construction fund:
	Encumbrances Outstanding - Fire	$5,000,000
	Encumbrances - Fire		$5,000,000
	(To record the final payment for fire station)
	Construction Expenditures - Fire	$5,000,000
	Contract Payable		$5,000,000
	(To record the final payment for fire station)
	Governmental Activities:
	Construction Work in Progress - Fire	$5,000,000
	Contract Payable		$5,000,000
	(To record the final payment for fire station)
	Buildings	$11,000,000
	Construction Work in Progress - Fire		$11,000,000
	(To record the completion of fire station)
10	Construction fund:
	Contract Payable	$5,000,000
	Contract Payable - Retained Percentage	$300,000
	Cash		$5,300,000
	(To record the retained amount on fire station)
	Governmental Activities:
	Contract Payable	$5,000,000
	Contract Payable - Retained Percentage	$300,000
	Cash		$5,300,000
	(To record the retained amount on fire station)
11	Construction fund:
	Encumbrances Outstanding - Police	$7,500,000
	Encumbrances - Police		$7,500,000
	(To record the additional costs)
	Construction Expenditures - Police	$7,500,000
	Contract Payable		$7,500,000
	(To record the additional costs)
	Governmental Activities:
	Construction Work in Progress - Police	$7,500,000
	Contract Payable		$7,500,000
	(To record the additional costs)
12	Construction fund:
	Other Financing sources - Proceeds of BANs	$100,000
	Other Financing sources - Proceeds of Bonds	$30,000,000
	Revenues	$500,000
	Construction Expenditures - Fire		$17,530,000
	Construction Expenditures - Police		$11,030,000
	Interest Expenditures		$3,000
	Other financing uses - Retirement of BAN		$100,000
	Fund Balance - Restricted		$1,937,000
	(To record the closing entry)
	Governmental Activities:
	No Closing Entry is passed due to no Temporary Account Balances

Table (1)

Prepare the general ledger for the given journal entries (optional):

Cash
(1)	$100,000	(5)	$103,000
(4)	$30,000,000	(8)	$15,200,000
(7)	$300,000	(10)	$5,300,000
Bal.	$9,797,000
Contract Payable
(8)	$16,000,000	(6)	$16,000,000
(10)	$5,000,000	(9)	$5,000,000
		(11)	$7,500,000
		Bal.	$7,500,000
Vouchers Payable
		(2)	$600,000
		Bal.	$600,000
Contract Payable - Retained Percentage
(10)	$300,000	(2)	$800,000
		Bal.	$500,000
Encumbrances - Police
(3)	$21,000,000	(6)	$10,000,000
		(11)	$7,500,000
Bal.	$3,500,000
Encumbrances - Fire
(3)	$11,000,000	(6)	$6,000,000
		(9)	$5,000,000
Bal.	$0
Encumbrances Outstanding - Police
(6)	$10,000,000	(3)	$21,000,000
(11)	$7,500,000
		Bal.	$3,500,000
Encumbrances Outstanding - Fire
(6)	$6,000,000	(3)	$11,000,000
(9)	$5,000,000
		Bal.	$0
Construction Expenditures - Police
(2)	$30,000	(12)	$17,530,000
(6)	$10,000,000
(11)	$7,500,000
		Bal.	$0
Construction Expenditures - Fire
(2)	$30,000	(12)	$11,030,000
(6)	$6,000,000
(9)	$5,000,000
		Bal.	$0
Interest Expenditures
(5)	$3,000	(12)	$3,000
		Bal.	$0
Other Financing Uses - Retirement of BANs
(5)	$100,000	(12)	$100,000
		Bal.	$0
Other Financing Sources - Proceeds of BAN
(12)	$100,000	(1)	$100,000
		Bal.	$0
Other Financing Sources - Proceeds of Bonds
(12)	$30,000,000	(4)	$30,000,000
		Bal.	$0
Revenues
(12)	$500,000	(7)	$500,000
		Bal.	$0
Fund Balance - Restricted
		(12)	$1,937,000
		Bal.	$1,937,000

Table (2)

b.

To determine

Prepare the Construction Funds Balance sheet for County S.

Explanation of Solution

Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the Balance sheet for County S:

County S
Construction Fund
Balance sheet
December 31, 2017
Particulars	Amount ($)
Assets
Cash	$9,997,000
Total assets	$9,997,000
Liabilities and Fund Balances
Liabilities
Vouchers payable	$60,000
Contracts payable	$7,500,000
Contracts payable - Retained Percentage	$500,000
Total liabilities	$8,060,000
Fund Balances
Fund Balances - Restricted	$1,937,000
Total liabilities and Fund Balances	$9,997,000

Table (3)

c.

To determine

Draft the statement of revenues, expenditures, and changes in fund balances for the year end.

Explanation of Solution

Statement of Revenues, Expenditures and Changes in the fund balances: Statement of Revenues, Expenditures and Changes in the fund balances provides the overview of all the transactions carried out by the government in a consolidated format. It provides all the balances and the final balance of the funds available.

Prepare the Statement of Revenues, Expenditures and Changes in the fund balances:

County S
Construction Fund
Statement of Revenues, Expenditures and Changes in the fund balances
For the year End December 31, 2017
Particulars	Amount ($)
Revenues	$500,000
Expenditures:
Construction Expenditures—Police	$17,530,000
Construction Expenditures—Fire	$11,030,000
Interest Expenditures	$3,000
Total Expenditures	$28,563,000
Excess of Expenditures Over Revenues	$28,063,000
Other Financing Sources (Uses):
Proceeds of Bond Anticipation Notes	$100,000
Proceeds of Bonds	$30,000,000
Retirement of Bond Anticipation Notes	($100,000)
Total Other Financing Sources (Uses)	$30,000,000
Excess Of Revenues And Other Financing Sources And Uses Over Expenditures	$1,937,000
Fund Balances, January 1, 2017	$0
Fund Balances, December 31, 2017	$1,937,000

Table (4)

d.

To determine

Describe the method of reporting the expenditures for police and fire facilities in the government-wide statements of net position and activities of County S.

Explanation of Solution

Government-wide financial statements: These are the financial statements that report the government’s net position and changes in net position. These statements report the governmental activities, business-type activities, and the activities related to proprietary funds and fiduciary funds. These statements are prepared based on the accrual accounting. The two government-wide financial statements are Statement of Net Position and Statement of Activities.

The government-wide financial statement will disclose the following information:

• The fires station shall be reported under buildings under the governmental activities column, in the statement of net position.
• The police station will be reported as construction work in progress under the capital assets section in the statement of net position.
• The depreciation if applicable in the first year, will be shown under the governmental activity’s column, in the statement of activities.