Problem # 1

Journal entries can be reconstructed from a balance sheet. The New Durham Utility District was recently established. Its balance sheet, after one year, is presented below. Note the following additional information:

• The general fund received all of its revenue, $300 million, from taxes. It had operating expenditures, excluding transfers to other funds, of $200 million.

• The general fund transferred $40 million to the debt service fund. Of this, $30 million was to repay the principal on bonds outstanding; $10 million was for interest.

• The district issued $260 million in bonds to ?nance construction of a plant and equipment. Of this, it expended $80 million.

1. Prepare journal entries to summarize all transactions in which the district engaged. You need not make closing entries. Do not be concerned as to the speci?c titles of accounts to be debited or credited (e.g., whether a transfer from one fund to another should be called a ‘‘transfer,’’ an ‘‘expense,’’ or an ‘‘expenditure,’’ or whether proceeds from bonds should be called ‘‘bond proceeds’’ or ‘‘revenues’’).

2. Comment on how the district’s government-wide (full accrual) statement of net position would differ from the balance sheet presented.

 

New Durham District

Balance Sheet as of End of Year 1

Â	(in millions)			Â
Â	Â	Â	Â	Â
Â	General	Capital Project	Debt Service	Total
Assets	Â	Â	Â	Â
Cash	$60	$0	$0	$60
Investment	$0	$180	$40	$220
Total assets	$60	$180	$40	$280
Liabilities and fund business	Â	Â	Â	Â
Net Position	$60	$180	$40	$280

 

 

 

 

 

 

 

 

 

 

 

 

Problem # 2

 

The newly formed Kingwood School District engagedin the following transactions and other events during theYear:

 

1. It levied and collected property taxes of $220 million.

2. It issued $60 million in long-term bonds to construct abuilding. It placed the cash received in a special fund setaside to account for the bond proceeds.

3. During the year it constructed the building at a cost of$50 million. It expects to spend the $10 million balance in the following year. The building has an estimateduseful life of 25 years.

4. It incurred $140 million in general operating costs, ofwhich it paid $126 million. It expects to pay the balanceearly the following year.

5. Ittransferred$24 millionfromitsgeneralfundtoafundestablished to account for resources set aside to servicethe debt. Of this, $20 million was for repayment of thedebt; $4 million was for interest.

6. From the special fund established to service the debt, itpaid $4 million in interest and $12 million in principle.

7. It collected $8 million in hotel taxes restricted to promotingtourism. Sincetheresourceswererestricted theywere accounted for in a special restricted fund. Duringthe year, the district spent $6 million on promotingtourism.

8. The district established a supplies store to provide suppliestothedistrict’svariousdepartmentsbytransferring$8 million from the general fund. It accounted for thestore in an internal service (proprietary) fund. Duringthe year the store purchased (and paid for) $4 million insupplies. Of these it ‘‘sold’’ $2million, at cost (for cash),to departments accounted for in the general fund. During the year these departments used all of the suppliesthat they had purchased.

a. Prepare journal entries to record the transactionsand other events in appropriate funds. Assume thatgovernmental funds are accounted for on a modi?ed accrual basis and focus only on current ?nancialresources (and thus do not give balance sheet recognition either to capital assets or long-term debts).Proprietary funds are accounted for on a full accrualbasis.

b. Prepare a combined balance sheet—one that has aseparate column for each of the governmental fundsyou established.

c. Prepare a combined statement of revenues, expenditures, and changes in fund balances for all governmental funds. Prepare a separate statement ofrevenues, expenses, and changes in fund net positionfor any proprietary funds you established.

d. Prepareagovernment-widestatementofnetpositionand a government-wide statement of activities inwhich all funds are consolidated and are accounted foron a full accrual basis. Be sure to include both long-termassets and liabilities on the statement of net position and todepreciate the long-term assets. Also, be sure to adjust forany interfund activity. You may ?nd it helpful to redo thejournal entries you made in Part (a), this time recordingthe transactions (and not the interfund activity) as if thedistrict accounted for its activities in a single entity and onthe full accrual basis.