Chapter 05 - Accounting for General Capital Assets and Capital Projects CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS OUTLINE Number Topic Type/Task Status (re: 15/e) Questions : 5-1 Defining and reporting general capital assets Define and explain Same 5-2 Capital asset disclosures Explain Same 5-3 Modified approach for infrastructure Explain Same 5-4 Capital lease accounting Describe Same 5-5 Intangible assets Compare 5-5 revised 5-6 Capital projects fund bonds sold at a premium Explain New 5-7 Encumbrances Explain 5-7 revised 5-8 Construction work in progress Explain Same 5-9 Asset impairment Explain Same 5-10 Service concession arrangements Explain New Cases: 5-1 Modified approach for infrastructure assets Evaluate, write 5-1 revised 5-2 Options for financing public infrastructure Evaluate, explain Same 5-3 Recording and reporting damaged capital assets Evaluate, explain Same 5-4 Service concession arrangements Evaluate, explain New Exercises/Problems: 5-1 Examine the CAFR Examine Same 5-2 Various Multiple Choice 5-2 revised 5-1
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS
OUTLINE Number Topic Type/Task Status
(re: 15/e)
Questions:5-1 Defining and reporting general capital assets Define and explain Same5-2 Capital asset disclosures Explain Same5-3 Modified approach for infrastructure Explain Same5-4 Capital lease accounting Describe Same5-5 Intangible assets Compare 5-5 revised5-6 Capital projects fund bonds sold at a premium Explain New 5-7 Encumbrances Explain 5-7 revised5-8 Construction work in progress Explain Same5-9 Asset impairment Explain Same5-10 Service concession arrangements Explain New
Cases:5-1 Modified approach for infrastructure assets Evaluate, write 5-1 revised5-2 Options for financing public infrastructure Evaluate, explain Same5-3 Recording and reporting damaged capital
assetsEvaluate, explain Same
5-4 Service concession arrangements Evaluate, explain New
Exercises/Problems:5-1 Examine the CAFR Examine Same5-2 Various Multiple Choice 5-2 revised5-3 General capital assets Journal entries Same5-4 Capital asset disclosure schedule Financial statement Same5-5 Lease classification and accounting Calculate; JEs 5-5 revised5-6 Asset impairment JEs; reporting Same5-7 Capital projects fund JEs Same5-8 Statement of revenues and expenditures FS; explain Same 5-9 Multi-project construction fund JEs & FS New5-10 Capital project transactions JEs & FS New
5-1
Chapter 05 - Accounting for General Capital Assets and Capital Projects
CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS
Answers to Questions
5-1. General capital assets are those assets acquired with the resources of governmental funds. They are reported as assets in the Governmental Activities column of the government-wide financial statements at historical cost. Those capital assets identified as depreciable are shown net of accumulated depreciation. The resources used by the governmental funds to acquire a general capital asset are reported as an expenditure of the acquiring governmental fund in the fund financial statements. Note that capital assets acquired by proprietary and fiduciary funds are accounted for by those funds and are not considered general capital assets.
5-2. Capital asset disclosures required by the GASB include descriptions of policies for
capitalizing assets and for estimating the useful lives of depreciable assets. In addition, the disclosures should include: (1) beginning-of-year and end-of-year balances showing accumulated depreciation separate from historical cost, (2) capital acquisitions during the year, (3) sales or other dispositions during the year, (4) depreciation expense showing amounts charged to each function in the statement of activities, and (5) disclosures regarding collections of art or historical treasures.
5-3. The modified approach to accounting for infrastructure assets does not record an adjusting entry recognizing depreciation expense and accumulated depreciation. Rather the government reports, as an expense, the costs of maintaining the infrastructure assets at an established level or condition. By doing this the book value of the infrastructure asset remains unchanged (i.e., there is no accumulated depreciation). This is unlike the depreciation method, whereby the book value of the infrastructure assets decreases each time depreciation expense is recorded. Only certain infrastructure assets are eligible to use the modified approach. Eligible assets are defined as those assets that are parts of major networks of infrastructure assets or subsystems of networks, where a network might be a highway system, for example. If the government meets two requirements it can use the modified approach for eligible infrastructure assets. The two requirements are: (1) management of eligible infrastructure assets using a management system that includes an up-to-date inventory of eligible assets, condition assessments and results using a measurement scale, and estimates of annual costs to maintain assets at the established and disclosed condition level, and (2) documentation that the assets are being preserved at or above the established condition level. If the government fails to maintain the assets at or above the established condition level, it must revert to reporting depreciation for its infrastructure assets and discontinue use of the modified approach.
5-4. If the lease meets one or more of the criteria prescribed in GASBS 62 for a capital lease, as discussed in this chapter, the lease must be reported as a capital lease. If the lease is deemed to be a capital lease, the governmental fund journal entry on the date of inception
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Answers, 5-4 (Cont’d)
will include a debit to Expenditures and a credit to Other Financing Sources—Capital Lease Agreements. The journal entry at the government-wide level will be the same as that used in business accounting—a debit to Equipment and a credit to Capital Lease Obligations Payable.
5-5. Under both GASB and FASB standards intangible assets are defined as assets that lack physical substance. Intangible assets held by a government might include easements, water rights, timber rights, patents, trademarks, and computer software. The GASB considers intangible assets to be a type of general capital asset; therefore, intangibles are reported under the capital asset heading in the statement of net position. In contrast, under FASB standards intangible assets are reported under the heading intangibles, appearing after the property, plant and equipment heading in the balance sheet.
5-6. If bonds sold to finance the construction of general capital assets are sold at a premium, the question arises as to whether or not the initial issue premium is required to be set aside for debt service or may remain in the capital projects fund. If bond indentures require that initial issue premiums be used for debt service, only the par value of the bonds is considered as an other financing source of the capital projects fund, and the premium is considered as an other financing source of the debt service fund. At the government-wide level, a premium would be recorded and should be amortized over the life of the bonds.
5-7. To facilitate preparation of financial statements at the end of the fiscal year, all operating accounts should be closed; however, since the project is still underway and contractual commitments still exist to pay contractors when billed, it is essential that Encumbrances be maintained. (If a government chooses to close encumbrance accounts at year end, they should be reestablished at the beginning of the next year in order to maintain budgetary control over outstanding commitments.) Since encumbrances and encumbrances outstanding are budgetary accounts, they will not be reported on the capital projects fund balance sheet; however, the fund balances should be classified as restricted, committed or assigned, as appropriate, with no reference to encumbrances.
5-8. All ordinary and necessary costs to construct or acquire the asset are appropriately reported as construction work in progress. This includes all legal costs, engineering and architectural services, site preparation, materials used, and billings from contractors, among other items. Interest incurred during construction is not capitalized for general capital assets, however. Construction Work in Progress is found in the ledger for governmental activities at the government-wide level for general capital assets. This capital asset account is not found in the ledger of the capital projects fund. In the capital projects fund, all capitalizable items are debited to Construction Expenditures.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Answers (Cont’d)
5-9. In the case of the office building there has been a substantial change in the manner of use—going from an office building to a storage facility. Since the cost of office space is considerably more than storage space it is likely that a significant decline in service utility has occurred. In this case, it would be appropriate to measure impairment using the deflated depreciated replacement cost approach. This approach would allow the county to calculate the inflation adjusted and depreciated value of a replacement storage facility and compare it to the book value of the office building. The difference would reflect the degree of impairment.
5-10. Under a service concession arrangement, a government transfers the rights and obligations of a capital asset to another legally-separate governmental or private sector entity. This external entity, the operator, provides public services through the use of the asset, collecting related fees in return for an up-front payment to the transferring government. A government will generally enter into a service concession arrangement to generate revenue and cash flows from its capital assets or to improve the efficiency of public services. Recently, governments have entered into service concession arrangements with parking facilities, airports, zoos, office buildings and water supplies.
Solutions to Cases
5-1. a. Discuss with students various methods of obtaining financial statements and getting “benchmark” data to make comparisons across entities. Professional associations such as the Government Finance Officers Association; National Association of State Auditors, Controllers and Treasurers; and Association of School Business Officials publish “best practices” for various areas of public finance, accounting, and financial reporting. Since students will have a different list of cities, ask them to compare their results with other students and look for patterns in which types and sizes of governments make similar choices in accounting methods, particularly, in this case, regarding choice of infrastructure asset accounting methods.
b. An important communication skill for students to master is to convey technical financial accounting information in an effective way so that decision makers find the information useful for making informed decisions. You may wish to ask students to show their memo or essay to a finance director of a city and get the director’s opinion about whether the student has captured the fundamental issues relating to infrastructure and communicated it in a professional and informative manner.
5-2. a. Option (1), the sales tax approach, offers the advantage of spreading the burden for infrastructure improvements across a larger number of taxpayers, including many non-residents who visit or shop in Desert City. From an equity standpoint, the sales tax approach has appeal because infrastructure improvements enhance the city for visitors and shoppers, as well as for residents. Disadvantages of this approach are the necessity of scheduling and conducting a special election and the political risk of advocating for a tax increase.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions, Case 5-2 (Cont’d)
Option (2), the development fee approach, has the advantage of being relatively “invisible” to the public and efficient to administer since the number of developers will be relatively small. Although real estate developers can be expected to pass the development fee to new homeowners and businesses, property values may be increased by enhanced infrastructure (e.g., improved streets and highways, adequate storm drainage, and so forth). As a result, taxpayers may recoup a portion of the development fee. The main disadvantage is the potential inequity of the development fee since a relatively high financial burden is imposed on new homeowners and new businesses for infrastructure expansion and improvement that may substantially benefit the entire city.
A city council member may prefer the development fee approach since it holds less political risk than asking residents to approve a tax increase. The city manager may prefer the sales tax approach as retail sales may be less volatile than new construction, which can be strongly impacted by the local, regional, and national economies. Since the city manager is responsible for ensuring that infrastructure stays abreast of population and new development, he or she may prefer a more stable source of infrastructure financing. Current homeowners and businesses might be expected to prefer the development fee approach since those fees would not directly impact on their property and would place the incidence of the tax on others. It would be surprising if new homeowners or new businesses favored the development fee approach as they would probably view it as inequitable.
b. Accounting and financial reporting would be minimally impacted by which option is ultimately chosen. Either way, there is revenue to be recognized in a capital projects fund (a tax in one case and development fee in the other). Accounting for infrastructure construction would not be affected by the source of financing.
5-3. a. Yes and No. For the government-wide financial statements, the recording and reporting of the damage and repairs will be affected by whether the town opted to capitalize its historic treasure (library building). If the town met the criteria for non-capitalization outlined in footnote 4 of Chapter 5, it could have opted not to capitalize the library building. The government-wide statement of net position would not reflect the effect of the flooding on the library building (asset) if the town opted not to capitalize the library building. However, any expenses related to repair or replacement would be shown on the statement of activities. Even if the town chooses not to capitalize the library it will want to update its internal records for insurance and stewardship purposes to reflect any changes in the value of the library. At the fund level costs incurred for repair and replacement would be recorded as expenditures, without respect to whether the town has chosen to capitalize the library.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions, Case 5-3 (Cont’d)
b. In determining whether an impairment has occurred the town will need to determine whether there was a significant and unexpected decline in service utility. If it is determined that an impairment has occurred, the restorative approach to measuring the impairment appears to be appropriate. An impairment loss is reported separately from the work (capitalized or expensed costs) needed to restore the building. For reporting purposes, insurance proceeds received as a result of the flood damage to the library building would be netted against the impairment loss if the insurance proceeds are received in the same fiscal year as the impairment loss. If the insurance proceeds are received in a subsequent year, the insurance proceeds would be reported as program revenue at the government-wide level and as an other financing source at the fund level.
It should be noted that an impairment loss would only be recorded if the building has a remaining useful life at the time of the impairment. If a building is fully depreciated, no impairment would be recognized.
c. In all cases identified the work appears to be a combination of enhancement and replacement. As such, the town will probably want to remove any capital costs allocated to the items listed and replace them with the new costs. The rewiring of the building is replacing the old but is also an enhancement. It is bringing the building up to current code and allowing for increased capacity, which should add to the value of the building and enhance the utility of the building. Replacing damaged dry-wall is a replacement but could also be considered a capital cost since it will add to the value of the building. Painting is generally considered an expense; however, in this instance it could be argued that it is a necessary cost to finish the walls and make the library useable, adding to the asset value. Replacing 70-year old hardwood floors is a replacement, but would add to the value of the building, especially given that the historic nature of the floors appears to be preserved.
d. Knowledge of the town’s capitalization policy and whether any of the books were considered a part of a non-capitalized collection would be important in determining whether the damaged books are reported as impaired assets. If the books were recorded as library expenses when purchased or part of a non-capitalized collection there would be no impairment.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions (Cont’d)
5-4. a. Some relevant questions might include: Are there any alternative uses for the parking operations that the town might like to
exercise in the next 20 years?Who retains any risk associated with the parking operations?Who will maintain the assets?Does the economy appear to be turning around?How severe is the current financial situation?Could the town increase parking fees independent of this proposal?How do the citizens feel about the proposal?Does the investment team have experience in handling parking operations? Will the team improve operations?Is the up-front payment sufficient to cover potential growth and parking rateincreases in future years?
b. On a short-term basis, the proposal appears favorable. The town receives a cash infusion that may help to alleviate current budget woes. Citizens will be relieved that the town’s finances are stable, and they will likely not notice much difference in parking operations. It is important to note, that selling or leasing assets to cover current financial obligations, in and of itself, is not a solid public policy, hence the town should not make a habit of this type of transaction unless it enhances efficiency.
In the long-term, the town will want to ensure that parking rates remain at reasonable levels, that the assets are maintained in good, working condition, and that overall parking operations are run in such a manner that does not reflect poorly on the town. Before entering into the proposal, the town council should consider if there are any alternative uses for the property or assets before tying them up for 20 years.
c. It depends. In the case of Chicago and the State of Arizona, bond rating agencies downgraded bond ratings, because they viewed such arrangements as one-time cash infusions to pay current operating expenses. If the proposal improves efficiency in an area where a government has not been particularly successful, bond ratings might be unaffected in the short-term but might improve in the longer-term.
Solutions to Exercises and Problems5-1. Each student will have a different annual report, so he or she will have different answers
to questions in this exercise. The various kinds of capital assets and capital projects, wide variety of financing mechanisms, and different accounting policies used in and by governments should generate interesting classroom discussions.
5-2. 1. b. 6. a.2. d. 7. c.3. b. 8. d.4. a 9. d.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
5. c. 10. a.Ch. 5, Solutions (Cont’d)
5-3. CITY OF LOVELAND
Debits Credits
1. General Fund:
THERE WOULD BE NO ENTRY SINCE THERE IS NO FLOW OF FINANCIAL
RESOURCES.
Governmental Activities:
LAND 5,200,000
PROGRAM REVENUE—PARKS AND RECREATION—CAPITAL GRANTS ANDCONTRIBUTIONS 5,200,000
2. General Fund:
CASH 6,400
OTHER FINANCING SOURCES—PROCEEDSOF CAPITAL ASSET SALE 6,400
Governmental Activities:
CASH 6,400
ACCUMULATED DEPRECIATION 28,700
MACHINERY AND EQUIPMENT 35,100
3. General Fund:
EXPENDITURES—GENERAL GOVERNMENT 30,550
OTHER FINANCING SOURCES—CAPITAL LEASE AGREEMENTS 30,000
CASH 550
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions, 5-3 (Cont’d)Debits Credits
Governmental Activities:
MACHINERY & EQUIPMENT 30,550
CAPITAL LEASE OBLIGATIONS PAYABLE 30,550
CAPITAL LEASE OBLIGATIONS PAYABLE 550
CASH 550
4. Capital Projects Fund:
CASH 720,000
REVENUE 720,000
CONSTRUCTION EXPENDITURES 1,176,000
CASH 1,176,000
Governmental Activities:
CASH 720,000
PROGRAM REVENUE—PUBLIC SAFETY—CAPITAL GRANTS & CONTRIBUTIONS 720,000
CONSTRUCTION WORK IN PROGRESS 1,176,000
CASH 1,176,000
BUILDING 9,720,000
CONSTRUCTION WORK IN PROGRESS 9,720,000
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions, 5-3 (Cont’d)
Debits Credits
5. General Fund:
THERE WOULD BE NO ENTRY SINCE THERE IS NO FLOW OF FINANCIAL
RESOURCES.
Governmental Activities:
EXPENSES—GENERAL GOVERNMENT 1,156,000
MACHINERY & EQUIPMENT 1,156,000
5-4. a. No, the note does not comply with GASB requirements. The following
changes would help bring the note into compliance.
1. Instead of one change column there should be two columns—one
identifying additions to capital assets and one identifying deletions
to capital assets.
2. Separate line disclosures should be provided for asset classes such
as land, buildings and equipment.
3. Depreciation expense by function should be provided.
b. Yes. Infrastructure is listed with “Total capital assets not being
depreciated”; therefore, the county must be using the modified approach
to maintaining infrastructure. If the modified approach was not being
used the infrastructure assets would need to be depreciated.
c. ($15,068,000-$4,022,000)/$15,068,000=73.3% is the approximate
percentage of remaining useful life of depreciable capital assets,
assuming the county’s depreciation method reflects the approximate
loss of the utility of depreciable assets.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions (Cont’d)
5-5. a. The present value of Crystal City’s minimum lease payments is the
initial payment of $847,637 plus $847,637 X the present value of an
annuity for 29 periods at 6 percent, or $847,637 + ($847,637 X 13.590721)
= $847,637 + $11,519,998 = $12,367,635. Since the present value of the
minimum lease payments is $12,367,635 ÷ $13,000,000, or 95.1 percent
of the fair value, this meets one criterion for a capital lease (i.e., present
value equals or exceeds 90 percent of fair value). In addition, the lease
term is exactly 75 percent of the estimated useful life of the building, so
that criterion is met as well. So, this lease must be recorded as a capital
lease.
b. Debits Credits
Capital Projects Fund:
EXPENDITURES 12,367,635
CASH 847,637
OTHER FINANCING SOURCES— CAPITAL LEASE AGREEMENTS 11,519,998
Governmental Activities:BUILDINGS 12,367,635
CASH 847,637
CAPITAL LEASE OBLIGATIONS PAYABLE 11,519,998
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions (Cont’d)
5-6. a. Because Sunshine City is located in an area that is susceptible to
hurricanes, the unusual criterion would not be met for the loss to be
reported as extraordinary. To be reported as a special item requires
that the event be either unusual or infrequent in occurrence (but not
both) and be within management’s control. Since this is the first
hurricane to hit the city in 48 years, the infrequent criterion would
appear to be met, but hurricanes may be considered frequent for the
broader geographic area. Moreover, the hurricane was clearly beyond
management’s control, so this event cannot be reported as a special
item. In addition to reporting the item as an ordinary expense, it should
be disclosed in the notes to the financial statement if it is deemed to be
significant and infrequently occurring.
b.
Debits Credits
Governmental Activities:EXPENSES—PARKS AND RECREATION 230,000
BUILDINGS 230,000
c. GASB requires that the $120,000 insurance recoveries be reported as
program revenues (presumably of the Parks and Recreation function in
the Capital Grants and Contributions column under Governmental
Activities) on the government-wide statement of activities in the year
received. In addition, it should be reported as an other financing source
by the General Fund.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions (Cont’d)
5-7. ERIKUS COUNTY
Debits Credits1. Capital Projects Fund:
CASH 6,000,000
OTHER FINANCING SOURCES—PROCEEDS OF BONDS 6,000,000
Governmental Activities:
CASH 6,080,000
BONDS PAYABLE 6,000,000
PREMIUM ON BONDS PAYABLE 60,000
INTEREST PAYABLE (OR EXPENSES—INTEREST ON BONDS) 20,000
(Note: This assumes the premium and interest are recorded directly in the
debt service fund. If the premium and interest were first recorded in the
capital projects fund, the capital projects fund would also credit Due to
Debt Service Fund for $80,000.)
2. Capital Projects Fund:
CASH 650,000
REVENUES 650,000
Governmental Activities:
CASH 650,000
PROGRAM REVENUES—PARKS &RECREATION—CAPITAL GRANTS &CONTRIBUTIONS 650,000
3. Capital Projects Fund:
CASH 250,000
OTHER FINANCING SOURCES—INTERFUND TRANSFERS IN 250,000
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-7 (Cont’d)
Debits Credits
Governmental Activities:
NO ENTRY WHEN TRANSFERS ARE BETWEEN GOVERNMENTAL
FUNDS
(Note: There would also be an entry in the special revenue fund.)
4. Capital Projects Fund:
ENCUMBRANCES 6,800,000
ENCUMBRANCES OUTSTANDING 6,800,000
Governmental Activities:
BUDGETARY TRANSACTIONS ARE NOT RECORDED IN THE
GOVERNMENTAL ACTIVITIES JOURNAL
5. Capital Projects Fund:
CONSTRUCTION EXPENDITURES 6,890,000
CASH 6,890,000
ENCUMBRANCES OUTSTANDING 6,800,000
ENCUMBRANCES 6,800,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS 6,890,000
CASH 6,890,000
LAND 200,000
BUILDINGS 6,295,000
EQUIPMENT 395,000
CONSTRUCTION WORK IN PROGRESS 6,890,000
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-7 (Cont’d)
Debits Credits
6. Capital Projects Fund:
To close nominal accounts:
OTHER FINANCING SOURCES—PROCEEDS OF BONDS 6,000,000
OTHER FINANCING SOURCES—INTERFUND TRANSFERS IN 250,000
REVENUES 650,000
CONSTRUCTION EXPENDITURES 6,890,000
FUND BALANCE—RESTRICTED 10,000
To close the fund:
INTERFUND TRANSFERS OUT 10,000
CASH 10,000
FUND BALANCE—RESTRICTED 10,000
INTERFUND TRANSFERS OUT 10,000
(Note: There would also be an entry in the debt service fund.)
Governmental Activities:
NO ENTRY SINCE THE CLOSING ONLY RELATES TO THE FUND
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions (Cont’d)
5-8. a. ANNETTE COUNTYPUBLIC WORKS CAPITAL PROJECT FUND
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30, 2014
REVENUES $ 680,000
EXPENDITURES:
CONSTRUCTION EXPENDITURES 3,338,000
EXCESS OF EXPENDITURES OVER REVENUES 2,658,000
OTHER FINANCING SOURCES:
PROCEEDS OF BONDS 3,800,000
EXCESS OF REVENUES AND OTHER FINANCING SOURCESOVER EXPENDITURES 1,142,000
FUND BALANCES, JULY 1, 2013 0
FUND BALANCES, JUNE 30, 2014 $1,142,000
b. It would appear that the capital project has not been completed since
encumbrances remain at year end. Additionally, there are a number of
current receivables/payables that are open at year end.
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Ch. 5, Solutions (Cont’d)
5-9. a. SURPRISE COUNTY
Debits Credits
1. Construction Fund:
CASH 100,000
OTHER FINANCING SOURCES—PROCEEDS
OF BOND ANTICIPATION NOTES 100,000
Governmental Activities:
CASH 100,000
BOND ANTICIPATION NOTES PAYABLE 100,000
2. Construction Fund:
CONSTRUCTION EXPENDITURES—POLICE 30,000
CONSTRUCTION EXPENDITURES—FIRE 30,000
VOUCHERS PAYABLE 60,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS—POLICE 30,000
CONSTRUCTION WORK IN PROGRESS—FIRE 30,000
VOUCHERS PAYABLE 60,000
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
Governmental Activities:
NO ENTRY REQUIRED
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-9 (Cont’d)
Debits Credits
4. Construction Fund:
CASH 30,000,000
OTHER FINANCING SOURCES—PROCEEDS
OF BONDS 30,000,000
Governmental Activities:
CASH 30,300,000
BONDS PAYABLE 30,000,000
PREMIUM ON BONDS PAYABLE 300,000
5. Construction Fund:
OTHER FINANCING USES—REPAYMENT OF BANs 100,000
INTEREST EXPENDITURES (NOTE A) 3,000
CASH 103,000
(BANs = BOND ANTICIPATION NOTES)
NOTE A: Interest due is calculated as follows:
$100,000 x .06 x 180/360 = $3,000; interest is not
capitalized for general capital assets.
Governmental Activities:
BOND ANTICIPATION NOTES PAYABLE 100,000
EXPENSES—INTEREST ON BANs 3,000
CASH 103,000
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
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-9 (Cont’d)
Debits Credits
CONSTRUCTION EXPENDITURES—POLICE 10,000,000
CONSTRUCTION EXPENDITURES—FIRE 6,000,000
CONTRACTS PAYABLE 16,000,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS—POLICE 10,000,000
CONSTRUCTION WORK IN PROGRESS—FIRE 6,000,000
CONTRACTS PAYABLE 16,000,000
7. Construction Fund:
CASH 500,000
REVENUES 500,000
Governmental Activities:
CASH 500,000
PROGRAM REVENUES—ECONOMIC DEVELOPMENT—CAPITAL GRANTS & CONTRIBUTIONS 500,000
8. Construction Fund and Governmental Activities:
CONTRACTS PAYABLE 16,000,000
CONTRACTS PAYABLE—RETAINED PERCENTAGE 800,000
CASH 15,200,000
9. Construction Fund:
ENCUMBRANCES OUTSTANDING—FIRE 5,000,000
ENCUMBRANCES—FIRE 5,000,000
CONSTRUCTION EXPENDITURES—FIRE 5,000,000
CONTRACTS PAYABLE 5,000,000
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-9 (Cont’d)
Debits Credits
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS—FIRE 5,000,000
CONTRACTS PAYABLE 5,000,000
BUILDINGS 11,000,000
CONSTRUCTION WORK IN PROGRESS 11,000,000
10. Construction Fund and Governmental Activities:
CONTRACTS PAYABLE 5,000,000
CONTRACTS PAYABLE—RETAINED PERCENTAGE 300,000
CASH 5,300,000
(Calculation: 5% of 6,000,000 [300,000] had been retained for the fire station.)
11. Construction Fund:
ENCUMBRANCES OUTSTANDING—POLICE 7,500,000
ENCUMBRANCES—POLICE 7,500,000
CONSTRUCTION EXPENDITURES—POLICE 7,500,000
CONTRACTS PAYABLE 7,500,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS—POLICE 7,500,000
CONTRACTS PAYABLE 7,500,000
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Chapter 05 - Accounting for General Capital Assets and Capital Projects
Chapter 5, Solutions, 5-9 (Cont’d)
Debits Credits
12. Construction Fund:
OTHER FINANCING SOURCES—PROCEEDS OF BOND ANTICIPATION NOTES 100,000
OTHER FINANCING SOURCES—PROCEEDS OF BOND 30,000,000
REVENUES 500,000
CONSTRUCTION EXPENDITURES—POLICE 17,530,000
CONSTRUCTION EXPENDITURES—FIRE 11,030,000
INTEREST EXPENDITURES 3,000
OTHER FINANCING USES—REPAYMENT OF BANs 100,000
FUND BALANCE—RESTRICTED 1,937,000
Governmental Activities:
NO CLOSING ENTRY REQUIRED AS THERE ARE NO TEMPORARY ACCOUNT
BALANCES.
5-21
Chapter 05 - Accounting for General Capital Assets and Capital Projects