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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 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 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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CHAPTER 5:

Chapter 05 - Accounting for General Capital Assets and Capital Projects

CHAPTER 5:ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS

OUTLINE

NumberTopicType/TaskStatus

(re: 15/e)

Questions:

5-1Defining and reporting general capital assetsDefine and explainSame

5-2Capital asset disclosuresExplainSame

5-3Modified approach for infrastructureExplainSame

5-4Capital lease accountingDescribeSame

5-5Intangible assetsCompare5-5 revised

5-6Capital projects fund bonds sold at a premiumExplainNew

5-7EncumbrancesExplain5-7 revised

5-8Construction work in progressExplainSame

5-9Asset impairmentExplainSame

5-10Service concession arrangementsExplainNew

Cases:

5-1Modified approach for infrastructure assetsEvaluate, write5-1 revised

5-2Options for financing public infrastructureEvaluate, explainSame

5-3Recording and reporting damaged capital assetsEvaluate, explainSame

5-4 Service concession arrangements Evaluate, explainNew

Exercises/Problems:

5-1Examine the CAFRExamineSame

5-2VariousMultiple Choice5-2 revised

5-3General capital assetsJournal entriesSame

5-4Capital asset disclosure scheduleFinancial statementSame

5-5Lease classification and accountingCalculate; JEs5-5 revised

5-6Asset impairmentJEs; reportingSame

5-7Capital projects fundJEs Same

5-8Statement of revenues and expendituresFS; explainSame

5-9Multi-project construction fundJEs & FSNew

5-10Capital project transactionsJEs & FSNew

CHAPTER 5:ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS

Answers to Questions5-1.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 Ch. 5, Answers, 5-4 (Contd)

will include a debit to Expenditures and a credit to Other Financing SourcesCapital Lease Agreements. The journal entry at the government-wide level will be the same as that used in business accountinga 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.

Ch. 5, Answers (Contd)

5-9.In the case of the office building there has been a substantial change in the manner of usegoing 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 Cases5-1.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 directors 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. Ch. 5, Solutions, Case 5-2 (Contd)

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.Ch. 5, Solutions, Case 5-3 (Contd)

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 towns 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. Ch. 5, Solutions (Contd)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 towns 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.

5. c.10. a.

Ch. 5, Solutions (Contd)5-3.

CITY OF LOVELAND

DebitsCredits1.General Fund:

THERE WOULD BE NO ENTRY SINCE THERE IS NO FLOW OF FINANCIAL RESOURCES.

Governmental Activities:

LAND

5,200,000

PROGRAM REVENUEPARKS AND

RECREATIONCAPITAL GRANTS AND

CONTRIBUTIONS

5,200,000

2.General Fund:

CASH

6,400

OTHER FINANCING SOURCESPROCEEDS

OF CAPITAL ASSET SALE

6,400

Governmental Activities:

CASH

6,400

ACCUMULATED DEPRECIATION

28,700

MACHINERY AND EQUIPMENT

35,100

3.General Fund:

EXPENDITURESGENERAL GOVERNMENT30,550

OTHER FINANCING SOURCESCAPITAL

LEASE AGREEMENTS

30,000

CASH

550

Ch. 5, Solutions, 5-3 (Contd)

DebitsCredits

Governmental Activities:

MACHINERY & EQUIPMENT

30,550

CAPITAL LEASE OBLIGATIONS PAYABLE

30,550

CAPITAL LEASE OBLIGATIONS PAYABLE550

CASH

550

4.Capital Projects Fund:

CASH

720,000

REVENUE

720,000

CONSTRUCTION EXPENDITURES1,176,000

CASH

1,176,000

Governmental Activities:

CASH

720,000

PROGRAM REVENUEPUBLIC SAFETY

CAPITAL GRANTS & CONTRIBUTIONS

720,000

CONSTRUCTION WORK IN PROGRESS1,176,000

CASH

1,176,000

BUILDING

9,720,000

CONSTRUCTION WORK IN PROGRESS

9,720,000

Ch. 5, Solutions, 5-3 (Contd)

DebitsCredits5.General Fund:THERE WOULD BE NO ENTRY SINCE THERE IS NO FLOW OF FINANCIAL RESOURCES.

Governmental Activities:

EXPENSESGENERAL GOVERNMENT1,156,000

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 columnsone 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 countys depreciation method reflects the approximate loss of the utility of depreciable assets.

Ch. 5, Solutions (Contd)5-5. a.The present value of Crystal Citys 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:

BUILDINGS12,367,635

CASH 847,637

CAPITAL LEASE OBLIGATIONS

PAYABLE

11,519,998Chapter 5, Solutions (Contd)

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 managements 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 managements 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.

DebitsCredits

Governmental Activities:

EXPENSESPARKS 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. Chapter 5, Solutions (Contd)

5-7.

ERIKUS COUNTY

DebitsCredits1.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 PAYABLE60,000

INTEREST PAYABLE

(OR EXPENSESINTEREST 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 REVENUESPARKS &

RECREATIONCAPITAL GRANTS &

CONTRIBUTIONS

650,000

3.

Capital Projects Fund:

CASH

250,000

OTHER FINANCING SOURCES

INTERFUND TRANSFERS IN

250,000

Chapter 5, Solutions, 5-7 (Contd)

DebitsCredits

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 JOURNAL5.

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

Chapter 5, Solutions, 5-7 (Contd)

DebitsCredits6. 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 BALANCERESTRICTED

10,000

To close the fund:

INTERFUND TRANSFERS OUT

10,000

CASH

10,000

FUND BALANCERESTRICTED

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 FUNDCh. 5, Solutions (Contd)

5-8. a. ANNETTE COUNTYPUBLIC WORKS CAPITAL PROJECT FUNDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCESFOR THE YEAR ENDED JUNE 30, 2014REVENUES

$ 680,000EXPENDITURES: CONSTRUCTION EXPENDITURES

3,338,000EXCESS OF EXPENDITURES OVER REVENUES

2,658,000OTHER FINANCING SOURCES:

PROCEEDS OF BONDS

3,800,000EXCESS OF REVENUES AND OTHER FINANCING SOURCES

OVER EXPENDITURES

1,142,000FUND BALANCES, JULY 1, 2013

0FUND BALANCES, JUNE 30, 2014

$1,142,000b.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.Ch. 5, Solutions (Contd)

5-9. a.SURPRISE COUNTY

Debits Credits1. Construction Fund:

CASH

100,000

OTHER FINANCING SOURCESPROCEEDS

OF BOND ANTICIPATION NOTES

100,000

Governmental Activities: CASH

100,000

BOND ANTICIPATION NOTES PAYABLE

100,000

2. Construction Fund:

CONSTRUCTION EXPENDITURESPOLICE 30,000

CONSTRUCTION EXPENDITURESFIRE 30,000

VOUCHERS PAYABLE

60,000

Governmental Activities: CONSTRUCTION WORK IN PROGRESSPOLICE 30,000

CONSTRUCTION WORK IN PROGRESSFIRE 30,000

VOUCHERS PAYABLE

60,0003. Construction Fund: ENCUMBRANCESPOLICE 21,000,000

ENCUMBRANCESFIRE 11,000,000

ENCUMBRANCES OUTSTANDINGPOLICE

21,000,000ENCUMBRANCES OUTSTANDINGFIRE

11,000,000 Governmental Activities:

NO ENTRY REQUIRED

Chapter 5, Solutions, 5-9 (Contd)

DebitsCredits4. Construction Fund:

CASH

30,000,000

OTHER FINANCING SOURCESPROCEEDS

OF BONDS

30,000,000 Governmental Activities: CASH

30,300,000

BONDS PAYABLE

30,000,000PREMIUM ON BONDS PAYABLE

300,0005. Construction Fund: OTHER FINANCING USESREPAYMENT OF BANs100,000

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

EXPENSESINTEREST ON BANs

3,000

CASH

103,000

6. Construction Fund:

ENCUMBRANCES OUTSTANDINGPOLICE 10,000,000

ENCUMBRANCES OUTSTANDINGFIRE 6,000,000

ENCUMBRANCESPOLICE

10,000,000

ENCUMBRANCESFIRE

6,000,000Chapter 5, Solutions, 5-9 (Contd)

DebitsCredits CONSTRUCTION EXPENDITURESPOLICE 10,000,000

CONSTRUCTION EXPENDITURESFIRE 6,000,000

CONTRACTS PAYABLE

16,000,000 Governmental Activities:

CONSTRUCTION WORK IN PROGRESSPOLICE 10,000,000 CONSTRUCTION WORK IN PROGRESSFIRE 6,000,000

CONTRACTS PAYABLE

16,000,000

7. Construction Fund: CASH 500,000

REVENUES

500,000

Governmental Activities: CASH

500,000

PROGRAM REVENUESECONOMIC

DEVELOPMENTCAPITAL GRANTS &

CONTRIBUTIONS

500,0008. Construction Fund and Governmental Activities: CONTRACTS PAYABLE

16,000,000

CONTRACTS PAYABLERETAINED PERCENTAGE 800,000

CASH

15,200,000

9. Construction Fund:

ENCUMBRANCES OUTSTANDINGFIRE 5,000,000

ENCUMBRANCESFIRE

5,000,000 CONSTRUCTION EXPENDITURESFIRE 5,000,000

CONTRACTS PAYABLE

5,000,000Chapter 5, Solutions, 5-9 (Contd)

Debits Credits Governmental Activities:

CONSTRUCTION WORK IN PROGRESSFIRE 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 PAYABLERETAINED 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 OUTSTANDINGPOLICE 7,500,000

ENCUMBRANCESPOLICE

7,500,000 CONSTRUCTION EXPENDITURESPOLICE 7,500,000

CONTRACTS PAYABLE

7,500,000 Governmental Activities:

CONSTRUCTION WORK IN PROGRESSPOLICE 7,500,000

CONTRACTS PAYABLE

7,500,000Chapter 5, Solutions, 5-9 (Contd)

DebitsCredits12. Construction Fund:

OTHER FINANCING SOURCESPROCEEDS

OF BOND ANTICIPATION NOTES 100,000

OTHER FINANCING SOURCESPROCEEDS

OF BOND 30,000,000

REVENUES 500,000

CONSTRUCTION EXPENDITURESPOLICE

17,530,000

CONSTRUCTION EXPENDITURESFIRE 11,030,000

INTEREST EXPENDITURES

3,000

OTHER FINANCING USESREPAYMENT

OF BANs

100,000

FUND BALANCERESTRICTED 1,937,000

Governmental Activities:

NO CLOSING ENTRY REQUIRED AS THERE ARE NO TEMPORARY ACCOUNT BALANCES. Ch. 5, Solutions, 5-9 (Contd)

SURPRISE COUNTY

CONSTRUCTION FUND

GENERAL LEDGER (NOT REQUIRED)

CASH CONTRACTS PAYABLE (1) 100,000 (5) 103,000 (8) 16,000,000 (6) 16,000,000

(4) 30,000,000 (8) 15,200,000 (10) 5,000,000 (9) 5,000,000(7) 500,000

(10) 5,300,000 (11) 7,500,000

CONTRACTS PAYABLE(

VOUCHERS PAYABLE RETAINED PERCENTAGE

(2) 60,000

(10) 300,000 (8) 800,000 ENCUMBRANCESPOLICE ENCUMBRANCESFIRE

(3) 21,000,000 (6) 10,000,000 (3) 11,000,000 (6) 6,000,000

(11) 7,500,000 (9) 5,000,000

ENCUMBRANCESOUTSTANDING ENCUMBRANCESOUTSTANDING

POLICE FIRE

(6) 10,000,000 (3) 21,000,000

(6) 6,000,000 (3) 11,000,000(11) 7,500,000

(9) 5,000,000 CONSTRUCTION EXPENDITURES CONSTRUCTION EXPENDITURES

POLICE FIRE

(2) 30,000 (12) 17,530,000 (2) 30,000 (12) 11,030,000 (6) 10,000,000 (6) 6,000,000(11) 7,500,000 (9) 5,000,000 INTEREST EXPENDITURES OFUREPAYMENT OF BANS

(5) 3,000 (12) 3,000

(5) 100,000 (12) 100,000

OFSPROCEEDS OF BANS OFSPROCEEDS OF BONDS

(12) 100,000 (1) 100,000 (12) 30,000,000 (4) 30,000,000 REVENUES FUND BALANCERESTRICTED

(12) 500,000 (7) 500,000

(12) 1,937,000

Ch. 5, Solutions, 5-9 (Contd)b.SURPRISE COUNTY

CONSTRUCTION FUND

BALANCE SHEET

DECEMBER 31, 2014

ASSETSCASH

$ 9,997,000 TOTAL ASSETS

$ 9,997,000

LIABILITIES AND FUND BALANCESLIABILITIES:

VOUCHERS PAYABLE

$ 60,000

CONTRACTS PAYABLE

7,500,000

CONTRACTS PAYABLERETAINED PERCENTAGE

500,000 TOTAL LIABILITIES

8,060,000FUND BALANCES:

FUND BALANCERESTRICTED

1,937,000 TOTAL LIABILITIES AND FUND BALANCES

$9,997,000(Note that encumbrances and encumbrances outstanding are not reported on the balance sheet. They are budgetary accounts that represent construction commitments.)

Ch. 5, Solutions, 5-9 (Contd)

c.SURPRISE COUNTY

CONSTRUCTION FUND

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCES

FOR THE PERIOD ENDED DECEMBER 31, 2014REVENUES $ 500,000EXPENDITURES:

CONSTRUCTION EXPENDITURESPOLICE 17,530,000 CONSTRUCTION EXPENDITURES FIRE 11,030,000 INTEREST EXPENDITURES 3,000 TOTAL EXPENDITURES

28,563,000EXCESS OF EXPENDITURES OVER REVENUES

28,063,000 OTHER FINANCING SOURCES (USES):

PROCEEDS OF BOND ANTICIPATION NOTES

100,000

PROCEEDS OF BONDS

30,000,000 REPAYMENT 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, 2014

-0-FUND BALANCES, DECEMBER 31, 2014

$ 1,937,000d. In the Governmental Activities column of the statement of net position, the fire station will be reported with other buildings, net of depreciation, if any is taken in the first year. The police facility construction expenditures of $17,530,000 for this year will appear as construction work in progress in the capital assets section. The Governmental Activities column of the statement of activities will show any depreciation expense on the fire station (if applicable), most likely in the functional expense category (row) called public services.

Ch. 5, Solutions (Contd)

5-10. a. RIVERSIDE

PARK BUILDING CAPITAL PROJECTS FUND

DebitsCredits1. CASH

500,000

OTHER FINANCING SOURCESINTERFUND

TRANSFERS IN

500,000

2. ENCUMBRANCES

2,700,000

ENCUMBRANCES OUTSTANDING

2,700,000

3. CONSTRUCTION EXPENDITURES

69,000

VOUCHERS PAYABLE

69,000

4. CONSTRUCTION EXPENDITURES

18,500

DUE TO OTHER FUNDS

18,500

5. ENCUMBRANCES OUTSTANDING

1,000,000

CONSTRUCTION EXPENDITURES

1,000,000

ENCUMBRANCES

1,000,000

CONTRACTS PAYABLE

1,000,000

6. CASH

3,500,000

OTHER FINANCING SOURCESPROCEEDS

OF BONDS

3,500,000

7. CONTRACTS PAYABLE

1,000,000

CONTRACTS PAYABLERETAINED PERCENTAGE 50,000

CASH

950,000

Ch. 5, Solutions, 5-10 (Contd)

DebitsCredits

8. INVESTMENTS

1,800,000

CASH

1,800,000

9. OTHER FINANCING SOURCES INTERFUND TRANSFERS IN

500,000

OTHER FINANCING SOURCES

PROCEEDS OF BONDS

3,500,000

FUND BALANCERESTRICTED

2,500,000

FUND BALANCEASSIGNED

412,500

CONSTRUCTION EXPENDITURES

1,087,500

Ch. 5, Solutions, 5-10 (Contd)

RIVERSIDE

PARK BUILDING CAPITAL PROJECTS FUND

GENERAL LEDGER (NOT REQUIRED)

CASH

(1)500,000(7)950,000

(6) 3,500,000(8) 1,800,000 INVESTMENTS

(8) 1,800,000

VOUCHERS PAYABLE

(3) 69,000

CONTRACTS PAYABLE(7) 1,000,000(5)1,000,000 CONTRACTS PAYABLE(RETAINED PERCENTAGE

(7) 50,000

DUE TO OTHER FUNDS

(4) 18,500

FUND BALANCERESTRICTED

(9) 2,500,000

FUND BALANCEASSIGNED

(9) 412,500

OTHER FINANCING SOURCESINTERFUND TRANSFERS IN

(9) 500,000(1) 500,000

Ch. 5, Solutions, 5-10 (Contd)

OTHER FINANCING SOURCESPROCEEDS OF BONDS

(9)3,500,000(6) 3,500,000 ENCUMBRANCES(2)2,700,000(5) 1,000,000

ENCUMBRANCESOUTSTANDING(5)1,000,000(2) 2,700,000

CONSTRUCTION EXPENDITURES(3) 69,000(9) 1,087,500(4) 18,500

(5)1,000,000Ch. 5, Solutions, 5-10 (Contd)

b.RIVERSIDE

PARK BUILDING CAPITAL PROJECTS FUND

BALANCE SHEET, DECEMBER 31, 2014

ASSETSCASH

$1,250,000

INVESTMENTS

1,800,000

TOTAL ASSETS

$3,050,000

LIABILITIES AND FUND BALANCESLIABILITIES:

VOUCHERS PAYABLE

$ 69,000

DUE TO OTHER FUNDS

18,500 CONTRACTS PAYABLERETAINED PERCENTAGE

50,000

TOTAL LIABILITIES

137,500

FUND BALANCES:

FUND BALANCERESTRICTED$2,500,000

FUND BALANCEASSIGNED 412,500 TOTAL FUND BALANCES

2,912,500

TOTAL LIABILITIES AND FUND BALANCES

$3,050,000(Note that encumbrances and encumbrances outstanding are not reported on the balance sheet. They are budgetary accounts that represent construction obligations, and for Riverside, $2,500,000 of these encumbrances are restricted. Per GASB Codification Section 1800.152, amounts that are not restricted or committed in a capital projects fund are considered assigned to the purposes of the respective fund.)

Ch. 5, Solutions, 5-10 (Contd)

c.RIVERSIDE

PARK BUILDING CAPITAL PROJECTS FUNDSTATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES

FOR THE PERIOD ENDED DECEMBER 31, 2014EXPENDITURES:

CONSTRUCTION EXPENDITURES $1,087,500

OTHER FINANCING SOURCES AND USES:

INTERFUND TRANSFERS IN$ 500,000 PROCEEDS OF BONDS SOLD 3,500,000 4,000,000EXCESS OF REVENUES AND OTHER

SOURCES OVER EXPENDITURES

2,912,500

FUND BALANCES, JANUARY 1, 2014

-0- FUND BALANCES, DECEMBER 31, 2014

$2,912,500PAGE 5-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.