Using the format at the end of this exercise, indicate the impact that each of the following...

Using the format at the end of this exercise, indicate the impact that each of thefollowing transactions has on the total net assets of a proprietary fund and on eachnet asset component.

Also, indicate whether the transaction is reported in the statement of revenues,expenses, and changes in net assets of a proprietary fund.

Net AssetsAffect Invested

Transaction Operating Unrestricted Restricted in CapitalNumber Statement? Assets Total

1. Sold building with a book value of $150,000 for $225,000 (proceedsnot restricted).

$225,000 - $150,000 = $75,000 gain

Cash…$225,000Asset…..$150,000 (book-all we know)Gain……$ 75,000






$225,000 - $150,000 = $75,000 gain


+225,000






$225,000 - $150,000 = $75,000 gain


+225,000+75,000






$225,000 - $150,000 = $75,000 gain


+225,000+75,000 - 150,000 +75,000



2. Land costing $500,000 was purchased by issuing a 5-year, 8% notefor $450,000. The balance was paid from cash restricted for an expansion project.

Land……..$500,000N/P……………$450,000Cash reserved forexpansion….. $ 50,000



2. Land costing $500,000 was purchased by issuing a 5-year, 8% notefor $450,000. The balance was paid from cash restricted for an expansion project.

2 NONE NONE ($50,000) +$50,000 NONE

Land……..$500,000N/P……………$450,000Cash reserved forexpansion….. $ 50,000

Land of $500,000-capital debt $450,000 (proceeds expended already)---------------------------$50,000

what happened to the capital asset landand the long-term note/p?

Capital Assets-Acc/Dep- Debt related to capital assets expended.



3. Depreciation expense for the year was $200,000.

3 ($200,000) NONE NONE ($200,000) ($200,000)

Depreciation Expense….$200,000Accumulated Depreciation……$200,000

Capital Assets-Acc/Dep- Debt related to capital assets expended.



4. Interest expense of $36,000 on the note in transaction 2 was paidfrom unrestricted resources.

4 ($36,000) ($36,000) NONE NONE ($36,000)

Interest expense……… $36,000Unrestricted Cash……….$36,000



5. Bonds payable of $200,000 were repaid with restricted resourcesalong with $50,000 of interest. The bonds were issued several years earlier to finance capital asset construction.

5 ($50,000) ($250,000) NONE $+200,000 ($50,000)

Bonds payable……..$200,000Interest expense….. $50,000

Cash………………$250,000

it doesn’t say itcame from restricted

because there is lesscapital debt.



6. A capital grant of $500,000 was received, but no qualifying costshave been incurred.

6 NONE NONE NONE NONE NONE

Cash……….$500,000Deferred capital grant……… $500,000

Cash restricted $500,000-Related capital debt $500,000------------------------------------------0-



7. $300,000 of the restricted capital grant from transaction 6 wasexpended for its intended purpose.

7 +$300,000 NONE NONE +$300,000 +$300,000

Asset………$300,000 (because its capital grant)Cash-Restricted………$300,000

Deferred Capital Grant…$300,000Revenue-Capital Contributions…..$300,000

- cash $300,000+ defcap/grt $300,000------------------------0-



8. Sales revenues amounted to $1,000,000.

8 +$1,000,000 +$1,000,000 NONE NONE +$1,000,000

Cash……….$1,000,000Sales………$1,000,000



9. Interest revenues restricted to the use of the Enterprise Fund$40,000 were received.

9 +$40,000 +$40,000

Cash restricted….. $40,000Interest revenue………$40,000

its restricted to the Enterprise Fund but anything within the enterprise fun can useit (thus its unrestrictedwithin the fund).pg. 391

In govt-wide these assets would be restricted because therethe Enterprise fund ismerged with other funds.



10.The cost of materials and supplies used for the year was$75,000.

10 ($75,000) ($75,000) NONE NONE ($75,000)

Supplies expense…….$75,000Supplies…………..$75,000

Prepare the journal entries needed in an Enterprise Fund to record the followingtransactions. Include any adjusting entries required.

1. Issued REFUNDING BONDS at par, $8,000,000. The bonds bear interestat 8% payable annually and mature in 5 years. (Ignore bond issue costs).

Cash.................... $8,000,000Refunding Bonds Payable..................$8,000,000

2. Paid the $8,000,000 into an irrevocable trust to defease in substancethe previously outstanding bonds payable of the Enterprise Fund. Theseold bonds have a par value of $7,200,000 and an unamortized discount of$100,000. The old bonds are scheduled to mature in 6 more years.

Bonds payable............................$7,200,000Deferred Interest Expense adj.. 900,000

Discount on Bonds payable................................$100,000Cash....................................................................$8,000,000

Refunding bond...........$8,000,000-Def Int Exp.................... $900,000------------------------------------------------------- NET amountof liability................. $7,100,000

3, The annual interest payment on the new bonds was made at yearend when due.

$8,000,000 x .08 = $640,000 interest in cash

Interest Expense.............. $640,000Cash...................................$640,000

ADJUSTMENT OF DEFERRED INTEREST.

amortize over shorter of remaining term of old debt (6 years) or termof refunding issue (5 years). $900,000 / 5 = $180,000

Interest expense.........$180,000Deferred Interest Expense............$180,000

Indicate the classification in which each of the following would be reported in a government proprietary fund cash flow statement. Use the following letters for each classification to respond:

A: OPERATING activities.

B: NONCAPITAL FINANCING activities.

C: CAPITAL and RELATED FINANCING activities.

D: INVESTING activities.

E: NONE of the above

1. Cash paid to purchase investments with resources restrictedfor capital asset construction.

2. Cash received from the sale of equipment.

3. Cash paid for salaries.

4. Cash received from interest on investments that are restricted for servicingbonds that had been issued to finance construction of a building.

5. Cash paid for interest on refunding bonds that were issued for repaymentof bonds that were issued to finance purchase of major pieces of equipment.

6. Cash transfer paid to General Fund (The General Fund budget requires these funds to be used to help finance acquisition of a fire truck).

The GF is using for capital purposes but to the enterprisefund it was just a misc transfer.

7. Cash received from operating grants.

8. Cash received from a transfer from the GF to finance expansion of thephysical plant.

9. Cash received from capital grants.

10. Cash paid for interest on a short-term note issued to fulfill a temporary needfor operating funds.

Interest NEVER goes into operating in GNP.

Explain or illustrate how the following items should be reported in a proprietaryfund’s statement of revenues, expenses and changes in net assets:

1. DEPRECIATION on capital grant financed capital assets.


2. Depreciation on INFRASTRUCTURE ASSETS.

WHAT IF THE MODIFIED APPROACH?

Then depreciation is not done.


3. Transfers from other funds.


4. Cash proceeds of short-term note issuances.


5. Retirement of bonds payable of the fund.


6. Routine annual transfers from other funds.


7. Gain on sale of capital assets.

unless its considered a SPECIAL GAIN then with special items.


8. “Loss” on advance refunding of bonds.

shows as contra liability on balance sheet


9. Restricted grants received that can be used for operations or forcapital asset acquisition- assume 30% was expended during the yearto acquire capital assets, 30% to cover operating expenses and 40%is not expended.

Operating grants are ALWAYS shown as NONOPERATING REV.Operating grants are ALWAYS shown as NONOPERATING REV.So 60% (operating and capital asset restrictions) are shown as non operating revenues because allowable costs met, the other 40% is shownas liability on the balance sheet (deferred revenue).


10. Entering into a capital lease with a capitalizable cost of $4,000,000 on the lastday of the year- assume an initial payment on that day of $1,000,000.

NO EFFECT on operating statement:

Leased Asset $4,000,000Capital Lease Obligation $4,000,000

Capital Lease Obligation... $1,000,000Cash.................................$1,000,000

Using the information provided below for the Airport Enterprise Fund of the Cityof Demere, prepare a statement of revenues, expenses and changes in net assetsfor 20X3.

City of DemereAirport Enterprise Fund

Statement of Revenue, Expenses and Changes in Net AssetsFor the Year Ended 20X3

Operating Revenue:

Operating Expenses:

Operating Income

Nonoperating Revenues (Expenses)

Income before Other Revenues, Expenses and Transfers

Change in Net Assets



Operating Revenue:

Operating Expenses:

Operating Income




CHARGES FOR SERVICES.............................. $3,500,000



Operating Revenue:

Operating Expenses:

Operating Income





SALARIES EXPENSE........................ $1,000,000



Operating Revenue:

Operating Expenses:

Operating Income






CONTRACTURAL SERVICES USED........ $1,100,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000

DEPRECIATION EXPENSE.......... $1,500,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000


INTEREST RECEIVED............$120,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000


Investment Income............$120,000

INCREASE IN FV OF INVESTMENTS.......... $23,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000


Investment Income............$143,000

Loss on sale of CAPITAL ASSETS........... $4,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000


Investment Income............$143,000 Loss on sale of CAPITAL ASSETS........... $4,000

TRANSFERS from the GF............ $222,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000




Capital assets donated for enterprise fund use.........$500,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000





Interest expense............. $450,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000





Interest expense............. $450,000

Amortization of deferred interest expense adjustment with credit bal.... $25,000



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000





Interest expense............. $450,000 – 25,000 = $425,000

Expenditures that qualify (100% reimbursable) under capital grant... $1,300,000

•assumption is probably that contractural servicesof $1.1M and supplies used of $200K are the qualifyingexpenditures (they aren’t new ones).

LOOKING FORRECOGNITION OF THE REVENUERELATED TO ALLOWABLECOSTS



Operating Revenue:

Operating Expenses:

Operating Income







SUPPLIES USED................ $200,000




Capital assets donated for enterprise fund use.........$500,000. OTHER REV + $1,300,000 = $1,800,000

Interest expense............. $450,000 – 25,000 = $425,000

Operating Revenues:Charges for services.................................................. $3,500,000

Operating expenses:Salaries............................................... $1,000,000Contractural services........................ 1,100,000Supplies.......................................... 200,000Depreciation...................................... 1,500,000 3,800,000

-----------------Operating Income (loss) (300,000)

Nonoperating income (expense)Investment income....................... 143,000Interest expense.......................... (425,000)Loss on sale of capital assets ( 4,000) ( 286,000)

----------------

Income (Loss) before other revenue, expenses and transfers ( 586,000)

Capital contributions.................... 1,800,000

Transfer from GF...................... 222,000

Increase in NA....... 1,436,000

Net assets 1/1/03............................ 3,827,000 (given)

Net Assets 12/31/03.............................. 5,263,000===========

The city of Lynn operates its municipal airport. The trial balance of theAirport Fund as of January 1, 20X0, was as follows:

Cash…………………… $ 37,000A/R…………………….. 50,000Allowance for uncollectibles……………….. $ 2,000Land…………………….. 200,000Structures/Improvements 700,000Acc Dep (Struct & Improv)………………… 50,000Equipment…………… 250,000Acc Dep (Equipment)…………………….. 90,000Vouchers/p…………………………………. 48,000Bonds payable…………………………….. 800,000Net Assets………………………………….. 247,000

--------------- -------------------$1,237,000 $1,237,000========= =========

1. Revenues collected in cash; - aviation revenues………… $340,500- concession revenues….. $90,000- revenues from airport

mgt…………….. $30,000- revenues from sales of

petroleum products(net after deducting all costsof sales)…………………………. $10,500

$471,000

CASH............ $471,000AVIATION REVENUES.......... $340,500CONCESSION REVENUES.. 90,000REVENUES FROM AIRPORT MANAGEMENT... 30,000NET REVENUES FROMSALES OF PETROLEUM.... 10,500

The following transactions took place.

Asks for a worksheet.Start out with JOURNAL ENTRIES

2. Expenses, all paid in cash with the exception of $24,000, which remainedunpaid at 12/31, were operating, $222,000; maintenance, $75,000; general and administrative, $73,000.

Operating expenses........ $222,000Maintenance expense... 75,000G&A expense............. 73,000

Cash..................................... $346,000Vouchers/p........................ 24,000

3. Bad debts written off during the year, $1900.

Allowance for uncollectible accounts... $1900Accounts Receivable............................$1900

4. The vouchers payable outstanding on January 1, 20X0, were paid.bal = $48,000.

Vouchers payable........ $48,000Cash......................................... $48,000

5. Bond principal paid during the year, $50,000, along withinterest of $40,000.

Bonds payable....... $50,000Interest expense... 40,000

Cash.......................... $90,000

6. The remaining A/R outstanding on January 1, 20X0 werecollected. bal = $50,000 - $1,900 (write off) = $48,100.

Cash........ $48,100A/R.............. $48,100

7. A/R on 12/31/X0 amounted to $30,000, all applicable toaviation revenues, of which $1,400 is estimated to be uncollectible.

A/R.......... $30,000Allowance for doubtful accounts......... $1,300Aviation Revenues................................ 28,700

Allowance

2000 beg bal1900w.o.

100

$1,400 needs to get to

1300

A/R

50,000 (beg) 1,900 w.o

48,100 collected

30K needs to get to

$0

30K

8. Accrued interest payable at the end of the year, $3000.

Interest expense........ $3000Interest payable........ $3,000

9. Depreciation charges:Structures & Improvements........ $14,000Equipment..................... 21,000

Depreciation expense-S&I.... $14,000Depreciation expense-EPT..... 21,000

Acc/Dep..........................................$14,000Acc/Dep........................................... 21,000

unrestricted cash

37,000

a/r

allow for d/a

land

interest p

acc dep s&I

equip

acc dep e.

vouchers/pbonds p na

50K

2000

200K ICA 50K

250KICA

90K

48K800K 247,000

471,000(1)

346,000 1900

1900

48K

48K

50K

90K48100

4810030K

1300

72,100 UR

28,600 NET of allowance UR

24K UR

3000 UR

S&I

700K ICA

14,00021K

capital assets net to $975,000 net of acc dep

750K ICA

64,000 ICA111,000ICA

b. Compute the beginning and ending balances of the threeNET ASSET components.

UNRESTRICTED RESTRICTEDINVESTED IN CAPITALASSETS, NET OF RELATEDDEBT

Cash $72,100

A/R 28,600

Capital Assets $975,000

Land.... $200K+ S&I 700K

(50K) (14K)

+ EPT 250K (90K) (21K)

----------------------$975,000

Vouchers/p (24,000)

Interest/p (3,000)

Bonds payable (750,000) *assume they arerelated to capital ast.

$73,700 $225,000

C. Prepare a statement of Net Assets as of 12/31/X0.

City of LynnAirport Enterprise Fund

Balance Sheet12/31/X0

ASSETS:Current Assets:

Cash............. $72,100A/R.............. $30,000less: allowance (1,400) 28,600 $100,700

Capital Assets:Land.............. $200,000Structures & I $700,000Less: Acc/Dep (64,000) 636,000Equipment 250,000Less: Acc/Dep (111,000) 139,000 975,000

------------- $1,075,700

Liabilities and Governmental Equity

Liabilities:Current liabilities:Vouchers/p............... $24,000Accrued int/p........ 3,000 $27,000

Bonds payable..... 750,000 $777,000

Net Assets:Invested in capital assets netof related debt....... $225,000

Unrestricted.... 73,700 $298,700------------------$1,075,700

d. Prepare a statement of revenues, expenses, and changesin net assets for the Airport Fund for the fiscal year ended12/31/X0.

City of LynnAirport Enterprise Fund

Operating StatementFiscal year ended 12/31/X0

Revenues:Aviation ($370,500 - $1,300).... $369,200Concession... 90,000Airport management.... 30,000Sales of petroleum (after deductingcost of sales)..... 10,500 $499,700

Expenses:Operating (various)........ $222,000Maintenance.... 75,000G&A..... 73,000Dep- S&I... 14,000Dep-Ept 21,000 $405,000

Operating Income....... $94,700

Non operating expenses:Interest expense........ $43,000

Changes in Net Assets.... $51,700

Net assets, January 1, 20X0 $247,000Net assets, 12/31/X0..... $298,700

Prepare journal entries, including adjusting entries needed, to record the following transactions for the Pickens County Transit Authority. Assume the fiscalyear ends on April 30.

1. Issued REFUNDING BONDS at par, $10,000,000. The interest rateis 10%, payable annually. Bonds mature in 10 years. Bond issuecosts were $200,000.

Cash............ $9,800,000UnamortizedBond Issue Costs $200,000

Refunding Bonds Payable............. $10,000,000


2. Retired old debt with refunding proceeds of $9,800,000.

• Bonds payable outstanding (old).... $9,300,000• Unamortized premium on outstanding

bonds................................................ $300,000• Unamortized bond issue costs on

outstanding bonds............................. $ 50,000* Remaining term of old debt, 4 years.

B/P (Old)......................... $9,300,000Unamortized Prem............ 300,000Def Interest Exp Adj....... 250,000

Unamortized bond issue costs.......... $ 50,000Cash..................................................... $9,800,000


3. Annual interest payment ($1,000,000) on new bonds was made at the duedate which is year end.

Interest expense............. $1,000,000Cash....................................$1,000,000

Also need to do adjustments:

Interest Expense...... $82,500Unamortized Bond Issue Costs ($200,000/10)....... $20,000Deferred Interest Expense Adjustment($250,000/4 remain term of old bond is shortest).. $62,500


4. On April 30, 20X2, the Transit Authority leased 10 buses under a 6-year,non-cancelable capital lease. The capitalizable cost of the buses was$680,000, and an $80,000 down payment was made. The countydoes not receive title to the leased buses at the end of the lease term.

Equipment under capital lease........ $680,000Obligation under capital lease................. $600,000Cash.......................................................... $ 80,000


5. Lease payments made during the fiscal year ended April 30, 20X3, totaled $130,262, including interest of $37,932.

Interest expense............ $37,932Obligation under capitallease.............................. $92,330

Cash....................................$130,262

also need to depreciate buses

Depreciation expense..........$113,333Accumulated Depreciation-Leased Equipment.... $113,333


6. The county estimates its probable losses from claims and judgmentsagainst the Transit Authority for events occurring in 20X2-20X3 at $227,000. However, only $85,000 of this is a current liability.

Losses-C&J................ $227,000Liability for C&J-Current...................$85,000Liability for C&J-LT........................... $142,000

Using the format at the end of this exercise, indicate the impact that each of the following...

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Transcript of Using the format at the end of this exercise, indicate the impact that each of the following...