Giving a memo to the City Controller:
You prepare and deliver a memo to the City Controller (professor) to identify and explain why each transaction (A through G) should be correctly recorded in each specific fund. The Controller will review the memo and return it to you with suggested changes, if needed, regarding the correct funds to use for the transactions. Estimated length of memo is approximately 3-4 pages, double-spaced, 12 CPI, Arial.
A. The city levied $9,000,000 of general property taxes, $8,800,000 of which has been collected. It expects to collect the balance shortly after the end of the year. These taxes are unassigned; they can be used for any legitimate city purpose. You believe these taxes should be recorded in the general fund, but you decide to double check by reviewing the GASB's following website: Touring the Financial Statements, Part III: The Governmental Funds noting the explanation for general funds.
www.gasb.org/cs/ContentServer?pagename=GASB/GASBContent_C/UsersArticlePage&cid=1176156735732
Dr CR
General Fund
Cash 8.8
Property Taxes receivable 0.2
Property taxes Revenue 9.00
To record property taxes
B. The City received a state grant of $200,000 to purchase computers. This grant is restricted by the state for a specific purpose. You need to determine in which fund you should record (categorize) the state grant for the purchase of the computers. You remember reading in GASB Statement No. 54 that governmental fund balance information is reported in five different classifications (nonspendable, restricted, committed, assigned and unassigned). Further, you decide to read the Fact Sheet about Fund Balance Reporting and Governmental Fund Type Definitions.
Special revenue fund Dr Cr
Cash 0.2
Grant revenue 0.2
To record a state grant restricted for the acquisition of computers
C. The City issued $12,000,000 in long-term bonds to construct a city building. The proceeds must be used for the intended purpose. You are unsure of the fund in which you record the proceeds of the long-term bonds, designated to construct a city building; however, you remember the major types of expenditures: operating, capital, debt service, and intergovernmental charges. Capital expenditures relate to the acquisition of capital assets (such as the city building). You recall that such expenditures may be recorded in the General Fund, Special Revenue Funds, or Capital Projects Funds, depending on the source of funding. You review the National Center for Education Statistics Government-wide Reporting requirements for types of expenditures and accounting treatments.
Capital Project Fund Dr Cr
Cash 12.0
Other financing source: Proceeds from borrowing 12.0
To record the issuance of bonds
D. The City constructed the school building for $11,000,000. You decide to account for the construction of the school building as an expenditure, causing the City Controller's asking for your justification in doing so. In gathering information from which to prepare a response, you note two things: 1) fund accounting follows the modified accrual basis of accounting and 2) fund accounting financial statements are the Fund Balance Sheet and the Statement of Fund Revenues, Expenditures, and Other Changes in Fund Balances. To prepare the memo to explain your decision to the City Controller, you browse the GASB Website in search of an authoritative explanation about the use of expenditure or expenses for fund accounting.
Knowing that GASB Statement No. 54 provides governmental fund requirements for constructing buildings, you search GASB for an explanation as to why capital assets and long-term liabilities are not included on Fund Balance Sheets. Further, you are interested in learning more about the nature of the Statement of Fund Revenues, Expenditures and Other Changes in Fund Balances.
Capital projects fund Dr Cr
Construction of building (expenditure) 11.0
Cash 11.0
To record the costs of constructing the school building
E. The City incurred $6,000,000 in general operating expenditures, $5.5. million of which has been paid. You review GASB No 54 and the GASB website to help you explain why the City uses the term expenditures instead of expenses for fund accounting.
General fund Dr Cr
General operating expenditures 6.0
Cash 5.5
Accounts payable 0.5
To record general operating expenditures
F. Using its state grant, the City purchased computers for $100,000. As with the construction of the building, the City would recognize the acquisition as an expenditure. You must justify to the City Controller why the correct recording of the computers are expenditures, even though the City would record them as assets in a supplementary ledger or list. When the government-wide statements are prepared, the computers would be recognized as assets.
Special revenue fund Dr Cr
Acquisition of computers (expenditures) 0.1
Cash 0.1
To record the acquisition of computers
G. The City transferred $1,100,000 from the general fund to the debt service fund to make the first payments of both principal and interest that are due the following year. Viewed as broken down into its components, this transaction is straightforward, involving simple entries to each of the two funds. You research which funds to use for this transfer using the GASB websites above and other websites that you find during your research.
General fund Dr Cr
Other financing use: Nonreciprocal transfer‐out to debt service fund $1.1
Cash 1.1
To record transfer to the debt service fund
Debt service fund
Cash 1.1
Other financing source: Nonreciprocal transfer‐in from general fund 1.1
To record transfer from the general fund