A school district establishes a vehicle repair shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the following transactions:
• It purchases equipment at a cost of $24 million and issues long-term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.
• It purchases supplies at a cost of $4 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.
• It incurs $13 million in other operating costs.
• It bills other departments for $19 million.
For purposes of external reporting, school district officials are considering two options:
• Account for the vehicle repair shop in an internal service fund
• Account for the vehicle repair shop in the general fund
1. For each of the following items indicate the amounts that would be reported in the year-end financial statements of: (1) The internal service fund, assuming that the school district selected the first option, and (2) the general fund, assuming that it selected the second option.
a. Billings to other departments (revenues)
b. Cost of supplies (expense or expenditure)
c. Expenses or expenditures relating to acquisition or use of equipment
d. Other operating costs
e. Equipment (asset)
f. Accumulated depreciation
g. Inventory (asset)
h. Notes payable
i. Non-spendable fund balance (for inventory)
2. What would be the total expenses reported in the internal service fund, assuming that the school district selected the first option?
3. What would be the total amount of expenditures reported in the general fund, assuming that the school district: (1) selected the first option; (2) selected the second option?
4. What would be the reported revenue and expenses relating to the vehicle-repair shop in the district's government-wide statements? Would it matter whether the district accounted for the shop in an internal service fund or in the general fund?