(Conversion to government-wide financial statements)

Harlan City, a small city with revenues less than $\$ 10$ million a year, is planning to issue its first set of government-wide financial statements for the year ended December 31, 2004. To prepare for the transition, the city comptroller wants to have a government-wide statement of net assets as of January 1, 2004, the beginning of the year. The available information includes extracts from the governmental funds portion of the balance sheet prepared as of

December 31,2003 , together with other data necessary to construct a government-wide statement of net assets for governmental activities, using the economic resources measurement focus and accrual basis of accounting.
The balance sheet for the combined governmental funds as of December 31,2003 , is as follows:

The following additional information is available as of December 31, 2003:
Capital assets: Harlan's capital asset records show that the total cost of the assets in use as of December 31, 2003, is $\$ 8,400,000$. Estimated accumulated depreciation on the assets is $\$ 4,600,000$.
Bonds payable: Harlan has outstanding bonds payable at December 31, 2003 , of $\$ 2,600,000$. Of this amount, principal due to be paid during the calendar year 2004 is $\$ 150,000$. Analysis of the outstanding bonds shows that all of the debt had been sold to finance the acquisition of capital assets, except for $\$ 200,000$ that had been sold in 2001 to provide cash for an unanticipated operating expense.
Interest on long-term debt: In its fund statements, Harlan recognizes interest on bonds payable when it is due and payable. It does not accrue interest for year-end "stub periods" that will be paid early in the following year. Stub period interest at December 31,2003 , was $\$ 20,000$.
Property taxes: Harlan expects that all of its property taxes receivable will be collected in 2004 . Property tax revenues of $\$ 18,000$ were deferred because Harlan did not expect to collect them during the first 60 days of 2004 .
Other expenses: Employees may accumulate vacation pay, subject to certain limits, that they may receive in cash on retirement. Accrued expenses of $\$ 14,000$ include $\$ 2,000$ of accrued vacation pay that the city will pay early in 2004 to retired employees. Other employees have accumulated vacation pay of $\$ 42,000$ that Harlan expects to pay when they retire in future years. No accrual has been made for this amount.
Required: 1. Prepare a six-column worksheet similar to that shown in Table 10-7, showing the balances in the fund accounts, the
adjusting entries needed to prepare a government-wide statement of net assets as of January 1, 2004, and the adjusted balances. Make the adjustments needed to prepare a government-wide statement of net assets, and support the adjustments with journal entries. (Hint: Reclassify the fund balance to net assets. Because no statement of activities is required, the adjustments to report the additional assets and liabilities will directly affect net assets.)
2. Prepare a statement of net assets as of January 1, 2004, in classified format. Show the net assets either as invested in capital assets, net of related debt, or as unrestricted.
3. Prepare a reconciliation of the funds balance sheet to the government-wide statement of net assets in a format similar to that shown in Table 10-10, Part A.

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Assets Cash Property taxes receivable Due from other governments Total assets Liabilities Accounts payable Accrued salaries and other expenses Deferred property tax revenues Total liabilities Fund Balances Unreserved Total fund balances $175,000 85,000 40,000 $300,000 $ 43,000 14,000 18,000 75,000 225,000 225,000 Total liabilities and fund balances $300,000