Part 1:

Write the following questions:

1. Why are general capital assets not recorded in governmental funds?

2. A state incurs interest on funds used while a highway was under construction. How will this interest be accounted for on the state’s (a) capital project’s fund statements and (b) government-wide statements?

3. How should governments report their long-lived assets in their government-wide financial statements?

Part 2:

General capital assets are accounted for differently in fund and government-wide financial statements. A city engaged in the following transactions during a year:

1. It acquired computer equipment at a cost of $40,000.

2. It completed construction of a new jail, incurring $245,000 in new costs. In the previous year the city had incurred $2.5 million in construction costs. The project was accounted for in a capital projects fund.

3. It sold for $16,000 land that it had acquired three years earlier for $28,000.

4. It traded in a four-year-old sanitation department vehicle for a new model. The old vehicle had initially cost $27,000, its carrying value at the time of trade was $17,000, and its market value was $13,000. The city paid additional $39,000 cash for the new model. The fair value of the new model was $52,000.

a. Prepare journal entries to reflect the transactions in an appropriate governmental fund (e.g., a general fund or a capital projects fund)

b. Prepare journal entries to reflect the transactions in the city’s government-wide statements.