1. The City of Smithville uses an Internal Service Fund (ISF) to provide centralized printing services for all City agencies. City agencies are billed on a per-page basis (number of pages in a document times the number of documents printed). The City requires the ISF to develop its billing rate so as to recover all costs on the accrual basis of accounting, plus the cost of repaying a start-up loan made by the City to the ISF. Compute the rate per page to be charged by the ISF, based on the following factors:

a. Start-up loan from City to ISF - $400,000 non-interest bearing loan, to be repaid in equal payments over 10 years

b. Printing equipment - estimated to cost $300,000 and to have an average life of 10 years

c. Personnel costs - Estimated salaries of $500,000, plus contribution to Pension Trust Fund of 10% of salaries

d. Paper- Opening inventory of $16,000; expected purchases of $72,000; expected ending inventory of $12,000

e. Occupancy costs - Estimated at $50,000 per year

f. Expected number of pages to be printed annually - 20 million

2. (Journal entries for an Enterprise Fund)

These transactions relate to Metro Bus, which provides transportation services to residents of Putnam County. Metro Bus is accounted for as a County Enterprise Fund. Make journal entries to account for the following 2008 transactions in the Enterprise Fund.

a. On April 1, 2008, Metro borrows $3,000,000 by issuing 10-year revenue bonds. Bond principal is to be paid back in 20 equal semi-annual installments, starting October 1, 2008, together with interest of 6% a year on the unpaid principal.

b. On July 1, Metro pays cash for 10 buses costing $150,000 each. Metro also pays cash for land costing $100,000 and a building costing $900,000 to house its repair activity.

c. On July 1, Metro invests $200,000 of unused cash in a Certificate of Deposit (CD).

d. Metro pays cash of $50,000 to acquire an inventory of repair parts.

e. Metro collects bus fares of $900,000, which it deposits in the bank.

f. Metro sends an invoice for $10,000 to the County Social Services Agency for taking senior citizens on bus tours. The Agency receives appropriations from the General Fund.

g. Metro pays salaries of $500,000 to its bus operators, mechanics, and administrative staff.

h. The CD (transaction c.) matures and Metro receives a check for $203,000.

i. On October 1, 2008, Metro pays the first installment of principal and interest on the revenue bonds in transaction a.

To prepare financial statements at December 31, 2008, Metro makes adjusting journal entries for the following items:

j. To record six months' depreciation on the buses and building bought in transaction b. Estimated lives are: buses - 10 years; building - 30 years.

k. To record consumption of repair parts. A year-end physical inventory shows repair parts on hand amounting to $8,000. (See transaction d.)

l. To accrue for unpaid salaries of $12,000.

m. To accrue interest on the revenue bonds outstanding at December 31, 2008. (See transactions a. and i.)

Solutions for Question Number One

GENERAL JOURNAL Page

Date		Description of entry	POST REF	Debit		Credit

Solutions for Question Number Two

GENERAL JOURNAL Page

Date		Description of entry	POST REF	Debit		Credit