EX. 4-4

Grants are not necessarily recognized as revenue when they are awarded. Columbus City was awarded a state reimbursement grant of $150,000 to assist its adult literacy

program. The following were significant events relating to the grant:

The city, which is on a calendar year, was notified of the award in November 2017.

During 2018 it expended $30,000 on the literacy program and was reimbursed for $20,000. It expected to receive the balance in January 2019.

In 2019 it expended the remaining $120,000 and was reimbursed by the state for the $10,000 owing from 2018 and the amount spent in 2019.

1.Prepare journal entries to record the events in a governmental fund.

2.Suppose instead that the city received the entire $150,000 in cash at the time the award was announced in 2017. How much revenue should the city recognize in its governmental fund statements in each of the three years? Explain.

3.Suppose alternatively that the state awarded the city an unrestricted grant of $150,000, which the city elected to use to support the adult literacy program. The city received the entire $150,000 in cash at the time the award was announced in 2017. How much revenue should the city recognize in its govern- mental fund statements in each of the three years? Explain.

EX. 4-5

Transactions affect fund statements differently than they do government-wide statements. Preston Village engaged in the following transactions:

1.It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.

2.It acquired the building for $20 million. 3.It recognized, as appropriate, $300,000 of depreciation on municipal vehicles. 4.It transferred $2,060,000 from the general fund to a debt service fund. 5.It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt.

6.It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund.

a. For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).

b. Prepare journal entries to reflect how the transactions would be reflected in government-wide state- ments (which are prepared on a full accrual basis).

c. How can governments justify preparing two sets of financial statements, each on a different basis?

(Granof 178-179)

Granof, Michael H., Saleha Khumawala, Thad Calabrese, Daniel Smith. Government and Not-for-Profit Accounting: Concepts and Practices, 7th Edition. Wiley, 12/2015. VitalBook file.