Project Nine

The Financial Statements

Learning Objectives

In this project, you will learn to:

Prepare the working paper postings to adjust from the modified accrual basis to the full accrual basis.

Prepare the basic financial statements required by GASB 34.

Introduction

In this project, we will prepare the following basic statements that must be included in a Comprehensive Annual Financial Report (CAFR):

Government-Wide Statements (full accrual basis):

oStatement of Net Position

oStatement of Activities

Fund Statements:

For the governmental funds (modified accrual basis):

Balance Sheet

Statement of Revenues, Expenditures and Changes in Fund Balances For the proprietary funds (full accrual basis):

Statement of Net Position

Statement of Revenues, Expenses and Changes in Fund Net Position

STEPS (For doc # note the numbers of the steps below):

1)Close the budgetary entries (estimated revenues, appropriations, budgetary control).

2)Entering Adjustments to Reconcile Modified Accrual to Full Accrual. Remember these are all working paper postings and are not posted to the general ledger. Complete all entries (A-N) in the template in the Project 9 tab. Do not post these working paper postings to the General Ledger accounts.

For all entries that require an adjustment to beginning Net Position (as was done in Chapter 11 exercises), utilize the specific Fund Balance instead.No fund # is needed in the fund column as these adjustments are to prepare combined full-accrual statements for all governmental funds.For Doc #, please use the letters a-n as denoted below. Department numbers should still be used for expenses.

a)Recall from Project 1 that assets were received from Mayberry County upon establishment of the Town of Oakville. For the full accrual basis, we must incorporate the following assets into the government-wide statements (credit to beginning General Fund Balance):

Land

$800,000

Buildings

6,000,000

Equipment

1,300,000

Infrastructure

40,000,000

Total

$48,100,000

b)In Project 1, it was also noted that Oakville assumed long-term bond debt of $25,000,000 in the general fund. Per the full accrual basis, this amount has to be incorporated into the government-wide statements.

c)At the end of Project 3, we noted information for the Government-wide Statements: On March 31, 2017, the funds purchased capital assets for $4,300,000 as follows:

Capital Assets - plant & equipment

$1,254,000

Buildings

600,000

Infrastructure

2,446,000

Total

$4,300,000

These capital assets were recorded in governmental funds from invoices #303 and #304 as follows:

General government

$85,000

(Small piece of equipment)

Public safety

312,000

(Medium piece of equipment)

Public works

800,000

(Large piece of equipment)

Culture and recreation

57,000

(Tiny piece of equipment)

Public safety

600,000

(Police building)

Public works

1,646,000

(Main Street infrastructure project)

Culture and recreation

800,000

(Arts infrastructure project)

Total

$4,300,000

d)In Project 3, we also noted vacation pay that will be paid in the future as follows:

General government

$224,000

Public safety

188,000

Culture and recreation

299,000

Public works

30,000

Total

$741,000

For government-wide financial statements, this liability needs to be accrued as an other payable. Be sure to note the department numbers.

e)In Project 4, there was an entry to issue bonds to construct a bridge.

The town issued $4,000,000 in 30-year general obligation bonds at a premium of $142,000.

Bonds

$4,000,000

Premium on bonds

142,000

Total

$4,142,000

f)In Project 4, the town also recognized payments to contractors in the amount of $1,000,000. In the government-wide statements, this amount must be included in "construction in progress" rather than be recognized as an expenditure.

g)In Project 4, the additional $350,000 of interest on bonds that is due after year-end must be accrued in the working paper postings under the full accrual basis for the government-wide statements.The accrual can be captured under bonds payable. This is for Department #417.

h)In Project 4, the amortization of the bond premium of $1,290 issued during the year must be recorded in the government-wide financial statements under the full accrual basis. This is for Department #417.

i)In Project 5, on May 31, 2017, the town calculated, but did not record the following depreciation on capital assets (plant and equipment):

Depreciation - General government

$85,000

Depreciation - Public safety

68,000

Depreciation - Culture and recreation

373,000

Depreciation - Public works

1,154,000

Total

$1,680,000

Depreciation must be recognized in the government-wide statements and assigned to the appropriate department numbers.

j)In Project 5, the General Fund sold general government equipment for $30,000 on May 31, 2017 and recorded the cash receipt and revenue in the governmental funds based on modified accrual accounting.This entry must be part of the working paper postings based on full accrual accounting. The equipment was recorded on the books at $50,000 with no accumulated depreciation. Note: By using the other financing source account from Project 5 and removing the asset from the books, the proper amount of gain/loss should be recognized.

k)In Project 6, the town leased a $100,000 emergency communications system (equipment) for its police department. Inasmuch as the lease qualifies as a capital lease, the town, in its government-wide statements, must record an asset of $100,000 and a long-term lease liability (other payables) of $100,000 as part of the working paper postings.The original entry for the source of financing and expenditure are improper for full accrual accounting

l)In Project 6, the town made its first-year lease payment of which $7,587 was for the debt principal. This lease payment has to be posted under the full accrual basis for government-wide financial statements as a reduction in a liability, not an expenditure.

m)The amount remaining as the balance in Deferred Inflow of Resources in the governmental funds relates to revenue that is not measurable and available.However, for full accrual basis statements, this amount reflects revenue for the current fiscal year. Record the necessary adjustment for revenue.

n)There were two transfers between governmental funds that totaled $1,414,000. This should be eliminated for government-wide reporting.

3)Trial Balance. Post the unadjusted balances from the GL to the Trial Balance tab. Do not include the budgetary accounts in the Trial Balance. Post the adjustments recorded in the Project 9 tab from the above transactions in the Adjustment columns on the Trial Balance tab (except #1 the budget closing entry). Show the adjusted balance in all accounts.

4)Financial Statements. Prepare the financial statements for the eight months ending August 31, 2017 using the templates in the financial statements Excel file. The file contains a separate worksheet tab for each of the financial statements.

Hint:

Utilize the department codes for the proper separation of expenses in the government-wide statement of revenues, expenses, and changes in net position. Be sure to look at the GL detail as well as the reconciling entries from Project 9.

Beginning fund balance for governmental funds and beginning net position for proprietary funds are the beginning fund balances that were established in project 1 plus any adjustments made in project 9 specifically to fund balance.Beginning net position for the governmental-type activities and business-type activities columns on the government-wide statements are calculated in the same way.

Ending total net position on the statement of revenues, expenses, and changes in net position for the government-wide statement should tie to the government-wide statement of net position.

There are no restrictions for the purpose of designating net position into the three categories on the government-wide statements or the proprietary fund statements.However, there should be a designation for "net investment in capital assets" for both the proprietary fund statement and government-wide statement.

The fund balance on the governmental fund statements does not need to be classified into the various restrictions (i.e. nonspendable, committed, assigned, etc.).Since the consumption method was used, inventory does not need to be separately denoted in the fund balance.