smn10e tif ch07 prob

Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)Problems – Chapter 7

Problem 1 – Bond Anticipation Notes

Green Mountain County had the following transactions related to the issuance of its bond anticipation notes. All amounts are in thousands of dollars.

Transactions:

1. The county issued $5,000 of 6-month, 6% bond anticipation notes (BANs) on March 1, 20X5. The proceeds will be used to begin construction of a major courthouse addition and improvement.

2. Prepare any entries required at December 31, 20X5, the fiscal year end.3. The county issued $9,000 of courthouse bonds at par on August 15, 20X5. The bond

issuance costs were $100.4. The BANs were repaid on the due date, September 30, 20X5.

Requirements:

A. (1) Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes do not qualify for long-term debt treatment. If no entry is required, state “No entry required” and explain why.

(2) Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.

B. (1) Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes qualify for long-term debt treatment. If no entry is required, state “No entry required” and explain why.

(2) Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.

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Answers:

# Accounts Debit CreditA (1) BANs treated as short-term debt

1 Cash 5,000BANs Payable 5,000

2 Expenditures – Debt Service – Interest (5,000 x 6% x 4/12) 100Interest Payable 100

3 Cash 8,900Expenditures – Debt Service – Bond Issue Costs 100

OFS – Bond Principal 9,000

4 BANs Payable 5,000Expenditures – Debt Service – Interest (5,000 x 6% x 2/12) 50Interest Payable 100

Cash 5,150

A (2) Effects of journal entries

Trans# Assets Liabilities

Fund Balance GCA GLTL

Net Position

1 5,000 5,000 NE NE NE NE2 NE 100 (100) NE NE NE3 8,900 NE 8,900 NE 9,000 (9,000)4 (5,150) (5,100) (50) NE NE NE


# Accounts Debit CreditB (1) BANs treated as long-term debt

1 Cash 5,000OFS – BAN Principal 5,000

2 No entry required. No interest accrued on long-term debt.



4 OFU – Repayment of BANs 5,000Expenditures – Debt Service – Interest (5,000 x 6% x 6/12) 150

Cash 5,150

B (2) Effects of journal entries



Net Position

1 5,000 NE 5,000 NE 5,000 (5,000)2 NE NE NE NE NE NE3 8,900 NE 8,900 NE 9,000 (9,000)4 (5,150) NE (5,150) NE (5,000) 5,000


Problem 2 – Bond Issue Issues

There are 4 separate scenarios for bond issuances below. For each scenario, prepare the journal entry or entries for the transaction for the Capital Projects Fund and indicate the effects of each scenario on the Capital Projects Fund balance sheet equation and the General Capital Assets and General Long-Term Liabilities accounts.

Scenarios:

A. $3,000 in 6%, 15-year serial bonds are issued at par in a private placement.B. $4,000 in 5%, 20-year serial bonds are issued at par. Bond issue costs were $100.C. $5,000 in 4%, 25-year serial bonds are issued at 104. Bond issue costs were $150.D. $6,000 in 4%, 30-year bonds were issued at 97. Bond issue costs were $200.

Answers: Journal entries

# Accounts Debit CreditA Cash 3,000


B Cash 3,900Expenditures – Debt Service – Bond Issue Costs 100


C Cash 5,050Expenditures – Debt Service – Bond Issue Costs 150

OFS – Premium on Bonds (4% x 5,000) 200OFS – Bond Principal 5,000

D Cash 5,620Expenditures – Debt Service – Bond Issue Costs 200OFU – Discount on Bonds (3% x 6,000) 180


Effects of journal entries



Net Position

A 3,000 NE 3,000 NE 3,000 (3,000)B 3,900 NE 3,900 NE 4,000 (4,000)C 5,050 NE 5,050 NE 5,200 (5,200)D 5,620 NE 5,620 NE 5,820 (5,820)


Problem 3 – Comprehensive Capital Projects Fund Problem

Requirements:

1. Prepare all the entries required in the Jail Addition Capital Projects Fund for Franklin County for the following transactions and events. No explanations are required. If no entry is required, state “No entry required” and state why. Assume that the bond anticipation notes meet the criteria for being treated as long-term debt. June 30 is the fiscal year end for Franklin County. All amounts are in thousands of dollars.

2. Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.

Transactions:

1. The county issued $2,500 of 8-month, 9% bond anticipation notes on August 1, 20X3. The proceeds are to be used to begin construction of a recently approved addition to the county jail.

2. On July 10, the county signed a contract for $5,000,000 for construction of the addition.3. On November 30, the contractor billed the county for 40% of the work on the jail

addition. The actual cost of the work was $2,200. The county paid all but 10% of the amount billed. The balance is to be paid upon completion and approval of the project.

4. The county issued $5,000 of 10-year, 8% bonds at par on March 31, 20X4. Bond issue costs of $50 were withheld from the proceeds. Interest and one-tenth of the principal are payable annually on the bonds. The bond proceeds are to be used to repay the bond anticipation notes and to finance construction of the jail addition.

5. On March 31, the county transferred $200 from the General Fund to the Jail Addition Capital Projects Fund to provide additional funding for the project. The BANs and interest also were paid on that date.

6. In May the contractor billed the county $2,800 for the remainder of the work on the jail. The county approved the facility and paid the contractor all amounts owed.


Answers: 1. Journal Entries

# Accounts Debit Credit1 Cash 2,500

OFS – BAN Principal 2,500

2 Encumbrances 5,000Encumbrances Outstanding 5,000

3 Encumbrances Outstanding (40% x 5,000) 2,000Encumbrances 2,000

Expenditures – Capital Outlay 2,200Retained Percentage Payable (10% x 2,200) 220Cash 1,980



5 Cash 200OFS – Transfer from GF 200

OFU – Repayment of BANs 2,500Expenditures – Debt Service – Interest (2,500 x 9% x 8/12) 150

Cash 2,650


Expenditures – Capital Outlay 2,800Retained Percentage Payable 220

Cash 3,020


2. Effects of journal entries



Net Position

1 2,500 NE 2,500 NE 2,500 (2,500)2 NE NE NE NE NE NE3 (1,980) 220 (2,200) 2,200 NE 2,2004 4,950 NE 4,950 NE 5,000 (5,000)

5a 200 NE 200 NE NE NE5b (2,650) NE (2,650) NE (2,500) 2,5006 (3,020) (220) (2,800) 2,800 NE NE

Problem 4 – Comprehensive Capital Projects Fund Problem with Budget

Moore County is developing a new all-sports county park. The estimated cost of the project is $15,000 (all amounts are in thousands of dollars). Funding is being provided for the project based on the following schedule:

General Obligation Bonds, 8%, 30-year serial bonds........................ 9,000State capital grant (expenditure driven)............................................. 4,500County resources (transfers from the General Fund)......................... 1,500Total resources................................................................................... 15,000

Transactions:

1. The bonds were issued at 104 and with $20 in bond issue costs.2. The funding from the General Fund was received.3. The county purchased land for the project paying $2,000 in cash.4. A contract for construction of the required facilities 12,000.5. During the year, the county was billed $8,000 for the project. It was projected that this

billing is for 75% of the construction project. The county paid all but 10% of the amount. The balance will be paid when the contract is completed.

6. Near the end of the fiscal year, the state paid the amount owed, less 20% that is in question. This amount will be paid no earlier than 90 days into the following fiscal year.

Requirements:

1. Prepare all the entries required in the Park Capital Projects Fund for Moore County for these transactions and events. No explanations are required. If not entry is required, state “No entry required” and state why. All amounts are in thousands of dollars.

2. Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.


1. Journal entries

# Accounts Debit CreditBudget for the ProjectGO Bonds 9,000 60%State capital grant (expenditure driven) 4,500 30%County resources 1,500 10%

Total 15,000 100%


OFS – Premium on Bonds (4% x 9,000) 360OFS – Bond Principal 9,000

2 Cash 1,500OFS – Transfer from GF 1,500

3 Expenditures – Capital Outlay 2,000Cash 2,000

Due from State (2,000 x 30%) 600Revenues – Intergovernmental Grant 600

4 Encumbrances 12,000Encumbrances Outstanding 12,000


Expenditures – Capital Outlay 8,000Retained Percentage Payable 800Cash 7,200

Due from State (8,000 x 30%) 2,400Revenues – Intergovernmental Grant 2,400

6 Cash (80% x 3,000) 2,400Due from State 2,400

Revenues – Intergovernmental Grant 600Deferred Revenues 600


2. Effects of transactions


DeferredInflows


Net Position

1 9,340 NE NE 9,340 NE 9,360 (9,360)2 1,500 NE NE 1,500 NE NE NE

3a (2,000) NE NE (2,000) 2,000 NE 2,0003b 600 NE NE 600 NE NE NE4 NE NE NE NE NE NE NE

5a NE NE NE NE NE NE NE5b (7,200) 800 NE (8,000) 8,000 NE 8,0005c 2,400 NE NE 2,400 NE NE NE6a NE NE NE NE NE NE NE6b NE NE 600 (600) NE NE NE


smn10e tif ch07 prob

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