CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND

CAPITAL PROJECTS

OUTLINE
Number Topic Type/Task Status
(re: 13/e)

Questions:
5-1 Distinguishing general capital assets from fund Describe New
capital assets
5-2 Capital asset disclosures Explain New
5-3 Modified approach for infrastructure Describe New
5-4 Capital lease accounting Describe 5-8 revised
5-5 Asset impairment Explain New
5-6 Use of capital projects funds Explain 5-4 revised
5-7 Encumbrances Explain Same
5-8 Construction work in progress Explain New
5-9 Multiple capital projects Explain Same
5-10 Special assessment capital projects Explain New

Cases:
5-1 Modified approach for infrastructure assets Evaluate, write 5-2
5-2 Options for financing public infrastructure Evaluate, explain New
5-3 Political versus economic factors in financing Evaluate, explain 5-1 retitled
capital improvements
Exercises/Problems:
5-1 Examine the CAFR Examine 5-1 revised
5-2 Various Multiple Choice 5-2 revised
5-3 General capital assets Journal Entries Same
5-4 Capital asset disclosure statement Financial Statement 5-4 revised
5-5 Lease classification and accounting Calculate; JEs New
5-6 Asset impairment JEs; Reporting New
5-7 Special assessment financing JEs and Explain 5-6 revised
5-8 Statement of revenues and expenditures Compute; FS 5-5
5-9 Construction fund JEs & FS 5-7 revised
5-10 Capital project transactions JEs & FS 5-8 revised

5-1
CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND
CAPITAL PROJECTS

Answers to Questions

5-1. General capital assets are those that are acquired with the resources of governmental
funds and that are reported only in the Governmental Activities column of the
government-wide financial statements. Capital assets acquired with the resources of
proprietary or fiduciary funds are reported in the financial statements of those funds, as
well as in the Business-type Activities column of the government-wide financial
statements for enterprise fund capital assets.

5-2. Capital asset disclosures required by the GASB are quite well illustrated by the City and
County of Denver’s capital asset disclosures shown in Illustration 5-2. In brief, the
disclosures should include policies for capitalizing assets and for estimating the useful
lives of depreciable assets. In addition, the disclosures should include: (1) beginning-of-
year and end-of-year balances showing accumulated depreciation separate from historical
cost, (2) capital acquisitions during the year, (3) sales or other dispositions during the
year, (4) depreciation expense showing amounts charged to each function in the
statement of activities, and (5) disclosures regarding collections of art or historical
treasures.

5-3. The modified approach permits a government an alternative to depreciation of certain

eligible infrastructure assets. Eligible assets are parts of major networks of infrastructure
assets or subsystems of networks, where a network might be a highway system, for
example. If the government meets two requirements it can avoid reporting depreciation
on its eligible infrastructure assets. The two requirements are: (1) management of
eligible infrastructure assets using a management system that includes an up-to-date
inventory of eligible assets, condition assessments and results using a measurement scale,
and estimates of annual costs to maintain assets at the established and disclosed condition
level, and (2) documentation that the assets are being preserved at or above the
established condition level. If the government fails to maintain the assets at or above the
established condition level, it must revert to reporting depreciation for its infrastructure
assets and discontinue use of the modified approach.

5-4. If the lease meets one or more of the FASB SFAS 13 criteria for a capital lease, as
discussed in this chapter, the lease must be reported as a capital lease. If the lease is
deemed to be a capital lease, the governmental fund journal entry on the date of inception
will include a debit to Expenditures and a Credit to Other Financing Sources—Capital
Lease Agreements. The journal entry at the government-wide level will be the same as
that used in business accounting—a debit to Equipment and a credit to Capital Lease
Obligations Payable.

5-2
Ch. 5, Answers (Cont’d)

5.5. Disagree. GASBS 42 requires the government to assess assets for which value might
have become impaired. If impairment is judged to have occurred, then the amount of
impairment loss must be estimated using one of the approaches described in GASBS 42.
The amount of loss will be recorded as an expense of the appropriate function or program
and as a reduction in the carrying value of the asset.

5-6. The use of a capital projects fund is usually required for major construction projects
requiring large amounts of financing. The use of a capital projects fund may also be
useful for purchases of high-cost items such as acquisitions of land, buildings, and high-
cost equipment. A capital projects fund must also be used whenever required by law or
grant provisions.

5-7. To facilitate preparation of financial statements at the end of the fiscal year, all operating
and budgetary accounts should be closed, including Encumbrances. However, since the
project is still underway and contractual commitments still exist to pay contractors when
billed, it is essential that Encumbrances be reestablished at the beginning of the next year
in order to maintain budgetary control over outstanding commitments.

5-8. All ordinary and necessary costs to construct the asset are appropriately reported as
construction work in progress. This includes all legal costs, engineering and architectural
services, site preparation, materials used, and billings from contractors, among other
items. Interest incurred during construction is not capitalized for general capital assets,
however. Construction Work in Progress is found in the ledger for governmental
activities at the government-wide level for general capital assets, and not in the ledger for
the capital projects fund. In the capital projects fund, all capitalizable items are debited
to Construction Expenditures.

5-9. For a multiple-projects fund, encumbrances and construction expenditures should be

identified in a manner that will indicate to which project each applies. This can be
accomplished by adding a project identifier to the Encumbrances and Construction
Expenditures accounts, such as EncumbrancesStreet Project or Construction
ExpendituresProject No. 10. Identifying encumbrances and expenditures by project
facilitates comparisons to budget for particular projects and presentation of cash and
expenditure statements for multi-project operations. For example, the City of Smithville
Continuous Computerized Problem that accompanies this text has two capital projects
funds named the Springer Street Project and the Alzmann Street Project.

5-10. Capital projects fund accounting for special assessments is virtually identical in both of
these situations. The only difference is that the credit entry for issuance of special
assessment bonds is to Other Financing Sources—Contribution from Property Owners if
the government assumes no responsibility for the debt, rather than to Other Financing
Sources—Proceeds of Special Assessment Bonds with Governmental Commitment.

5-3
Solutions to Cases

5-1. a. Discuss with students various methods of obtaining financial statements and getting
“benchmark” data to make comparisons across entities. Professional associations
such as the Government Finance Officers Association, National Association of State
Auditors, Controllers and Treasurers, and Association of School Business Officials
publish “best practices” for various areas of public finance, accounting, and financial
reporting. Since each student will have a different list of cities, ask them to compare
their results with other students and look for patterns in which types and sizes of
governments make similar choices in accounting methods, particularly, in this case,
regarding choice of infrastructure asset accounting methods.

b. An important communication skill for students to master is to convey technical

financial accounting information in an effective way so that decision makers find the
information useful for making informed decisions. You may wish to ask students to
show their memo or essay to a finance director of a city and get their opinion about
whether the student has captured the fundamental issues relating to infrastructure and
communicated it in a professional and informative manner.

c. During the implementation years of GASBS 34, the GFOA and some state auditors
released policy statements indicating to governments that they did not have to
capitalize infrastructure assets to meet minimum standards for the GFOA’s Certificate
of Achievement for Excellence in Financial Reporting or the states’ reporting
compliance regulations. Despite such statements, most governments that sought a
“clean” audit opinion voluntarily developed inventories of infrastructure and followed
GAAP for infrastructure reporting. For most general purpose governments, omitting
infrastructure assets would cause their statement of net assets to be materially
misstated resulting in a qualified or adverse audit opinion—likely the latter. A
government receiving an adverse audit opinion may experience a downgrading of its
bond rating and thus face considerably higher cost of borrowing.

5-2 a. Option (1), the sales tax approach, offers the advantage of spreading the burden for
infrastructure improvements across a larger number of taxpayers, including many
non-residents who visit or shop in Desert City. From an equity standpoint, the sales
tax approach has appeal because infrastructure improvements enhance the city for
visitors and shoppers, as well as for residents. Disadvantages of this approach are the
necessity of scheduling and conducting a special election and the political risk of
advocating for a tax increase.

Option (2), the development fee approach, has the advantage of being relatively
“invisible” to the public and efficient to administer since the number of developers
will be relatively small. Although real estate developers can be expected to pass the
development fee to new homeowners and businesses, property values may be
increased by enhanced infrastructure (e.g., improved streets and highways, adequate
storm drainage, and so forth). As a result, taxpayers may recoup a portion of the
development fee. The main disadvantage is the potential inequity of the development

5-4
Ch. 5, Solutions, Case 5-2 (Cont’d)

fee since a relatively high financial burden is imposed on new homeowners and new
businesses for infrastructure expansion and improvement that may substantially
benefit the entire city.

A city council member may prefer the development fee approach since it holds less
political risk than asking residents to approve a tax increase. The city manager may
prefer the sales tax approach as retail sales may be less volatile than new
construction, which can be strongly impacted by the local, regional, and national
economies. Since the city manager is responsible for ensuring that infrastructure
stays abreast of population and new development, he or she may prefer a more stable
source of infrastructure financing. Current homeowners and businesses might be
expected to prefer the development fee approach since those fees would not directly
impact on their property and would place the incidence of the tax on others. It would
be surprising if new homeowners or new businesses favored the development fee
approach as they would probably view it as inequitable.

b. Accounting and financial reporting would be minimally impacted by which option is

ultimately chosen. Either way, there is revenue to be recognized in a capital projects
fund (a tax in one case and development fee in the other). Accounting for
infrastructure construction would not be affected by the source of financing.

5-3. a. Regardless of how a student voted, he or she had plenty of company. With a record
voter turnout for such an election, the half-cent sales tax was barely approved. Only
51.7 percent of the voters in Brown County voted for the tax. As expected, 56.5
percent of the voters in the City of Brownville voted against it. Except for a few
precincts in other cities and towns, voters outside Brownville voted overwhelmingly
in support of the tax. While there is no "right" answer to this question, each student
should have provided a rationale similar to one of the arguments provided in the case.
A few students may develop unique arguments in support of their vote. Generally,
the students who voted for the proposed tax must have thought the county-wide
benefits of improved roads and bridges were worth the extra tax costs and outweighed
the possible detrimental effects on the City's financial flexibility. Those who voted
against it presumably did so using the rationale expressed by some voters in exit
polls, "why should I pay more for roads that will benefit rural county residents more
than me."

b. Although some students may profess an altruistic motivation for their vote, most are
expected to reflect economic rationality. That is, they would likely vote for the sales
tax increase if they were an owner of a large commercial or manufacturing property,
and would therefore realize a net economic benefit from the property tax rollback and
sales tax increase. Even then some students may justify the "yes" vote on the basis of
the county-wide benefits of improved infrastructure rather than their financial self-
interest.

5-5
Ch. 5, Solutions, Case 5-3 (Cont’d)

c. Again, there is no right answer to this question. Students (Brownville voters) who
voted against the tax probably would argue that residents who primarily benefit
should pay for the improvements (i.e., special assessment financing should have
been used). Those who voted for the tax probably would argue that the broader
(county-wide) economic benefits of improved county infrastructure justifies
financial support by all county residents. Some who voted for the tax may have
preferred special assessment financing but possibly feared that failure to approve
the sales tax would doom the needed improvements altogether.

d. The County's procedures for accounting for the financing and the capital projects
activities will differ slightly for the option approved by the voters compared with
those that would have been used if special assessment financing had been used.
But, as explained in Chapter 5, the procedures for accounting for special
assessment-financed capital projects are quite similar to those for other capital
projects, especially when, as is often the case, the government is committed in
some manner for repaying debt issued for the project. Since bond financing is
typically used for special assessment capital projects, accounting for both special
assessment taxes and debt service would have been required for an extended
period, probably ten years or more. Whether these differences would be termed
"significant" accounting issues is a matter of conjecture; they might be considered
significant by the financial staff of the County.

Solutions to Exercises and Problems

5-1. Each student will have a different annual report, so he or she will have different answers
to questions in this exercise. The various kinds of capital assets and capital projects,
wide variety of financing mechanisms, and different accounting policies used in and by
governments should generate interesting classroom discussions.

5-2. 1. a. 6. c.
2. d. 7. d.
3. c. 8. c.
4. a 9. a.
5. b. 10. c.

5-6
Ch. 5, Solutions (Cont’d)
5-3. Debits Credits
1. Governmental Activities:
CASH 2,380,000
BONDS PAYABLE 1,800,000
PROGRAM REVENUES—PUBLIC WORKS
—CAPITAL GRANTS AND
CONTRIBUTIONS 580,000
BUILDINGS 7,620,000
CONSTRUCTION WORK IN PROGRESS 5,240,000
CASH 2,380,000
Capital Projects Fund:
CASH 2,380,000
OFS—PROCEEDS OF BONDS 1,800,000
REVENUES—FEDERAL GRANT 580,000
CONSTRUCTION EXPENDITURES 2,380,000
CASH 2,380,000
2. Governmental Activities:
CASH 100,000
LAND 50,000
TRANSFER FROM BUSINESS-TYPE
ACTIVITIES 50,000
General Fund:
CASH 100,000
OFS—INTERFUND TRANSFER IN 50,000
OFS—PROCEEDS FROM TRANFER
OF CAPITAL ASSET 50,000
Note: The required entry in the Enterprise Fund was not requested for this
problem. If it had been required that entry would have reflected a debit to Land
for only $50,000 as GASB Standards preclude establishing a new cost basis for a
capital asset transferred within the government.

5-7
Ch. 5, Solutions, 5-3 (Cont’d)
Debits Credits
3. Governmental Activities:
EQUIPMENT—COMPUTER 2,500
ACCUMULATED DEPRECIATION 1,000
EQUIPMENT—COMPUTER 1,000
CASH 2,200
GAIN ON TRADE OF EQUIPMENT 300

Special Revenue Fund:

EXPENDITURES—CAPITAL OUTLAY 2,200
CASH 2,200

4. Governmental Activities:
EQUIPMENT 247,500
CASH 247,500

LIST PRICE $250,000

LESS: 1% FOR PROMPT
PAYMENT 2,500
NET COST OF EQUIPMENT $247,500

Special Revenue Fund:

EXPENDITURES 247,500
CASH 247,500

5-8
 Ch. 5, Solutions, 5-3 (Cont’d)
5.
Debits Credits
Governmental Activities:
BUILDINGS 574,300
EXPENSES—PUBLIC WORKS 49,400
CASH 623,700

LOSS ON REMODELING OF BUILDINGS 62,900

ACCUMULATED DEPRECIATION—BUILDINGS 21,700
BUILDINGS 84,600

General Fund:
EXPENDITURES 623,700
CASH 623,700
Note: No entry required in the Capital Projects Fund.

6. Governmental Activities:
INFRASTRUCTURE (SUBSIDIARY DETAIL
OMITTED) 3,150,000
LAND 200,000
PROGRAM REVENUES—PUBLIC
WORKS—CAPITAL GRANTS AND
CONTRIBUTIONS 3,350,000

(Note: The Program Revenues in this case would ultimately result in an increase
to Net Assets – Invested in Capital Assets, Net of Related Debt. GASB standards
require that all changes in net assets must flow through the operating statement.)

5-9
 Ch. 5, Solutions (Cont’d)
5-4.
TOWN OF LYNNWOOD
CAPITAL ASSET DISCLOSURES – GOVERNMENTAL ACTIVITIES
FISCAL YEAR ENDED APRIL 30, 2008

Beginning Additions Retirements Ending

Balance Balance
Land $1,326,780 (1,5,6) $1,140,000 (7)$( 12,000) $2,454,780
(5)
Buildings 7,282,680 301,600 (7,8)(113,600) 7,470,680
(2)
Improvements Other 3,027,790 799,066 3,826,856
than Buildings
(3,4) (8)
Equipment 1,733,820 590,700 (20,000) 2,304,520
(1)
Construction work in 680,000
(2)
progress 401,130 (401,130) 680,000
(8)
Infrastructure 3,500,000 (119,200) 3,380,800
Total, at historical cost 17,272,200 3,511,366 (665,930) 20,117,636
Less: Accumulated
Depreciation
Buildings (1,439,200) (440,000) 51,000 (1,828,200)
Improvements Other (922,600) (320,000) 102,000 (1,140,600)
than Buildings
Equipment (837,500) (210,000) 5,000 (1,042,500)
Infrastructure (1,000,000) (105,000) _______ (1,105,000)
Total accumulated (4,199,300) (1,075,000) 158,000 (5,116,300)
depreciation
Governmental $13,072,900 $2,436,366 $(507,930) $15,001,336
activities capital
assets
Notes: A schedule showing how depreciation expense was charged to
governmental functions is required, but not shown in this problem.

Superscripts refer to the transaction numbers in the problem.

5-10
Ch. 5, Solutions (Cont’d)

5-5. a. The present value of Crystal City’s minimum lease payments is the
initial payment of $847,637 plus $847,637 X the present value of an
annuity for 29 periods at 6 percent, or $847,637 + ($847,637 X 13.590721)
= $847,637 + $11,519,998 = $12,367,635. Since the present value of the
minimum lease payments is $12,367,635 ÷ $13,000,000, or 95.1 percent
of the fair value, this meets one criterion for a capital lease (i.e., present
value equals or exceeds 90 percent of fair value). In addition, the lease
term is exactly 75 percent of the estimated useful life of the building, so
that criterion is met as well. So, this lease must be recorded as a capital
lease.
b.
Debits Credits
Capital Projects Fund:
EXPENDITURES 12,367,635
OTHER FINANCING SOURCES—
CAPITAL LEASE AGREEMENTS 12,367,635

Governmental Activities:
BUILDINGS 12,367,635
CAPITAL LEASE OBLIGATIONS
PAYABLE 12,367,635

5-11
Chapter 5, Solutions (Cont’d)

5-6. a. Because Sunshine City is located in an area that is susceptible to

hurricanes, the unusual criterion would not be met for the loss to be
reported as extraordinary. To be reported as a special item requires
that the event be either unusual or infrequent in occurrence (but not
both) and be within management’s control. Since this is the first
hurricane to hit the city in 48 years, the infrequent criterion would
appear to be met, but hurricanes may be considered frequent for the
broader geographic area. Moreover, the hurricane was clearly beyond
management’s control, so this event cannot be reported as a special
item. In addition to reporting the item as an ordinary expense, it should
be disclosed in the notes to the financial statement if it is deemed to be
significant and infrequently occurring.
b.

Debits Credits
Governmental Activities:
EXPENSES—PARKS AND RECREATION 230,000

BUILDINGS 230,000

c. GASBS 42 requires that the $120,000 insurance recoveries be reported

as program revenues (presumably of the Parks and Recreation function
in the Capital Grants and Contributions column under governmental
activities) on the government-wide statement of activities. In addition, it
should be reported as an other financing source by the General Fund.
5-7.
a. Capital Projects Fund:
CASH 5,000,000
OTHER FINANCING SOURCES—
PROCEEDS OF BONDS 5,000,000

5-12
Note: The $75,000 of premium and accrued interest would be recorded
as an Other Financing Source and Revenue, respectively, in the Debt
Service Fund.

5-13
Chapter 5, Solutions, 5-7 (Cont’d)

Debits Credits
Governmental Activities:

CASH 5,075,000
SPECIAL ASSESSMENT BONDS
PAYABLE 5,000,000
PREMIUM ON BONDS PAYABLE 50,000
ACCRUED INTEREST PAYABLE
(OR EXPENSES—INTEREST ON BONDS) 25,000
b. The proceeds should be invested in high-quality, easily marketable,
interest-bearing instruments, with due care to conform to arbitrage
rules.
c. The accounting implications are that assets will be held temporarily in a
form other than cash and that revenue will be earned that may belong to
the capital projects fund or to a debt service fund; the finance officer
should get professional advice from the government’s legal counsel to
determine which fund should receive the interest. The financial
implications are that the investment revenue earned adds to the amount
available for the capital facilities (if the revenue belongs to the capital
projects fund), or reduces the amount of other financing sources or
revenues, which must be used for debt service (if the revenue belongs
to the debt service fund).

5-14
Chapter 5, Solutions (Cont’d)

5-8. a. 1. The City of Pineville's Capital Projects Fund would report the proceeds
of each grant as revenue for 2007; the proceeds of the bond issue
should be reported under the Other Financing Sources caption.
Revenues:
Grant from federal government $200,000
Grant from state government 200,000
Total Revenues $ 400,000
Other Financing Sources:
Proceeds of Bonds 4,000,000
Total Revenues and Other Financing Sources $4,400,000

2. Since Fund Balance as of December 31, 2007, is $1,500,000,

Expenditures during the year must have totaled $2,900,000 ($4,400,000-

$1,500,000).

3. Cash receipts:
Grant from federal government $ 200,000
Grant from state government 200,000
Proceeds of bonds 4,000,000
Total cash receipts, 2007 $4,400,000
Less: Cash expenditures 2,900,000
Cash invested as of December 31, 2007 $1,500,000

Note: Under GASB standards, the remaining $800,000 to be received in 2008 from
the federal grant would not be recognized until cash is received because of the
stipulated time requirements.

b. CITY OF PINEVILLE
Capital Projects Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
for the Year Ended December 31, 2008
Revenues:
Interest on temporary investments $ 16,000
Expenditures:
Construction expenditures 1,350,000
Excess of Expenditures over Revenues 1,334,000
Fund Balance, January 1, 2008 1,500,000
Fund Balance, December 31, 2008 $ 166,000

5-15
Ch. 5, Solutions
5-9. a. TOWN OF DEXTER
RECREATION CENTER CONSTRUCTION FUND
GENERAL JOURNAL
Debits Credits
1. Recreation Center Construction Fund:
CONSTRUCTION EXPENDITURES 60,000
VOUCHERS PAYABLE 60,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS 60,000
VOUCHERS PAYABLE 60,000

Recreation Center Construction Fund:

2. ENCUMBRANCES 30,600
RESERVE FOR ENCUMBRANCES 30,600
Governmental Activities:
NO ENTRY REQUIRED

Recreation Center Construction Fund:

3. ENCUMBRANCES 2,500,000
RESERVE FOR ENCUMBRANCES 2,500,000
Governmental Activities:
NO ENTRY REQUIRED

4. Recreation Center Construction Fund:

RESERVE FOR ENCUMBRANCES 30,600
CONSTRUCTION EXPENDITURES 30,500
ENCUMBRANCES 30,600
VOUCHERS PAYABLE 30,500
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS 30,500
VOUCHERS PAYABLE 30,500

5-16
Ch. 5, Solutions, 5-9 (Cont’d)
Debits Credits
5. Recreation Center Construction Fund:
CONSTRUCTION EXPENDITURES 40,000
DUE TO WATER UTILITY FUND 40,000

Governmental Activities:
CONSTRUCTION WORK IN PROGRESS 40,000
INTERNAL BALANCES 40,000

6. Recreation Center Construction Fund:

RESERVE FOR ENCUMBRANCES 1,600,000
CONSTRUCTION EXPENDITURES 1,600,000
ENCUMBRANCES 1,600,000
CONTRACTS PAYABLE 1,600,000

Governmental Activities:
CONSTRUCTION WORK IN PROGRESS 1,600,000
CONTRACTS PAYABLE 1,600,000

7. Recreation Center Construction Fund:

CASH 3,000,000
OTHER FINANCING SOURCES—
PROCEEDS OF BONDS 3,000,000

Governmental Activities:
CASH 3,025,000
BONDS PAYABLE 3,000,000
ACCRUED INTEREST PAYABLE 25,000

5-17
Ch. 5, Solutions, 5-9 (Cont’d)
Debits Credits
8. Recreation Center Construction Fund:
DUE TO WATER UTILITY FUND 40,000
CASH 40,000
Governmental Activities:
INTERNAL BALANCES 40,000
CASH 40,000

9. Recreation Center Construction Fund and

Governmental Activities:
CONTRACTS PAYABLE 1,600,000
CONTRACTS PAYABLE—RETAINED
PERCENTAGE 64,000
VOUCHERS PAYABLE 1,536,000

10. Recreation Center Construction Fund and

Governmental Activities:
VOUCHERS PAYABLE 1,625,200
CASH 1,625,200
(COMPUTATION: $60,000 + $30,500 + $1,536,000 - $1,300 = $1,625,200)

11. Recreation Center Construction Fund and

Governmental Activities:
INVESTMENTS 1,300,000
CASH 1,300,000

5-18
Ch. 5, Solutions, 5-9 (Cont’d)

Debits Credits
12. Recreation Center Construction Fund:
OFS—PROCEEDS OF BONDS 3,000,000
CONSTRUCTION EXPENDITURES 1,730,500
ENCUMBRANCES 900,000
FUND BALANCE 369,500

Governmental Activities:

NO CLOSING ENTRY REQUIRED AS THERE ARE NO TEMPORARY

ACCOUNT BALANCES. IF SUFFICIENT INFORMATION HAD BEEN GIVEN,
IT WOULD HAVE BEEN APPROPRIATE TO ACCRUE ADDITIONAL
INFORMATION ON THE BONDS PAYABLE. BUT SINCE NO SUCH
INFORMATION IS PROVIDED, THAT ENTRY IS IGNORED.

5-19
Ch. 5, Solutions, 5-9 (Cont’d)

TOWN OF DEXTER
RECREATION CENTER CONSTRUCTION FUND
GENERAL LEDGER (NOT REQUIRED)

CASH CONTRACTS PAYABLE

(7) 3,000,000 (8) 40,000 (9) 1,600,000 (6) 1,600,000
(10) 1,625,200
(11) 1,300,000

INVESTMENTS VOUCHERS PAYABLE

(11) 1,300,000 (10) 1,625,200 (1) 60,000
(4) 30,500
(9) 1,536,000
CONTRACTS PAYABLE
DUE TO WATER UTILITY FUND RETAINED PERCENTAGE
(8) 40,000 (5) 40,000 (9) 64,000

FUND BALANCE ENCUMBRANCES

(12) 369,500 (2) 30,600 (4) 30,600
(3) 2,500,000
(6) 1,600,000
(12) 900,000
RESERVE FOR ENCUMBRANCES
(4) 30,600 (2) 30,600
(6) 1,600,000 (3) 2,500,000

CONSTRUCTION EXPENDITURES OFS—Proceeds of Bonds

(1) 60,000 (12) 1,730,500 (12) 3,000,000 (7A) 3,000,000
(4) 30,500
(5) 40,000

5-20
(6) 1,600,000

5-21
Ch. 5, Solutions, 5-9 (Cont’d)

b. TOWN OF DEXTER
RECREATION CENTER CONSTRUCTION FUND
BALANCE SHEET
DECEMBER 31, 2008

ASSETS
CASH $ 34,800
INVESTMENTS 1,300,000
TOTAL ASSETS $1,334,800

LIABILITIES AND FUND BALANCES

LIABILITIES:
VOUCHERS PAYABLE $ 1,300
CONTRACTS PAYABLE RETAINED PERCENTAGE 64,000
TOTAL LIABILITIES 65,300

FUND BALANCES:
RESERVED FOR ENCUMBRANCES 900,000
FUND BALANCE 369,500
TOTAL FUND BALANCES 1,269,500
TOTAL LIABILITIES AND FUND BALANCES $1,334,800

5-22
Ch. 5, Solutions, 5-9 (Cont’d)

c. TOWN OF DEXTER
RECREATION CENTER CONSTRUCTION FUND
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES
IN FUND BALANCE
FOR THE PERIOD ENDED DECEMBER 31, 2008

EXPENDITURES:
CONSTRUCTION EXPENDITURES $ 1,730,500
EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,730,500)
OTHER FINANCING SOURCES:
PROCEEDS OF BONDS 3,000,000
EXCESS OF REVENUES AND OTHER
FINANCING SOURCES OVER EXPENDITURES 1,269,500
FUND BALANCES, JANUARY 1, 2008 -0-
FUND BALANCES, DECEMBER 31, 2008 $ 1,269,500

d. In the Governmental Activities column of the statement of net assets, the

construction expenditures of $1,730,500 for this year will appear in the
capital assets, net of depreciation row. The capital assets disclosure in the
notes to the financial statements will break this total down by class, such
as construction work in progress (in this case) if the project is not yet
complete, or specific amounts for buildings, equipment and land
improvement. The Governmental Activities column of the statement of
activities will show the depreciation expense on the recreation center when
it is completed, most likely in the functional expense category (row) called
parks and recreation.

5-23
 Ch. 5, Solutions
5-10. a. FALTS CITY
STREET IMPROVEMENT FUND
JOURNAL ENTRIES FOR 2008
Debits Credits
1. CASH 100,000
OTHER FINANCING SOURCES—PROCEEDS
OF BOND ANTICIPATION NOTES 100,000
2. DUE FROM FEDERAL GOVERNMENT 750,000
REVENUES 750,000
Note: the $750,000 to be received the following year is a time requirement and
would not be accrued (per GASBS 33).

3. ENCUMBRANCES 2,700,000
RESERVE FOR ENCUMBRANCES 2,700,000

4. CONSTRUCTION EXPENDITURES 60,000

DUE TO OTHER FUNDS 60,000

5. CONSTRUCTION EXPENDITURES 69,000

CASH 69,000

6. CONSTRUCTION EXPENDITURES 18,500

VOUCHERS PAYABLE 18,500

7. RESERVE FOR ENCUMBRANCES 1,000,000

CONSTRUCTION EXPENDITURES 1,000,000
ENCUMBRANCES 1,000,000
CONTRACTS PAYABLE 1,000,000

5-24
Ch. 5, Solutions, 5-10 (Cont’d)
Debits Credits

8. CASH 3,250,000
DUE FROM FEDERAL GOVERNMENT 750,000
OTHER FINANCING SOURCES—
PROCEEDS OF BONDS 2,500,000

9. OTHER FINANCING USES—REPAYMENT OF BANs 100,000

INTEREST EXPENDITURES (NOTE A) 3,000
CASH 103,000
(BANs = BOND ANTICIPATION NOTES)
NOTE A: INTEREST DUE IS CALCULATED AS FOLLOWS:
$100,000 x .06 x 180/360 = $3,000; PER GASBS 37,
INTEREST IS NOT CAPITALIZED FOR GENERAL
CAPITAL ASSETS.

10. CONTRACTS PAYABLE 1,000,000

CONTRACTS PAYABLE—RETAINED PERCENTAGE 50,000
CASH 950,000

11. INVESTMENTS 1,800,000

CASH 1,800,000

5-25
Ch. 5, Solutions, 5-10 (Cont’d)
Debits Credits
12. OTHER FINANCING SOURCES—
PROCEEDS OF BONDS 2,500,000
OTHER FINANCING SOURCES—
PROCEEDS OF BANs 100,000
REVENUES 750,000
FUND BALANCE 399,500
ENCUMBRANCES 1,700,000
OTHER FINANCING USES—REPAYMENT OF BANs 100,000
CONSTRUCTION EXPENDITURES 1,147,500
INTEREST EXPENDITURES 3,000

5-26
Ch. 5, Solutions, 5-10 (Cont’d)

FALTS CITY
STREET IMPROVEMENT FUND
GENERAL LEDGER (NOT REQUIRED)

CASH
(1) 100,000 (5) 69,000
(8) 3,250,000 (9) 103,000
(10) 950,000
(11) 1,800,000

INVESTMENTS
(11) 1,800,000

DUE FROM FEDERAL GOVERNMENT

(2) 750,000 (8) 750,000

VOUCHERS PAYABLE
(6) 18,500

CONTRACTS PAYABLE
(10) 1,000,000 (7) 1,000,000

CONTRACTS PAYABLERETAINED PERCENTAGE

(10) 50,000

DUE TO OTHER FUNDS

(4) 60,000

5-27
Ch. 5, Solutions, 5-10 (Cont’d)

FUND BALANCE
(12) 399,500
REVENUES
(12) 750,000 (2) 750,000

OFS—PROCEEDS OF BONDS
(12) 2,500,000 (8) 2,500,000

OFS—PROCEEDS OF BOND ANTICIPATION NOTES

(9) 100,000 (1) 100,000

ENCUMBRANCES
(3) 2,700,000 (7) 1,000,000
(12) 1,700,000

RESERVE FOR ENCUMBRANCES

(7) 1,000,000 (3) 2,700,000

CONSTRUCTION EXPENDITURES
(4) 60,000 (12) 1,147,500
(5) 69,000
(6) 18,500
(7) 1,000,000

INTEREST EXPENDITURES
(9) 3,000 (12) 3,000

OTHER FINANCING USES—REPAYMENT OF BANs_ _______

(9) 100,000 (12) 100,000

5-28
Ch. 5, Solutions, 5-10 (Cont’d)

b. FALTS CITY
STREET IMPROVEMENT FUND
BALANCE SHEET, DECEMBER 31, 2008

ASSETS
CASH $ 428,000
INVESTMENTS 1,800,000
TOTAL ASSETS $2,228,000

LIABILITIES AND FUND BALANCES

LIABILITIES:
VOUCHERS PAYABLE $ 18,500
DUE TO OTHER FUNDS 60,000
CONTRACTS PAYABLERETAINED PERCENTAGE 50,000
TOTAL LIABILITIES 128,500

FUND BALANCES:
RESERVED FOR ENCUMBRANCES $1,700,000
FUND BALANCE 399,500
TOTAL FUND BALANCES 2,099,500
TOTAL LIABILITIES AND FUND BALANCES $2,228,000

5-29
Ch. 5, Solutions, 5-10 (Cont’d)
c. FALTS CITY
STREET IMPROVEMENT FUND
STATEMENT OF REVENUES, EXPENDITURES,
AND CHANGES IN FUND BALANCE
FOR THE PERIOD JULY 1, 2008 - DECEMBER 31, 2008

REVENUES:
FEDERAL GRANT $ 750,000

EXPENDITURES:
CONSTRUCTION EXPENDITURES 1,147,500
INTEREST EXPENDITURES 3,000
TOTAL EXPENDITURES 1,150,500
EXCESS OF REVENUES OVER (UNDER)
EXPENDITURES (400,500)
OTHER FINANCING SOURCES AND USES:
PROCEEDS OF BOND ANTICIPATION NOTES 100,000
OTHER FINANCING USES: REPAYMENT OF
BOND ANTICIPATION NOTES (100,000)
PROCEEDS OF BONDS SOLD 2,500,000 2,500,000
EXCESS OF REVENUES AND OTHER
SOURCES OVER EXPENDITURES 2,099,500
FUND BALANCES, JULY 1, 2008 -0-
FUND BALANCES, DECEMBER 31, 2008 $2,099,500

5-30