Preston Village engaged in the following transactions: It issued $20 million in
ID: 2452038 • Letter: P
Question
Preston Village engaged in the following transactions:
It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.
It acquired the building for $20 million.
It recognized, as appropriate, $300,000 of depreciation on municipal vehicles.
It transferred $2,060,000 from the general fund to a debt service fund.
It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt.
It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund.
Instructions:
Answer the following question based on the transactions outlined above.
For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).
Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).
How can governments justify preparing two sets of financial statements, each on a different basis?
Explanation / Answer
Journal Entries 1 Issuance of $20 million in bonds to purchase a new municipal office building Capital Projects Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) Cash 20,000,000 Cash 20,000,000 Other Financing Sources 20,000,000 Bonds Payable 20,000,000 (Bond Proceeds) (Bond Proceeds) 2 It acquired the building for $20 million. Capital Projects Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) Expenditure 20,000,000 Building 20,000,000 Cash 20,000,000 Cash 20,000,000 (Buildign Acquired) (Buildign Acquired) 3 It recognized, as appropriate, $300,000 of depreciation on municipal vehicles. General Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) no depreciation is recorded Depreciation Expense 300,000 Accumulated Depreciation 300,000 (Depreciation recognised) 4 It transferred $2,060,000 from the general fund to a debt service fund General Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) Other Financing Uses- Transfer Out 2,060,000 Cash 2,060,000 no journal entry needed ( Transfer form General fund to debt service Fund) Debt Service Fund Debit ($) Credit ($) Cash 2,060,000 Other Financing Uses- Transfer In 2,060,000 ( Transfer form General fund to debt service Fund) 5 It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt. Debt Service Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) Expenditure -Principal 2,000,000 Long term Debts payable 2,000,000 Expenditure -interest 60,000 Expenditure -interest 60,000 Cash 2,060,000 Cash 2,060,000 ( Interest and Principal Paid Out) ( Interest and Principal Paid Out) 6 It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund. General Fund Governmental Activities Debit ($) Credit ($) Debit ($) Credit ($) Cash 5,000,000 Cash 5,000,000 Miscellaneous revenue-Sale of Land 5,000,000 Capital assets-Village land 4,000,000 Gain on sale of land 1,000,000 (Sale of capital asset (Land)proceeds (Sale of capital asset (Land)proceeds There are two objectives of government accounting. The first is to ensure the government’s compliance with finance-related laws and regulations and the second is to show financial accountability to the public through financial reports that are easy to understand. This has resulted in the requirement for two different sets of financial statements.
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