Governmental and not for profit accounting. Preston Village engaged in the follo

Question

Governmental and not for profit accounting.

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.

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

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

Explanation / Answer

1 Ans:-

Journal Entries:-

6. On Full Accrual Basis:

2 Ans:-

Because, Full Accrual is based on interperiod equity as every individual has an holistic picture of the government. Funds statements is focused more on the budget rather than the actuals.

SL.No. Particulars Debit Credit 1. On Full Accrual basis Cash A/c    $20 million Bonds Payable A/c $20 million 2. On Full Accruel basis: Building A/c $20 million Cash A/c $20 million 3. On Full Accrual basis : Depreciation A/c $3,00,000 million Accumulated Depreciation $3,00,000 4. On Full Accrual Basus: No entry needs to be passed in case of full accrual basis 5. On Full Accrual Basis Bond Expenditure $60,000 Cash $20,00,000 Bonds Payable $20,60,000

6. On Full Accrual Basis:

No entry needs to be passed in cased of full accrual basis

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