Chap 18

Larsen: Modern Advanced
Accounting, Tenth Edition
V. Accounting for
Nonbusiness Organizations
18. Governmental Entities:

Other Governmental Funds
and Account Groups
The McGrawHill
Companies, 2005
Chapter Eighteen
Governmental Entities:
Other Governmental
Funds and Account
Groups
Scope of Chapter
This chapter presents a discussion and illustration of accounting and reporting for a governmental entitys governmental funds other than the general fund, and for voluntarily
maintained general capital assets and general long-term debt account groups.
OTHER GOVERNMENTAL FUNDS

Accounting and reporting for the four governmental funds (special revenue funds, capital
projects funds, debt service funds, and permanent funds) other than the general fund incorporates many of the accounting standards discussed in Chapter 17. For example, the modied accrual basis of accounting is appropriate for all governmental funds, and recording
the budget (together with encumbrance accounting) is appropriate for special revenue funds
and may be useful for debt service funds and capital projects funds.
Accounting and Reporting for Special Revenue Funds

As indicated on page 719, separate special revenue funds are established by governmental entities, as required by law and sound nancial administrations, to account for the
receipts and expenditures associated with specialized revenue sources that are earmarked
by law or regulation to nance specied governmental operations. Fees for rubbish collection, state gasoline taxes, sin taxes on tobacco products and alcoholic beverages,
and trafc violation nes are examples of governmental entity revenues that may be
accounted for in separate special revenue funds. Ledger account titles, budgetary processes, and nancial statements for special revenue funds are similar to those for the general
fund.
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Chapter 18 Governmental Entities: Other Governmental Funds and Account Groups 749
To illustrate the accounting for a special revenue fund, assume that on July 1, 2006, the
Town Council of the Town of Verdant Glen authorized the establishment of a special
revenue fundits rst such fundto account for special assessments levied on certain
residents of the neighboring Village of Arbor. Those residents had requested the Town
Council to provide street cleaning and streetlight maintenance services, which could not be
furnished by the Village of Arbor. Because the property tax revenues of the Town of Verdant Glen, which among other services nanced street cleaning and streetlight maintenance
for residents of the town only, could not be used for such services elsewhere, the Town
Council authorized the special assessment to nance comparable services for the requesting residents of the Village of Arbor. The Town Council adopted a budget for the Special
Revenue Fund for the scal year ending June 30, 2007, providing for estimated revenues of
$80,000 (from the special assessments) and appropriations of $75,000 (for reimbursements
to the General Fund for expenditures made by that fund for the services provided to the
Village of Arbor residents). Following are additional transactions or events of the Town of
Verdant Glen Special Revenue Fund for the scal year ended June 30, 2007:
1. Special assessments totaling $82,000 were levied on the appropriate residents of the Village of Arbor, to be paid in full in 60 days. All the special assessments were expected to
be collected.
2. Cash receipts from the special assessments were collected in full, $82,000.
3. Of the cash receipts, $63,000 was invested in U.S. Treasury bills with a face amount of
$65,000. The U.S. Treasury bills matured on June 30, 2007, and were redeemed in full
on that date.
4. Billings from the Town of Verdant Glen General Fund, requesting reimbursement of expenditures of that fund, totaled $76,000; $62,000 of that amount was paid to the General
Fund by June 30, 2007.
5. On June 30, 2007, the Town Council of the Town of Verdant Glen designated the fund
balance ($8,000) of the Special Revenue Fund for reimbursement of the General Fund
during the scal year ending June 30, 2008.
Journal Entries for Special Revenue Fund

Journal entries of the Town of Verdant Glen Special Revenue Fund to record the foregoing
events and transactions and to close the accounts for the scal year ended June 30, 2007,
are shown on page 750. Note that the encumbrances technique is not used by this special
revenue fund because it does not issue purchase orders for goods or services from
outsiders.
Because the $76,000 billings of the Town of Verdant Glen General Fund to the Special
Revenue Fund were for reimbursement of General Fund expenditures, the General Fund
credits its Expenditures ledger account in the journal entry in which it debits Receivable
from Special Revenue Fund.

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Part Five Accounting for Nonbusiness Organizations
Journal Entries for

Special Revenue Fund
of a Governmental
Entity
TOWN OF VERDANT GLEN SPECIAL REVENUE FUND

Journal Entries
Estimated Revenues:
Appropriations
Budgetary Fund Balance
To record annual budget adopted for scal year ending June 30, 2007.
80,000
Special Assessments ReceivableCurrent

Revenues
To record special assessments billed, all of which are estimated to be
collectible.
82,000
Cash
To record collection of special assessments in full during the year.
82,000
Investments
Cash
To record acquisition of $65,000 face amount of U.S. Treasury bills,
maturity June 30, 2007.
63,000
Cash
Investments
Revenues
To record receipt of cash for matured U.S. Treasury bills.
65,000
Expenditures
Payable to General Fund
To record billings from General Fund for reimbursement of expenditures
for street cleaning and streetlight maintenance for residents of the
Village of Arbor.
76,000

Cash
To record payments to General Fund during the year.
62,000
Appropriations
Budgetary Fund Balance
Estimated Revenues
To close budgetary ledger accounts.
75,000
5,000
Revenues ($82,000 $2,000)

Expenditures
Unreserved and Undesignated Fund Balance
To close Revenues and Expenditures ledger accounts.
84,000

Fund Balance Designated for Reimbursement of General Fund
To designate entire fund balance for reimbursement of the General Fund
during the scal year ending June 30, 2008.
75,000
5,000
82,000
82,000
63,000
63,000
2,000
76,000
62,000
80,000
76,000
8,000
8,000
8,000

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Financial Statements for Special Revenue Fund

The nancial statements for a special revenue fund are the same as those for the general
fund: a statement of revenues, expenditures, and changes in fund balance, and a balance
sheet. Financial statements for the Town of Verdant Glen Special Revenue Fund for the scal year ended June 30, 2007, are as follows:
Financial Statements
of a Governmental
Entitys Special
Revenue Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance

For Year Ended June 30, 2007
Revenues:
Special assessments
Other
Total revenues
Expenditures:
Reimbursement of General
Fund expenditures
Excess of revenues over expenditures
(fund balance, end of year)
Budget
Actual
Variance
Favorable
(Unfavorable)
$80,000
$80,000
$82,000
2,000
$84,000
$ 2,000
2,000
$ 4,000
$75,000
$76,000
$(1,000)
$ 5,000
$ 8,000
$ 3,000

Balance Sheet
June 30, 2007
Assets
Cash
$22,000
Liabilities and Fund Balance

Fund balance designated for reimbursement of General Fund
Total liabilities and fund balance
$14,000
8,000
$22,000
Accounting and Reporting for Capital Projects Funds

Capital projects funds of a governmental entity record the receipt and payment of cash
for the construction or acquisition of the governmental entitys plant assets other than
those financed by proprietary funds (enterprise funds and internal service funds) or
trust funds. The resources for a capital projects fund generally are derived from proceeds of general obligation bonds, but the resources also may come from current tax
revenues of the general fund or from grants or shared revenues of other governmental
entities.

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A capital budget, rather than an annual budget, is the control device appropriate for a
capital projects fund. The capital budget deals with both the authorized expenditures for the
project and the bond proceeds or other nancing sources for the project.
Journal Entries for Capital Projects Fund

On July 1, 2005, the Town of Verdant Glen authorized a $500,000, 20-year, 7% general
obligation bond issue to nance an addition to the towns high school. A capital budget was
approved for the amount of the bonds, but was not to be integrated in the accounting records of the capital projects fund authorized for the project. The following journal entries
illustrate receipt of proceeds of the bonds and other activities of the Town of Verdant Glen
Capital Projects Fund for the scal year ended June 30, 2006:
Journal Entries for

Capital Project Fund
of a Governmental
Entity
TOWN OF VERDANT GLEN CAPITAL PROJECTS FUND

Journal Entries
Cash
Other Financing Uses: Discount on Bonds Issued
Other Financing Sources: Bonds Issued
To record proceeds of 20-year, 7% general obligation term bonds due
July 1, 2025, interest payable Jan. 1 and July 1, to yield 8%, face
amount $500,000. (Bond issue costs are disregarded.)
450,518
49,482
Investments
Cash
To record acquisition of $350,000 face amount of U.S. Treasury bills,
maturity 26 weeks.
335,000
Encumbrances
Fund Balance Reserved for Encumbrances
To record contracts with architect and construction contractor and
issuance of purchase orders.
482,000
Cash
Investments
Revenues
To record receipt of cash for matured U.S. Treasury bills.
350,000
Expenditures
Vouchers Payable
To record expenditures for the year.
378,000

Encumbrances
To reverse encumbrances applicable to vouchered expenditures.
368,200
Vouchers Payable
Cash
To record payment of vouchers during the year.
327,500
500,000
335,000
482,000
335,000
15,000
378,000
368,200
327,500
(continued)

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Journal Entries (concluded)
Unreserved and Undesignated Fund Balance ($482,000 $368,200)
Encumbrances
To close Encumbrances ledger account.
113,800
Revenues
Expenditures
To close Revenues, Expenditures, and Other Financing Sources and
Uses ledger accounts.
15,000
500,000
113,800
378,000
49,482
87,518
The following features of the foregoing journal entries should be noted:

1. The capital budget for the high school addition was not entered in the accounting
records of the Capital Projects Fund. The indenture for the 20-year, 7% general obligation bonds (general long-term capital debt) provided adequate control.
2. The liability applicable to the 20-year general obligation bonds was not recorded in the
Capital Projects Fund. The liability for the bonds is recorded at face amount in the voluntarily maintained general long-term debt account group (see page 761).
3. The face amount of the general obligation bonds is another nancing source of the
Capital Projects Fund; the discount on the bonds is another nancing use.1 The interest
earned on the short-term investment in U.S. Treasury bills represents revenues to the
Capital Projects Fund.
4. The encumbrances and expenditures accounting for the Capital Projects Fund is similar
to that for the General Fund illustrated in Chapter 17. Also, the closing entries for the
two types of governmental funds are similar.
Expenditures for construction recorded in the Town of Verdant Glen Capital Projects
Fund are accompanied in the voluntarily maintained general xed assets account group by
a journal entry at the end of the scal year with a debit to Construction in Progress and a
credit to Investment in Capital Assets from Capital Projects Funds (see page 759).
At the end of each scal year prior to completion of a capital project, the Revenues,
Other Financing Sources, Expenditures, and Encumbrances ledger accounts of the Capital Projects Fund are closed to the Unreserved and Undesignated Fund Balance account.
On completion of the project, the Capital Projects Fund is terminated by a transfer of any
unused cash to the Debt Service Fund or the General Fund, as appropriate; the Unreserved and Undesignated Fund Balance ledger account of the receiving fund would be
credited for this transfer. Any cash deciency in the Capital Projects Fund (a possibility
suggested by the decit fund balance in the balance sheet on page 754) probably would
be made up by the General Fund; this transfer would be credited to the Other Financing
Codication of Governmental Accounting and Financial Reporting Standards (Norwalk: GASB, 2003),
Sec. 1800.108.

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Sources ledger account of the Capital Projects Fund and debited to the Other Financing
Uses account of the General Fund.
Financial Statements for Capital Projects Fund

A capital projects fund issues the same nancial statements as a general fund: a statement
of revenues, expenditures, and changes in fund balance, and a balance sheet. For the Town
of Verdant Glen Capital Projects Fund, these nancial statements are as follows for the year
ended June 30, 2006:
Financial Statements
of a Governmental
Entitys Capital
Projects Fund

For Year Ended June 30, 2006.
Revenues:
Miscellaneous
Expenditures:*
Construction contracts
Engineering and other
Total expenditures
Excess (deciency) of revenues over expenditures
Other nancing sources (uses):
Face amount of general obligation bonds
Discount on general obligation bonds
Excess of revenues and other sources over expenditures and other uses
(fund balance, end of year)
*
$ 15,000
$ 287,600
90,400
$ 378,000
$(363,000)
$ 500,000
(49,482)
$ 87,518
Breakdown of expenditures is assumed.

Balance Sheet
June 30, 2006.
Assets
Cash
$138,018
Liabilities:
Vouchers payable
Fund balance:
Reserved for encumbrances
Unreserved and undesignated
$ 50,500
$113,800
(26,282)
87,518
$138,018
To reiterate, the plant assets constructed with resources of the Capital Projects Fund
are not displayed in that funds balance sheet. The constructed plant assets might be
recorded in the governmental entitys voluntarily maintained general capital assets
account group. Furthermore, the general obligation bonds issued to nance the Capital

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Projects Fund are not a liability of that fund. Prior to the maturity date or dates of the
bonds, the liability is carried in the voluntarily maintained general long-term debt account
group, (see page 761). On the date the bonds mature, the related liability is transferred to a
debt service fund or to the general fund, as appropriate, from the general long-term debt
account group.
Accounting and Reporting for Debt Service Funds

Payments of principal and interest on long-term bonds and other long-term debt of a governmental entity, other than special assessment bonds, revenue bonds, and general obligation bonds serviced by an enterprise fund, are accounted for either in the general fund or in
debt service funds. Special assessment bonds are repaid from the proceeds of special assessment levies against specic properties receiving benets from the special assessment
improvements; if these bonds nance construction projects for an enterprise fund, they are
accounted for in that enterprise fund. Revenue bonds are payable from the earnings of a
governmental entitys enterprise and are accounted for in the appropriate enterprise fund.
In some cases, general obligation bonds, which are backed by the full faith and credit of
the issuing governmental entity, will be repaid from the resources of a governmental entity
enterprise. These general obligation bonds are displayed as liabilities of the appropriate enterprise fund.
The liability for bonds payable from resources of the general fund or a debt service fund
is not recorded in that fund until the debt matures. Prior to maturity date, the bond liability is
carried in the voluntarily maintained general long-term debt account group.
The two customary types of general obligation bonds whose servicing is recorded in
debt service funds are the following:
Serial bonds, with principal payable in annual installments over the term of the bond
issue.
Term bonds, with principal payable in total on a xed maturity date, generally from proceeds of an accumulated sinking fund.
Generally, legal requirements govern the establishment of debt service funds. In the
absence of legal requirements or of a formal plan for accumulation of a sinking fund for
repayment of a general obligation term bond, there may be no need to establish a debt service fund.
Journal Entries for Debt Service Fund

To illustrate the journal entries that are typical for a debt service fund, assume that the
Town of Verdant Glen had only two general obligation bond issues outstanding during
the fiscal year ended June 30, 2006: A $100,000, 10% serial bond issue whose final
annual installment of $10,000 was payable on January 1, 2006, and a $500,000, 7%
term bond issue due July 1, 2025 (see page 752). The Town Council had authorized
establishment of a debt service fund for the serial bonds. However, sinking fund accumulations on the term bonds were not required to begin until July 1, 2008; therefore,
a debt service fund for those bonds was unnecessary during the fiscal year ended June
30, 2006.
Interest on both general obligation bond issues was payable each January 1 and July 1.
Interest payments on the term bonds were recorded in the General Fund during the scal
year ended June 30, 2006, and were included in expenditures of that fund, as illustrated on
page 727. Interest payments on the serial bonds were made from the Debt Service Fund to
a scal agent, for transfer to the bondholders.

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The June 30, 2005, balance sheet of the Town of Verdant Glen Debt Service Fund for the
serial bonds was as follows:
TOWN OF VERDANT GLEN DEBT SERVICE FUND
Balance Sheet
June 30, 2005
Assets
Cash
$342

Fund balance reserved for debt service
$342
Aggregate journal entries for the Town of Verdant Glen Debt Service Fund for the year
ended June 30, 2006, are as follows:
Aggregate Journal
Entries for Debt
Service Fund of a
Governmental Entity

Journal Entries
Cash
Other Financing SourcesTransfers In
To record receipt of cash from General Fund for payment of serial bond
principal ($10,000) and interest ($1,000) maturing on July 1, 2005, and
Jan. 1, 2006.
11,000
Cash with Fiscal Agent

Cash
To record payment of cash to bank trust department acting as scal
agent for payment of serial bond principal and interest.
11,000
Expenditures
Matured Bonds Payable
Matured Interest Payable
To record expenditures for interest due July 1, 2005, and principal and
interest due Jan. 1, 2006.
11,000
Matured Bonds Payable

Matured Interest Payable
To record scal agents payments of bond principal and interest.
10,000
1,000
Expenditures
Cash
To record payment of scal agent for services during year ended
June 30, 2006.
342

Fund Balance Reserved for Debt Service
Expenditures
To close fund on extinguishment of related serial bonds.
11,000
11,000
10,000
1,000
11,000
342
11,000
342
11,342

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Following are signicant aspects of these journal entries.

1. There was no journal entry to record an annual budget. Generally, indentures for general
obligation bonds provide sufcient safeguards (such as restricting the fund balance
of the debt service fund solely for the payment of debt and related servicing costs), so
that recording the budget in the Debt Service Fund is unnecessary. (Note, however, on
page 720 of Chapter 17 that the General Funds estimated other nancing use for payment of $10,000 to the Debt Service Fund had been included in the General Funds annual budget.)
2. The rst journal entry is the counterpart of the General Fund journal entry no. 8 on
page 727 in Chapter 17.
3. Expenditures for principal and interest payments of the Debt Service Fund are recorded
only on the maturity dates of the obligations. Prior to the maturity dates, the liability for
the bonds principal is carried in the voluntarily maintained general long-term debt
account group (see page 761). Because a debt service fund generally does not issue
purchase orders, encumbrance accounting is not required.
4. The closing entry extinguishes all remaining ledger account balances of the Debt Service Fund, because the nal serial principal payment had been made.
The modified accrual basis of accounting is appropriate for revenues of a debt
service fund. Thus, any property taxes specifically earmarked for servicing of a governmental entitys general obligation bonds may be accrued as revenues in the debt
service fund. The accounting for such a tax accrual is the same as that for the general
fund.
For a term bond issue that requires the accumulation of a sinking fund, the journal entries for a debt service fund include the investment of cash in interest-bearing securities and
the collection of interest. Under the modied accrual basis of accounting, interest revenue
accrued on sinking fund investments at the end of the governmental entitys scal year is
recognized in the accounting records of the debt service fund.
Financial Statements for Debt Service Fund

A balance sheet for a debt service fund is illustrated on page 755. There is no balance sheet
for the Town of Verdant Glen Debt Service Fund on June 30, 2006, because the fund had
been extinguished. The statement of revenues, expenditures, and changes in fund balance
for the Town of Verdant Glen Debt Service Fund for the year ended June 30, 2006, is as
follows:
Statement of
Revenues,
Expenditures, and
Changes in Fund
Balance of a
Governmental Entitys
Debt Service Fund

Expenditures:
Principal retirement
Interest and charges by scal agent
Total expenditures
Excess (deciency) of revenues over expenditures
$ 10,000
1,342
$ 11,342
$(11,342)
(continued)

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Statement of Revenues, Expenditures, and Changes in Fund Balance (concluded)
Other nancing sources:
Transfers in
Net change in fund balance
Fund balance, beginning of year
Fund balance, end of year
11,000
$ (342)
342
-0-
Permanent Funds
As indicated on page 718 of Chapter 17, permanent funds of a governmental entity report
resources that are legally restricted so that principal cannot be used for programs such as
ongoing maintenance of a public cemetery.2 Because of their limited application, accounting and reporting for permanent funds are not illustrated in this chapter.
GENERAL CAPITAL ASSETS AND GENERAL LONG-TERM

DEBT ACCOUNT GROUPS
The accounting standards for state and local governmental entities described in Chapter 17
(page 719) might make it advisable for governmental entities to use account groups to
record capital (plant) assets (including infrastructure: streets, sidewalks, bridges, and the
like) and long-term debt of a governmental entity not recorded in a fund. A governmental
entitys voluntarily maintained general capital assets and general long-term debt account
groups are not funds; they are memorandum accounting entities. Their purpose is to provide in one record the governmental entitys plant assets and long-term liabilities that are
not recorded in one of the governmental entitys funds. Plant assets are recorded in enterprise, trust, and internal service funds; bonds payable and other long-term liabilities are
also recorded in these funds.
Accounting and Reporting for General Capital Assets

Account Group
Plant assets in the general capital assets account group are recorded at their cost to the governmental entity or at their current fair value if donated to the governmental entity. The offsetting credit is to a memorandum ledger account such as Investment in General Capital
Assets from (the source of the asset).
According to the Governmental Accounting Standards Board, except for certain infrastructure and inexhaustible (land and certain works of art) assets, depreciation must be
recorded in the general capital assets account group, with a debit to the appropriate Investment in General Capital Assets ledger account and a credit to an Accumulated Depreciation
account.3 When a plant asset carried in the general capital assets account group is disposed
2
3
Ibid., Sec. 1300.108.

Ibid., Sec. 1400.104.

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of by the governmental entity, the carrying amount of the asset is removed from the appropriate memorandum ledger accounts in the general capital assets account group; any
proceeds are recognized as miscellaneous revenue or as other nancing sources in the
general fund. Impairment losses of general capital assets should be recognized as they are
for plant assets of a business enterprise.4
Journal Entries for General Capital Assets Account Group

The following journal entries for the Town of Verdant Glen are typical of those for a governmental entitys general capital assets account group:
TOWN OF VERDANT GLEN GENERAL CAPITAL ASSETS ACCOUNT GROUP
Journal Entries for

General Capital Assets
Account Group of a
Governmental Entity
Journal Entries
Machinery and Equipment
Investment in General Capital Assets from General Fund Revenues
To record acquisition of equipment by General Fund.
126,400
Construction in Progress
Investment in General Capital Assets from Capital Projects Funds
To record construction work in progress on high school addition.
378,000
Land
Buildings
Investment in General Capital Assets from Gifts
To record, at current fair value, private citizens gift of land and a
building to be used as a public library.
500,000
800,000

Accumulated Depreciation of Machinery and Equipment
Machinery and Equipment
To record disposal of machinery and equipment.
Investment in General Capital Assets from Capital Projects Funds
Investment in General Capital Assets from Gifts
Accumulated Depreciation of Infrastructure
Accumulated Depreciation of Buildings
Accumulated Depreciation of Machinery and Equipment
To recognize depreciation of infrastructure, buildings, and machinery
and equipment for the year ended June 30, 2006.
126,400
378,000
1,300,000
20,000
70,000
90,000
40,000
1,280,000
60,000
1,000,000
240,000
140,000
The rst of the foregoing journal entries incorporates the assumption that equipment acquisitions were included in the expenditures of the Town of Verdant Glen General Fund for
the year ended June 30, 2006 (see page 726); the second journal entry was made on June 30,
2006, to record accumulated cost of the construction project of the Town of Verdant Glen
GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets . . .
(Norwalk: GASB, 2003), par. 17.

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Capital Projects Fund (page 752); and the third journal entry incorporates the assumption
that proceeds of disposal of machinery and equipment were included in revenues of the
Town of Verdant Glen General Fund for the year ended June 30, 2006.
Required Disclosures for General Capital Assets

The Governmental Accounting Standards Board requires presentation of an analysis of
changes in general capital assets of a governmental entity in a note to the nancial statements discussed in Chapter 19.5 The analysis of changes in general capital assets for the
Town of Verdant Glen for the scal year ended June 30, 2006, is as follows (beginning-ofyear and end-of-year balances are assumed):
CHANGES IN TOWN OF VERDANT GLEN GENERAL CAPITAL ASSETS
Balances,
July 1,
2005
Additions
Disposals*
Balances,
June 30,
2006

Infrastructure
Land
Buildings
Machinery and equipment
Construction in progress
Totals
$50,000,000
6,200,000
18,700,000
720,000
90,000
$50,000,000
6,700,000
19,500,000
756,400
378,000
$77,334,400
70,000
70,000
$ 8,000,000
1,700,000
286,000
$ 9,986,000
$ 60,000
1,280,000
60,000
$1,400,000
$10,490,400
51,716,000
5,142,000
$67,348,400
$75,620,000
$ 500,000
800,000
126,400
378,000
$1,804,400
$ 7,000,000
1,460,000
216,000
$ 8,676,000
$1,000,000
240,000
140,000
$1,380,000
$
$
$10,424,000
52,618,000
3,902,000
$66,944,000
$ 126,400
378,000
1,300,000
$1,804,400
90,000
$
Accumulated Depreciation
Infrastructure
Buildings
Machinery and equipment
Totals
Investment in General Capital Assets
From General Fund revenues
From Capital Projects Funds
From gifts
Totals
*
For investment in general capital assets section, includes depreciation.
Broken down by function in the statement of activities described in Chapter 19.
Accounting and Reporting for General Long-Term

Debt Account Group
General obligation bonds of a governmental entity, both serial and term, and other long-term
liabilities that are not recorded in an enterprise fund might be, at the election of the entity,
recorded as memorandum credits in the general long-term debt account group. The offsetting memorandum debit entry is to the Amount to Be Provided ledger account. When cash
and other assets for the ultimate payment of a bond issue or other long-term liabilities have
been accumulated in a debt service fund, the Amount Available in Debt Service Fund ledger
account is debited and the Amount to Be Provided account is credited. When the bonds or
5
Codication, Sec. 2300.112.

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other liabilities are paid by the debt service fund, the memorandum accounts are reversed in
the general long-term debt account group in a closing entry at the end of the scal year.
Journal Entries for Long-Term Debt Account Group

The following journal entries for the Town of Verdant Glen General Long-Term Debt Account Group parallel the corresponding journal entries in the Debt Service Fund (page 756)
and the Capital Projects Fund (page 752), respectively:
TOWN OF VERDANT GLEN GENERAL LONG-TERM DEBT ACCOUNT GROUP
Journal Entries for

General Long-Term
Debt Account Group
of a Governmental
Entity
Journal Entries
Amount Available in Debt Service Fund
Amount to Be Provided
To record amount received by Debt Service Fund from General Fund for
retirement of principal of general obligation serial bonds.
10,000
Serial Bonds Payable

To record Debt Service Fund payment of 10% serial bonds on
January 1, 2006.
10,000
Term Bonds Payable
To record issuance of 7% general obligation term bonds for construction
of addition to high school.
10,000
10,000
500,000
500,000
Required Disclosures for General Long-Term Debt

The Governmental Accounting Standards Board requires presentation of an analysis of
changes in general long-term debt of a governmental entity in a note to the nancial statements discussed in Chapter 19.6 Following is an analysis of changes in general long-term
debt of the Town of Verdant Glen for the year ended June 30, 2006:
CHANGES IN TOWN OF VERDANT GLEN GENERAL LONG-TERM DEBT
Balances,
July 1,
2005
Additions
Payments
Balances,
June 30,
2006
Term Bonds
7%, 20-year general obligation
bonds due July 1, 2025
$500,000
$500,000
Serial Bonds
10%, 10-year general obligation
bonds, nal installment due
January 1, 2006
Totals
Ibid., Sec. 2300.114.
$10,000
$10,000
$500,000
$10,000
$10,000
$500,000

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Capital Leases of Governmental Entities

If a capital lease is executed by a governmental entity for property not recorded in a proprietary fund (internal service fund or enterprise fund), the property is recorded in the voluntarily maintained general capital assets account group and the lease liability is recorded
in the voluntarily maintained general long-term debt account group, valued in accordance
with the provisions of FASB Statement No. 13, Accounting for Leases (as amended and
interpreted).7 The periodic lease payments typically are included in expenditures of the
general fund.
To illustrate accounting for a capital lease by a governmental entity, assume that on July
1, 2006, the Town of Verdant Glen entered into a three-year capital lease for furniture and
equipment for the library building donated to the town (see page 759). The minimum lease
payments were $10,000, payable each July 1, 2006 through 2008. Title to the furniture and
equipment was to be vested in the town on July 1, 2009. The town adopted the straight-line
method of depreciation, a 10-year economic life, and no residual value for the furniture and
equipment. The interest rate implicit in the lease, known to the town and less than the
towns incremental borrowing rate, was 8%.
The following journal entries would be required for the capital lease for the three-year
lease term:
TOWN OF VERDANT GLEN
Journal Entries for

Governmental Entitys
Capital Lease
Journal Entries for Capital Lease
In General Fund
2006
July 1
2007
July 1
2008
July 1
Expenditures
Cash
To record rst lease payment on three-year capital lease for
library furniture and equipment.
10,000
Expenditures ($1,427 interest $8,573 principal)

Cash
To record second lease payment on three-year capital lease for
10,000
Expenditures ($740 interest $9,260 principal)

Cash
To record third lease payment on three-year capital lease for
10,000
10,000
10,000
10,000
In General Long-Term Debt Account Group

2006
July 1
Amount to Be Provided ($10,000 2.783265*)

Liability under Capital Lease (net)
To record liability under three-year capital lease for
27,833
27,833
Present value of annuity due of l for three periods at 8%.
(continued)
7
Ibid., Sec. L20.110.

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Journal Entries for Capital Lease (concluded)
2006
July 1 Liability under Capital Lease (net)
To record General Fund payment of rst lease payment on
three-year capital lease for library furniture and equipment.
2007
To record General Fund payment of second lease payment
on three-year capital lease for library furniture and equipment.
2008
To record General Fund payment of third lease payment on
three-year capital lease for library furniture and equipment.
10,000
10,000
8,573
8,573
9,260
9,260
In General Capital Assets Account Group

2006
July 1 Leased Furniture and EquipmentCapital Lease
Investment in General Capital Assets from
General Fund Revenues
To record acquisition of library furniture and equipment under
three-year capital lease.
2007
June 30
Investment in General Capital Assets from General Fund

Revenues ($27,833 10)
Accumulated DepreciationLeased Furniture and
EquipmentCapital Lease
To recognize depreciation of leased library furniture and
equipment for the year ended June 30, 2007.
27,833
27,833
2,783
2,783
(The same depreciation journal entries would be prepared on June 30, 2008, through June 30, 2016.)
Accounting for Special Assessment Bonds

In GASB Statement No. 6, Accounting and Financial Reporting for Special Assessments,
the Governmental Accounting Standards Board terminated the use of special assessment
funds to account for the construction of public improvements nanced by special assessments against selected property owners and by related special assessment bonds.8 Instead,
special revenue funds, capital projects funds, and debt service funds are to be used, as appropriate, for the transactions and events related to such construction projects.
With respect to special assessment bonds, which sometimes are issued by a governmental entity to nance construction projects pending the receipt of special assessments payable
in annual installments, the GASB provided the following standards:
Ibid., Sec. S40.113.

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b. Special assessment debt for which the government is obligated in some manner . . .
should be reported as general long-term liabilities in the government-wide statement of
net assets, except for the portion, if any, that is directly related to and expected to be paid
from proprietary funds.
(1) The portion of the special assessment debt that will be repaid from property owner
assessments should be reported as special assessment debt with governmental commitment.
(2) The portion of special assessment debt that will be repaid from general resources of
the government (the public benet portion, or the amount assessed against governmentowned property) should be reported like other general long-term liabilities.
(3) The portion of special assessment debt that is directly related to and expected to be
paid from proprietary funds should be reported as liabilities of those funds in the
proprietary fund statement of net assets. Liabilities directly related to and expected to
be repaid from proprietary funds should also be reported in the government-wide
statement of net assets.
c. Special assessment debt for which the government is not obligated in any manner should
not be displayed in the governments nancial statements.9
To illustrate application of the foregoing standards, assume that on July 1, 2006, the
Town Council of Verdant Glen enacted a special assessment for paving streets and installing sidewalks in a section of the town. The total assessment was $250,000, payable
by the assessed property owners in ve annual installments, beginning July 1, 2006. Interest on unpaid balances at 10% a year was payable annually by the assessed property
owners, beginning July 1, 2007. To help nance the cost of the construction project, the
Town Council authorized the issuance on July 1, 2006, of $200,000 face amount, fouryear, 8% special assessment bonds, payable $50,000 a year plus interest payable annually,
beginning July 1, 2007. The Town Council authorized the establishment of a special revenue fund and a capital projects fund to account for the construction project. Under the
terms of the bond indenture for the special assessment bonds, the Town of Verdant Glen
was obligated to pay the special assessment bonds at maturity if the property owners defaulted on their special assessments and proceeds of lien foreclosures on the property
were insufcient.
The following journal entries are required on July 1, 2006, the date of the special
assessment:
Journal Entries for

Governmental Entity
Construction Project
Financed by Special
Assessment
Journal Entries for Construction Project Financed by Special Assessment
In Special Revenue Fund (different from that illustrated on

pages 748751):
Special Assessments ReceivableDeferred
Revenues
Deferred Revenues
To record special assessment levied on property owners beneted by
paving and sidewalk project; special assessments receivable and related
revenues applicable to year ended June 30, 2006, are current, and the
balance is deferred.
50,000
200,000
50,000
200,000
(continued)
9
Ibid., Sec. S40.116 b,c.

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Journal Entries for Construction Project Financed by Special Assessment (concluded)
Cash
To record receipt of current special assessment payments.
50,000
Other Financing UsesTransfers Out

Cash
To record transfer of cash for nancing of paving and sidewalk project
to Capital Projects Fund established for that purpose.
50,000
50,000
50,000
In Capital Projects Fund (different from that illustrated on

pages 751755):
Cash
To record receipt of cash from Special Revenue Fund for proceeds of
current installment of special assessments.
Cash
To record proceeds of $200,000 face amount of four-year, 8% special
assessment bonds to yield 9%.
50,000
50,000
195,776
4,224
200,000
In General Long-Term Debt Account Group (same as that

illustrated on pages 760761):
Special Assessment Bonds Payable
To record issuance of 8% special assessment bonds for paving and
sidewalk project; the town is obligated to honor deciencies on
payment of the bonds.
200,000
200,000
Some signicant features of the foregoing journal entries are as follows:

1. The capital budget for the paving and sidewalks project is not entered in the accounting
records of either the Special Revenue Fund or the Capital Projects Fund. The Town Councils approval of the special assessment and the related bonds provides adequate control.
2. Because the Special Revenue Fund will collect the special assessments as they become current, that fund also will service the special assessment bonds as they become payable. Further, the Special Revenue Fund will accrue interest receivable (at 10%) on the unpaid special
assessments receivable, and interest payable (at 8%) on the special assessment bonds.
3. On June 30, 2007, 2008, 2009, and 2010, the Special Revenue Fund will prepare the following journal entry:
Deferred Revenues
Special Assessments ReceivableDeferred
Revenues
To transfer special assessment installment receivable in next scal year
and related revenues to the current category from the deferred category.
50,000
50,000
50,000
50,000

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4. The special assessment bonds and related interest are payable serially over a four-year
period by the Special Revenue Fund, from proceeds of the annual collections of special
assessments and related interest. Accordingly, the present value of the 8% special assessment bonds ($195,776) at the 9% yield rate is computed as follows:
Computation of
Present Value of
Special Assessment
Bonds
Principal and interest due July 1, 2007 [($50,000 $16,000) 0.917431*]

Present value (proceeds) of 8% special assessment
bonds at 9% yield rate
*
Review
Questions
$ 60,550
52,184
44,787
38,255
$195,776
From present value tables.
1. Describe the taxes, fees, or other revenues of a governmental entity that often are accounted for in special revenue funds.
2. The following journal entry was prepared for the Town of Groman Special Revenue
Fund, established to account for special assessments on selected property owners of the
nearby Village of Angelus:
Expenditures
To record billings from General Fund for reimbursement of
expenditures for street cleaning and streetlight maintenance for
residents of the Village of Angelus.
42,000
42,000
What ledger account does the Town of Groman General Fund credit to offset the
$42,000 debit to Receivable from Special Revenue Fund? Explain.
3. How are proceeds of general obligation bonds issued at face amount by a governmental
entity to nance a construction project accounted for in a capital projects fund? Explain.
4. Is a separate debt service fund established for every issue of general obligation bonds
issued by a governmental entity? Explain.
5. The following journal entry (explanation omitted) appeared in the Charter County
Debt Service Fund:
Cash
83,000
83,000
What is the probable explanation for this journal entry? Explain.

6. Is the recognition of depreciation of plant assets appropriate for a governmental entitys
voluntarily maintained general capital assets account group? Explain.
7. Explain the use of the Investment in General Capital Assets from Gifts ledger account
of a governmental entitys general capital assets account group.
8. Is a balance sheet issued for a governmental entitys voluntarily maintained general
capital assets account group? Explain.
9. The following journal entry appeared in the accounting records of the Village of Marvell
voluntarily maintained General Long-Term Debt Account Group:

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To record amount received by Debt Service Fund from General Fund
for retirement of principal of general obligation serial bonds.
25,000
25,000
Is the foregoing journal entry prepared correctly? Explain.

10. Explain how each of the following accounting units of a governmental entity is affected by a capital lease for re engines of the re department: general fund, voluntarily maintained general long-term debt account group, voluntarily maintained general
capital assets account group.
11. Under what circumstances, if any, is a liability for special assessment bonds recorded
in a governmental entitys voluntarily maintained general long-term debt account group?
Explain.
Exercises
(Exercise 18.1)
Select the best answer for each of the following multiple-choice questions:
1. May funds other than the general fund be established by a governmental entity in response to:
a.
b.
c.
d.
Legislative Action?
Executive Action?
Yes
Yes
No
No
Yes
No
Yes
No
2. The governmental funds of a governmental entity include all the following except:
a. Special revenue funds
b. Agency funds
c. Debt service funds
d. Capital projects funds
3. An example of a governmental fund of a governmental entity is:
a. An enterprise fund
b. A special revenue fund
c. An agency fund
d. None of the foregoing
4. The type of governmental fund of a governmental entity whose accounting most resembles that of the entitys general fund is a:
a. Capital projects fund
b. Debt service fund
c. Special revenue fund
d. Special expenditures fund

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5. The governmental funds of a governmental entity for which the statement of revenues,
expenditures, and changes in fund balance typically displays both budgeted and actual
amounts are:
a. Special revenue funds
b. Capital projects funds
c. Debt service funds
d. None of the foregoing
6. A capital projects fund of a governmental entity is:
a. A governmental fund
b. A proprietary fund
c. A duciary fund
d. An account group
7. A Fund Balance Reserved for Encumbrances ledger account most likely is appropriate
for a governmental entitys:
a. Special revenue fund
b. Capital projects fund
c. Debt service fund
d. Three foregoing governmental funds
8. To record the issuance of general obligation bonds at face amount to nance a governmental entitys capital project fund, the accountant for that fund credits:
a. Revenues
b. Other Financing Sources
c. Unreserved and Undesignated Fund Balance
d. General Obligation Bonds Payable
9. Is an annual budget always recorded by a governmental entitys:
a.
b.
c.
d.
Special Revenue
Funds?
Capital Projects
Funds?
Debt Service
Funds?
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
Yes
No
No
10. A governmental entitys voluntarily maintained general capital assets account group
may be used for all plant assets of the governmental entity not recorded in:
a. Capital projects funds
b. Trust funds
c. The general fund
d. Plant asset funds
11. Are plant assets of a governmental entity accounted for in the entitys:
a.
b.
c.
d.
General Fund?
Capital Projects Funds?
Yes
Yes
No
No
Yes
No
Yes
No

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12. Excluded from the voluntarily maintained general capital assets account group of a
governmental entity are:
a. Donated plant assets.
b. Plant assets constructed with resources of capital projects funds.
c. Infrastructure.
d. None of the foregoing.
13. A governmental entitys Amount to Be Provided ledger account is included in the accounting records of the entitys:
a. Debt service funds.
b. Capital projects funds.
c. General long-term debt account group.
d. General capital assets account group.
14. The typical balances of the following ledger accounts of a governmental entitys general long-term debt account group are:
a.
b.
c.
d.
Amount Available
in Debt Service Fund
Debit
Credit
Debit
Credit
Credit
Debit
Debit
Credit
15. Are journal entries for a capital lease (for property not recorded in a proprietary fund)
entered into by a governmental entity typically required in the entitys:
a.
b.
c.
d.
General Fund?
General Long-Term
Debt Account Group?

Account Group?
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
No
Yes
16. For the transactions and events related to construction of public improvements nanced
by special assessments, does a governmental entity use a:
a.
b.
c.
d.
Special Revenue
Fund?
Capital Projects
Fund?
Debt Service
Fund?
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Yes
No
No
Yes
(Exercise 18.2)
On July 1, 2005, property taxes totaling $480,000, of which 112% was estimated to be uncollectible, were levied by the County of Larchmont Special Revenue Fund. Property taxes
collected by the Special Revenue Fund during July 2005 totaled $142,700.
Prepare journal entries for the County of Larchmont Special Revenue Fund for the foregoing transactions and events.
(Exercise 18.3)
On July 1, 2005, the City of Garbo Capital Projects Fund received the proceeds of a $1 million face amount, 6% ve-year serial bond issue, $200,000 principal plus interest payable

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CHECK FIGURE
Present value of bonds,
$949,636.
annually, to nance the construction of a new elementary school. The bonds were issued to
yield 8%.
Prepare a working paper to compute the proceeds (present value) of the City of Garbo
6% serial bonds on July 1, 2005.
(Exercise 18.4)
On July 1, 2005, the County of Pinecrest issued at face amount $1,200,000 of 30-year, 5%
general obligation term bonds, interest payable each January 1 and July 1, to nance the
construction of a public health center.
Prepare journal entries on July 1, 2005, to record the foregoing transaction for all
County of Pinecrest funds or voluntarily maintained account groups affected. Identify the
funds or account groups.
(Exercise 18.5)
On April 30, 2006, the scal agent for the Town of Wallen Debt Service Fund paid the nal
serial payment of $50,000 on the towns 8% general obligation bonds, together with semiannual interest. The Debt Service Fund had provided sufcient cash to the scal agent a few
days earlier.
Prepare a journal entry for the Town of Wallen Debt Service Fund to record the scal
agents payment of bond principal and interest on April 30, 2006.
(Exercise 18.6)
On March 18, 2006, the Bucolic Township General Fund transferred $140,000 to the Debt
Service Fund for the semiannual $100,000 serial maturity (payable March 31, 2006) on
$800,000 face amount of outstanding 10% general obligation bonds, plus interest of
$40,000.
Prepare journal entries (omit explanations) on March 18, 2006 only, for the appropriate
funds and voluntarily maintained account group of Bucolic Township.
(Exercise 18.7)
Among the activities of Nemo County for the scal year beginning July 1, 2005, and ending June 30, 2006, was the following:
Sept. 1, 2005 Acquired for cash, from proceeds of general tax revenues, equipment
costing $80,000 (the related purchase order was for $79,600). The equipment was to be used by the general government of Nemo County. The
county uses encumbrance accounting.
Prepare journal entries (omit explanations) for the foregoing activity of Nemo County.
Identify by initials the funds or voluntarily maintained account groups (for example, GF,
SRF, CPF, GCAAG) in which the journal entries are recorded.
(Exercise 18.8)
On March 24, 2006, Wildwood Village sold to a scrap dealer for $40,000 an old re engine
with a cost of $200,000 and carrying amount of $20,000 in Wildwoods general capital assets account group. The $40,000 cash was received by Wildwoods general fund, which simultaneously acquired another re engine for $450,000 cash, compared with the $446,000
amount of the purchase order that had been issued on February 10, 2006. The village uses
encumbrance accounting and a general capital assets account group.
Prepare journal entries (omit explanations) for Wildwood Villages general fund and
general capital assets account group on March 24, 2006 only.
(Exercise 18.9)
On June 30, 2006, the end of the scal year, the following journal entry was prepared by
the accountant for the Town of Backwoods Town Hall Capital Projects Fund:
Expenditures
Vouchers Payable
To record rst progress billings of architect and contractor for town hall
under construction.
950,000
950,000

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Prepare a journal entry on June 30, 2006, for the Town of Backwoods voluntarily maintained General Capital Assets Account Group.
(Exercise 18.10)
A citizen of Hays City donated 10 acres of undeveloped land to the city for a future school
site. The donors cost of the land was $555,000. The current fair value of the land was
$850,000 on the date of the gift.
Prepare a journal entry for the appropriate fund or account group of Hays City to record
the gift. Identify the fund or account group.
(Exercise 18.11)
On April 30, 2006, the Town of Noblisse General Fund received the $30,000 proceeds from
disposal of a computer that had a carrying amount of $40,000. The General Fund had acquired the computer three years earlier at a cost of $100,000.
Prepare journal entries on April 30, 2006, to record the foregoing transaction for all
Town of Noblisse funds or voluntarily maintained account groups affected. Identify the funds
or account groups.
(Exercise 18.12)
On July 1, 2005, the City of Rogell entered into a ve-year capital lease for re-ghting
equipment, with lease payments of $20,000 due each July 1, 2005 through 2009. Title to the
equipment was to pass to the City of Rogell on June 30, 2010. The interest rate implicit in
the lease, known to Rogell and less than Rogells incremental borrowing rate, was 8%.
Prepare journal entries on July 1, 2005, to record the foregoing transaction for all City
of Rogell funds or voluntarily maintained account groups affected. Identify the funds or account groups.
CHECK FIGURE
In general long-term
debt account group,
debit amount to be
provided, $86,243.
(Exercise 18.13)
CHECK FIGURE
In capital projects
fund, debit cash,
$589,737.
(Exercise 18.14)
On July 1, 2005, the Town of Warren issued $600,000 face amount of three-year, 9% special assessment bonds, payable $200,000 a year plus interest, at a 10% yield rate, to nance
a street improvement project. The town was obligated in some manner for the bonds.
Prepare journal entries on July 1, 2005, to record the foregoing transaction for all Town
of Warren funds or voluntarily maintained account groups affected. Identify the funds or
account groups.
The ledger accounts listed below are included frequently in the accounting records of governmental entities.
Ledger Account
1
2
3
4
5
6
7
Bonds Payable
Equipment
Appropriations
Estimated Revenues
Taxes ReceivableCurrent
Fund or Account Group

a
b
c
d
e
f
General fund
Special revenue fund
Capital projects fund
Debt service fund
General capital assets account group
General long-term debt account group
Select the appropriate identifying letter to indicate the governmental entity fund or account group in which these ledger accounts might properly appear. An account might appear in more than one fund or account group.
Cases
(Case 18.1)
The controller of the city of Darby has asked your advice on the accounting for an installment contract payable by the city. The contract covers the cost of installing automatic
gates, currency receptacles, and ticket dispensers for the 20 city-owned parking lots in the

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downtown district. Installation of the self-parking equipment resulted in a decrease in the

required number of parking attendants for the city-owned parking lots and a reduction in
the salaries and related expenditures of the City of Darby General Fund.
The contract is payable monthly in amounts equal to 40% of the months total parking
revenue for the 20 lots. Because no legal or contractual provisions require the City of Darby
to establish an enterprise fund for the parking lots, both parking revenue and parking-lot
maintenance and repairs expenditures are to be recorded in the City of Darby General
Fund. The parking-lot sites are to be carried at cost in the City of Darby voluntarily maintained General Capital Assets Account Group.
The city controller describes the plans for accounting for payments on the contract as
follows: Monthly payments under the contract are to be debited to the Expenditures ledger
account of the General Fund and to the debt service section of the expenditures subsidiary
ledger. The payments also will be recorded in the General Capital Assets Account Group as
additions to the Improvements Other than Buildings ledger account. A note to the General
Fund balance sheet will disclose the unpaid balance of the installment contract at the end
of each scal year. The unpaid balance of the contract will not be included in the voluntarily maintained General Long-Term Debt Account Group because the contract does not represent a liability for borrowing of cash, as do the bond and other long-term debt liabilities
of the City of Darby.
Instructions
What is your advice to the controller of the City of Darby? Explain.
(Case 18.2)
The chief accountant of the City of DelVille requests your advice on how to account for
two special assessments, which the city has never before enacted. One special assessment
was to nance street lighting and maintenance services to selected residents of the nearby
Town of Minimus; the other was to nance construction of a new city hall for the City of
DelVille. Special assessment bonds were not to be issued.
Instructions
What is your advice to the chief accountant of the City of DelVille? Explain.
(Case 18.3)
James Milton, the newly elected controller of Wilburtown, a municipality with a population
of approximately 120,000, is astonished that Wilburtowns accounting records include 25
special revenue funds. He asks you, a member of the newly appointed independent auditors
of Wilburtown, which had never before been audited, for assistance in determining which
if anyof the special revenue funds might be closed, with their revenues and related expenditures to be accounted for in the Wilburtown General Fund. Before responding to
Milton, you decide to consult Section 1300.105 of Codication of Governmental Accounting and Financial Reporting Standards (Norwalk: GASB, 2003).
Instructions
After undertaking the consulting described above, prepare a memorandum to James Milton
in answer to his question.
(Case 18.4)
In a classroom discussion of accounting procedures for the general long-term debt account
group of a governmental entity, Professor Lisa Newton posed the following question to her
students:
In the journal entry to provide for the liability under a general obligation term bond payable
in the voluntarily maintained general long-term debt account group, should there also be a
debit to Amount to Be Provided and a credit to Interest to Be Paid for the total interest obligation under the bonds? Explain your views.
Instructions
If you were a student in Professor Newtons class, how would you answer her question?

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(Case 18.5)
The City Council of Martinburg has asked you, the engagement manager of the CPA rm
that has just concluded the audit of the citys nancial statements for the scal year ended
June 30, 2006, to explain the negative balance of the unreserved and undesignated fund balance in the following balance sheet:
CITY OF MARTINBURG CLINIC CAPITAL PROJECTS FUND
Balance Sheet
June 30, 2006
Assets
Cash
Investments, at fair value
Total assets
$ 24,000
382,000
$406,000
Liabilities:
Vouchers payable
Contracts payable
Total liabilities
Fund balance:
Reserved for encumbrances
Unreserved and undesignated
$ 10,000
60,000
$ 70,000
$480,000
(144,000)
336,000
$406,000
Your rms audit working papers show that the clinic was 80% complete on June 30, 2006.
Instructions
How would you respond to the City Councils request? Explain.
Problems
(Problem 18.1)
During the scal year ended June 30, 2006, Ridge City had the following plant asset transactions and events, among others:
2005
Oct. 31
Dec. 10
2006
June 30
30
30
General Fund acquired for cash equipment costing $20,000.

A citizen donated land and a building with current fair values of $100,000
and $500,000, respectively.
Construction in progress expenditures in the Capital Projects Fund totaled
$970,000 at scal year-end.
Depreciation of buildings$250,000and of equipment$40,000was
attributable to plant assets acquired as follows: From General Fund revenues
$60,000; from Capital Projects Funds$140,000; from gifts$90,000.
Depreciation of infrastructure$850,000was attributable to assets acquired from capital projects funds.
Instructions
Prepare journal entries for the Ridge City voluntarily maintained General Capital Assets
Account Group for the foregoing transactions and events.

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(Problem 18.2)
CHECK FIGURE
Total liabilities & fund
balance, $276,036.
Shown below is the trial balance of the Town of Dilbey Capital Projects Fund at the end of
its rst year of operations.
TOWN OF DILBEY CAPITAL PROJECTS FUND
Trial Balance
June 30, 2006
Debit
Cash
Vouchers payable
Fund balance reserved for encumbrances
Revenues (interest on investments)
Other nancing sources: Bonds issued
Expenditures: Construction contracts
Expenditures: Engineering and other
Other nancing uses: Discount on bonds issued
Encumbrances
Totals
Credit
$ 276,036
$ 101,000
227,600
30,000
1,000,000
575,200
180,800
98,964
227,600
$1,358,600
$1,358,600
Instructions
Prepare nancial statements for the Town of Dilbey Capital Projects Fund for the scal year
ended June 30, 2006.
(Problem 18.3)
On July 1, 2005, the Town of Logan began two construction projects: (1) an addition to the
town hall and (2) a curbing construction project nanced with a special assessment. The
special assessment totaled $400,000, payable by the assessed citizens in ve annual installments of $80,000 beginning July 1, 2005, together with interest at 8% a year on the unpaid
assessments. Other details for the scal year ended June 30, 2006, were as follows:
Addition to Town Hall
Curbing Construction
Project
Bonds issued July 1, 2005,

at face amount
$600,000 face amount,

7%, 20-year general
obligation term bonds,
interest payable Jan. 1
and July 1
Total encumbrances
Total expenditures
Encumbrances applicable
to expenditures
Total cash paid on
vouchers payable
$530,200
$380,600
$320,000 face amount

712%, 4-year special
assessment bonds,
$80,000 principal and
interest payable each
July 1
$384,600
$360,300
$382,100
$354,700
$322,700
$347,600
Instructions
Prepare journal entries for the scal year ended June 30, 2006, including year-end accruals
but excluding closing entries, for (a) the Town of Logan Town Hall Capital Projects Fund
and (b) the Town of Logan Special Revenue Fund (established to account for the proceeds
of the special assessment). Do not prepare journal entries for the Town of Logan Curbing
Construction Capital Projects Fund.

V. Accounting for

and Account Groups
The McGrawHill
Companies, 2005
(Problem 18.4)
Among the journal entries of the General Fund of Webster Village for the scal year ended
June 30, 2006, were the following:
2005
July 3
Aug. 31
Nov. 30
30
2006
Jan. 2

Payable to Capital Projects Fund
To record liability to Capital Projects Fund for
transfer to make up that funds cash deciency.
Cash
To record transfer to Debt Service Fund for maturing
principal and nal six-months interest payment on $200,000
face amount, 20-year, 10% general obligation term bonds
issued Aug. 31, 1985.
15,000
15,000
210,000
210,000
Expenditures
Vouchers Payable
To record expenditure for new computer for village.
Straight-line depreciation to be used; economic life is ve
years, with no residual value.
60,000

Encumbrances
To reverse encumbrance applicable to computer.
58,800

Cash
To record transfer to Special Revenue Fund for
villages share of street-paving project cost in Westside
section; remaining $180,000 estimated cost is to be nanced
by a special assessment.
20,000
60,000
58,800
20,000
Instructions
Prepare journal entries for the scal year ended June 30, 2006, in the other funds or voluntarily maintained account groups affected by the foregoing transactions or events of the
General Fund of Webster Village. Identify the affected funds or account groups. Include a
journal entry for depreciation of the computer.
(Problem 18.5)
Among the activities of Calabash County for the scal year beginning July 1, 2005, and
ending June 30, 2006, were the following:
2005
July 1 Approved the annual budget for the Gasoline Tax Special Revenue Fund as follows: Appropriations, $600,000; estimated revenues, $640,000.
5 Executed a contract for the construction of a new public library at a total cost
of $5 million.
Aug. 1 Authorized a special assessment of $400,000 on residents of the North Subdivision for construction of sidewalks. The special assessment, which was
payable in ve annual installments of $80,000 beginning October 1, 2005, with
interest at 9% a year on the unpaid installments, was to be accounted for in the
Special Assessment Special Revenue Fund.

776
V. Accounting for

and Account Groups
The McGrawHill
Companies, 2005
Sept. 1 Acquired from proceeds of general tax revenues equipment costing $20,000
(the related purchase order was for $19,600). The equipment was to be used by
the general government of Calabash County, which does not depreciate plant
assets, in the voluntarily maintained General Capital Assets Account Group.
The county uses encumbrance accounting.
Instructions
Prepare journal entries for the scal year ended June 30, 2006, for the foregoing transactions or events of Calabash County. Identify the funds or account groups in which the journal entries are recorded.
(Problem 18.6)
CHECK FIGURE
July 1, 2005, credit
liability under capital
lease (net), $8,663.
On July 1, 2005, the City of Arlette, which records depreciation on plant assets in the voluntarily maintained General Capital Assets Account Group, leased under a three-year term
capital lease a computer with a four-year economic life and no residual value. Lease payments of $3,000 were payable by the General Fund on July 1, 2005, 2006, and 2007; a bargain purchase option of $500 was payable on June 30, 2008. The interest rate implicit in the
lease, 9%, was less than the citys incremental borrowing rate and was known to the City
Council.
Instructions
Prepare journal entries with respect to the capital lease for the City of Arlette for the three
scal years ended June 30, 2008, in all affected funds and account groups. Identify the affected funds or account groups. The City of Arlette depreciates plant assets by the straightline method.
(Problem 18.7)
CHECK FIGURE
b. Total assets,
$2,500,000.
The City of Ordways scal year ends on June 30. During the year ended June 30, 2006, the
city authorized the construction of a new library and the issuance of general obligation term
bonds to nance the construction of the library. The authorization imposed the following
restrictions:
1. Construction cost was not to exceed $5 million.
2. Annual interest rate was not to exceed 10%.
The city does not record capital budgets, but other appropriate ledger accounts, included
for encumbrance accounting, are maintained. The following transactions or events relating
to the nancing and constructing of the library occurred during the scal year ended June
30, 2007:
(1) On July 1, 2006, the city issued $5 million of 30-year, 9% general obligation term
bonds for $5,100,000. The semiannual interest dates were June 30 and December 31.
(2) On July 3, 2006, the Library Capital Projects Fund invested $4,900,000 in short-term
notes. This investment was at face amount, with no accrued interest. Interest on cash
invested by the Library Capital Projects Fund must be transferred to the Library Debt
Service Fund. During the year ending June 30, 2007, estimated interest to be earned
was $140,000.
(3) On July 5, 2006, the City signed a construction-type contract with Premier Construction Company to build the library for $4,980,000.
(4) On January 15, 2007, the Library Capital Projects Fund received $3,040,000, from
the maturity of short-term notes acquired on July 3, 2006. The cost of these notes
was $3 million. The interest of $40,000 was transferred to the Library Debt Service
Fund.
(5) On January 20, 2007, Premier Construction Company billed the City $3 million for
work performed on the new library. The contract calls for 10% retention until nal

V. Accounting for

and Account Groups
The McGrawHill
Companies, 2005
inspection and acceptance of the building. The Library Capital Projects Fund paid
$2,700,000 to Premier.
(6) On June 30, 2007, the accountant for the Library Capital Projects Fund prepared adjusting and closing entries.
Instructions
a. Prepare journal entries for the scal year ended June 30, 2007, for the foregoing transactions or events of the City of Ordway Library Capital Projects Fund. Use the following ledger account titles:
Cash
Encumbrances
Expenditures
Interest Receivable
Investments
Other Financing Sources
Payable to Library Debt Service Fund
Vouchers Payable
Do not record journal entries in any other fund or account group.
b. Prepare a balance sheet for the City of Ordway Library Capital Projects Fund on June
30, 2007.
(Problem 18.8)
In a special election held on May 1, 2005, the citizens of the City of Wilmont approved a $10
million issue of 20-year, 8% general obligation term bonds maturing in 2025. The proceeds
of the bonds will be used to help nance the construction of a new civic center. The total cost
of the project was estimated at $15 million. The remaining $5 million was to be nanced by
an irrevocable state grant, which has been awarded. A capital projects fund was established
to account for this project and was designated the Civic Center Capital Projects Fund.
The following transactions and events occurred during the scal year beginning July 1,
2005, and ending June 30, 2006:
(1) On July 1, the General Fund loaned $500,000 (non-interest-bearing) to the Civic Center Capital Projects Fund for defraying engineering and other costs.
(2) Preliminary engineering and planning costs of $320,000 were paid to Akron Company.
There had been no encumbrance for this cost.
(3) On December 1, the bonds were issued to yield 9%. Interest was payable each June 1
and December 1, through 2025.
(4) On March 15, a contract for $12 million was entered into with Carlson Construction
Company for the major part of the project.
(5) Purchase orders were placed for material estimated to cost $55,000. Encumbrance accounting was used.
(6) On April 1, a partial payment of $2,500,000 was received from the state government.
(7) The material that was ordered previously was received at a cost of $51,000 and paid for.
(8) On June 15, a progress billing of $2 million was received from Carlson Construction
Company for work done on the project. In accordance with the contract, the city withheld 6% of any billing until the project was completed.
(9) The General Fund was repaid the $500,000 previously loaned.

778
V. Accounting for

and Account Groups
The McGrawHill
Companies, 2005
Instructions
Prepare general journal entries to record the foregoing transactions and events of the Civic
Center Capital Projects Fund for the period July 1, 2005, through June 30, 2006, and the
closing entries on June 30, 2006. Omit explanations for the journal entries. Use the following ledger account titles in the journal entries:
Cash
Encumbrances
Expenditures
Fund Balance Reserved for
Encumbrances
Other Financing Sources
(Problem 18.9)
Other Financing Uses

Receivable from State Government
Revenues
Vouchers Payable
The following decit budget was proposed for 2005 for the Angelus School District General Fund:
ANGELUS SCHOOL DISTRICT GENERAL FUND

Annual Budget
For Year Ending December 31, 2005
Fund balance, Jan. 1, 2005
Revenues:
Property taxes
Investment interest
Total
Expenditures:
Operating
County treasurers fees
Bond interest
Projected fund balance, Dec. 31, 2005
Total
$128,000
112,000
4,000
$244,000
$120,000
1,120
50,000
72,880
$244,000
A general obligation bond issue of the School District had been proposed in 2004. The
proceeds were to be used for a new school. There are no other outstanding bond issues. Information about the bond issue follows:
Principal amount
Interest rate
Bonds dated
Interest payable
Maturity
$1,000,000
712%
Jan. 1, 2005
Jan. 1 and July 1, beginning July 1, 2005
Serially at the rate of $1,000,000 a year, starting Jan. 1, 2007.
The School District uses a separate bank account for each fund. The General Fund trial
balance on December 31, 2004, follows:

V. Accounting for

and Account Groups
The McGrawHill
Companies, 2005
ANGELUS SCHOOL DISTRICT GENERAL FUND

Trial Balance
December 31, 2004
Debit
Cash
Short-term investmentsU.S. Treasury 6% bonds,
interest payable on May 1 and Nov. 1
Unreserved and undesignated fund balance
Totals
Credit
$ 28,000
100,000
$128,000
$128,000
$128,000
The county treasurer collects the property taxes and withholds a fee of 1% on all collections. The transactions and events for 2005 were as follows:
Jan.
1 The proposed budget was adopted, the general obligation bond issue was authorized, and the property taxes were levied.
Feb. 28 Net property tax receipts from county treasurer, $49,500, were deposited.
Apr. 1 General obligation bonds were issued at 101 plus accrued interest. It was directed that the premium be used for payment of interest by the General Fund.
2 The School District paid $147,000 for the new school site.
3 A contract for $850,000 for the new school was approved. Encumbrance accounting was used.
May 1 Interest was received on short-term investments.
July 1 Interest was paid on bonds.
Aug. 31 Net property tax receipts from county treasurer, $59,400, were deposited.
Nov. 1 Payment on new school construction contract, $200,000, was made.
1 Interest was received on short-term investments.
Dec. 31 Operating expenditures during the year were $115,000. (Disregard vouchering and encumbrances.)
Instructions
Prepare journal entries for Angelus School District to record the foregoing Year 2005 transactions and events in the following funds or voluntarily maintained account groups. (Closing entries are not required.)
a.
b.
c.
d.
General Fund.
Capital Projects Fund.
General Capital Assets Account Group.
General Long-Term Debt Account Group.
Angelus School District does not use a Debt Service Fund.

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Larsen: Modern Advanced

Accounting, Tenth Edition

18. Governmental Entities:

OTHER GOVERNMENTAL FUNDS

Accounting and Reporting for Special Revenue Funds

Larsen: Modern Advanced

18. Governmental Entities:

Journal Entries for Special Revenue Fund

Larsen: Modern Advanced

18. Governmental Entities:

Part Five Accounting for Nonbusiness Organizations

Journal Entries for

TOWN OF VERDANT GLEN SPECIAL REVENUE FUND

Special Assessments ReceivableCurrent

Payable to General Fund

Revenues ($82,000 $2,000)

Unreserved and Undesignated Fund Balance

Larsen: Modern Advanced

18. Governmental Entities:

Financial Statements for Special Revenue Fund

TOWN OF VERDANT GLEN SPECIAL REVENUE FUND

Statement of Revenues, Expenditures, and Changes in Fund Balance

TOWN OF VERDANT GLEN SPECIAL REVENUE FUND

Liabilities and Fund Balance

Accounting and Reporting for Capital Projects Funds

Larsen: Modern Advanced

18. Governmental Entities:

Part Five Accounting for Nonbusiness Organizations

Journal Entries for Capital Projects Fund

Journal Entries for

TOWN OF VERDANT GLEN CAPITAL PROJECTS FUND

Fund Balance Reserved for Encumbrances

Larsen: Modern Advanced

18. Governmental Entities:

TOWN OF VERDANT GLEN CAPITAL PROJECTS FUND

The following features of the foregoing journal entries should be noted:

Larsen: Modern Advanced

18. Governmental Entities:

Part Five Accounting for Nonbusiness Organizations

Financial Statements for Capital Projects Fund

TOWN OF VERDANT GLEN CAPITAL PROJECTS FUND

Breakdown of expenditures is assumed.

TOWN OF VERDANT GLEN CAPITAL PROJECTS FUND

Larsen: Modern Advanced

18. Governmental Entities:

Accounting and Reporting for Debt Service Funds

Journal Entries for Debt Service Fund

Larsen: Modern Advanced

18. Governmental Entities:

Part Five Accounting for Nonbusiness Organizations

Liabilities and Fund Balance

TOWN OF VERDANT GLEN DEBT SERVICE FUND

Cash with Fiscal Agent

Matured Bonds Payable

Other Financing SourcesTransfers In

Larsen: Modern Advanced

18. Governmental Entities:

Following are signicant aspects of these journal entries.