1. Oak Township
issued the following bonds during the year: Bonds to acquire equipment for a
vehicle repair service accounted for in an internal service fund $ 3,000,000 Bonds
to construct a new city hall $ 8,000,000 Bonds to improve its water utility,
which is accounted for in a enterprise fund
$9,000,000 The amount of debt to be reported in the general fund is

b. $3,000,000

2. Oak Township
should report depreciation in which of the following funds:

d. capital
projects fund

3. Assuming that
Bevo County receives all of its revenues from unrestricted property taxes, it
is most likely to account for the activities of its police department in its

d. general fund

4. The city of
Alpine incurred the following costs during the year in its property tax collection
department: Purchase of computer equipment Salaries and wages Purchase of
electricity from the city-owned electric utility Purchase of supplies, all of
which were used during the year

$ 10,000


$ 40,000

$ 10,000

As a consequence
of these transactions, the amount that Alpine should report as expenditures n
its general fund is

c. 450,000

5. Grove City
received the following resources during the year: Property taxes A federal
grant to acquire police cars Hotel taxes, which must be used to promote tourism
Proceeds of bonds issued to improve the city’s electric utility





The amount that
the city should most likely report as revenue in its special revenue fund

e. $65,400,000

6. A city issues
$20 million of general obligation bonds to improve its streets and roads. In accordance
with the bond covenants, it sets aside $1 million to help ensure that it is
able to meet its first payment of principal and $0.1 million for its first
payment of interest. The amount of liability that the city should report in its
debt service fund is

b. $18.9 million

7. During the year,
Brian County collects $12 million of property taxes on behalf of Urton Township.
Of this amount, it remits $10 million to the township, expecting to remit the balance
shortly after the end of its fiscal year. The amount of revenue that the County
should report is

d. $10 million

8. The City of
Round Lake receives a contribution of $20 million. The donor stipulates that the
money is to be invested. The principal is to remain intact, and the investment
proceeds are to be used to support a city-owned nature center. The city should
report the contribution in a

a. special
revenue fund

b. permanent

c. fiduciary

d. agency fund

9. A city
receives a $30 million contribution. The donor stipulates that the money is to
be invested. The principal is to remain intact, and the investment proceeds are
to be used to provide scholarships for the children of city employees. The
contribution should be reported as revenue of a

c. fiduciary

10. The
Summerville Preparatory School (a private school) receives a donation of $14
million. The donor stipulates that the entire amount must be used to construct
a new athletic field house. The School should classify the donation as

b. temporarily


A special
district’s balance sheet may not capture its economic resources and
obligations. A special district accounts for its general fund (its only fund)
on a modified accrual basis. In a particular period, it engaged in the
following transactions.

a. It issued $20
million in long-term bonds.

b. It acquired
several tracts of land, at a total cost of $4 million, paying the entire amount
in cash.

c. It sold a
portion of the land for $1 million, receiving cash for the entire amount. The
tract sold had cost $0.8 million.

d. It repaid $2
million of the bonds.

e. It lost a
lawsuit and was ordered to pay $9 million over three years. It made its first
cash payment of $3 million.

1. Prepare
journal entries to record the transactions in the general fund.

2. Based on your
journal entries, prepare a balance sheet and a statement of revenues,
expenditures, and other changes in fund balance.

3. Comment on
the extent to which the balance sheet captures the district’s economic
resources and obligations. How can you justify such a balance sheet?

4. Comment on
the extent to which the statement of revenues, expenditures, and other changes
in fund balance captures the district’s cost of services. How can you justify
such a financial statement?


Funds are
separate fiscal and accounting entities, each with its own self-balancing set
of accounts. The newly established Society for Ethical Teachings maintains two
funds”a general fund for operations and a building fund to accumulate resources
for a new building. In its first year, it engaged in the following

a. It received cash
contributions of $200,000, of which $40,000 was restricted for the acquisition
of the new building.

b. It incurred operating
costs of $130,000, of which it paid $120,000 in cash.

c. It earned
$3,000 of interest (the entire amount received in cash) on resources restricted
for the acquisition of the new building.

d. It transferred
$17,000 from the operating fund to the new building fund.

e. It paid $12,000
in fees (accounted for as expenses) to an architect to draw up plans for the
new building.

1. Prepare
journal entries to record the transactions. Be certain to indicate the fund in
which they would be made.

2. Prepare a
statement of revenues, expenditures, and other changes in fund balances and a balance
sheet. Use a two-column format, one column for each of the funds.


transactions can often be identified with specific types of funds. Boxer City
maintains the following funds: Genera Special revenue Capital projects Debt
service Enterprise Internal service
Permanent Agency

For each of the
following transactions, indicate the fund in which it would most likely be

a.The city collects
$3 million of taxes on behalf of the county in which it is located.

b. It spends $4
million to pave city streets, busing the proceeds of a city gasoline tax that
is dedicated for road and highway improvements.

c. It receives a
contribution of $5 million. Per the stipulation of the donor, the money is to
be invested in marketable securities, and the interest from the securities is
to be used to maintain a city park.

d. It collects
$800,000 in landing fees at the city-owned airport.

e. It earns
$200,000 on investments that have been set aside to make principal payments on
the city’s outstanding bonds. The bonds were issued to finance improvements to
the city’s tunnels and bridges.

f. It pays $4
million to a contractor for work on one of these bridges.

g. It pays
$80,000 in wages and salaries to police officers.

h. It purchases,
from an outside supplier, $40,000 of stationery to ”sell” to its various
operating departments.


Each fund must
account for interfund activity as if it were a separate accounting entity. The
newly formed Buffalo School District engaged in the following transactions and
other events during the year:

a. It levied and
collected property taxes of $110 million.

b. It issued $30
million in long-term bonds to construct a building. It placed the cash received
in a special fund that was set aside to account for the bond proceeds.

c. During the year,
it constructed the building at a cost of $25 million. It expects to spend the
$5 million balance in the following year. The building has an estimated useful
life of 25 years.

d. It incurred $70
million in general operating costs, of which it paid $63 million. It expects to
pay the balance early the following year. e. It transferred $12 million from
its general fund to a fund established to account for resources that were set
aside to service the debt. Of this amount, $10 million was for repayment of the
debt; $2 million was for interest.

f. From the special
fund established to service the debt, it paid $2 million in interest and $6 million
in principal.

g. It collected
$4 million in hotel taxes restricted to promoting tourism. Because the
resources were restricted, they were accounted for in a special restricted
fund. During the year, the district spent $3 million on promoting tourism.

h. The district
established a supplies store, to provide supplies to the district’s various
departments, by transferring $4 million from the general fund. It accounted for
the store in a proprietary fund. During the year, the store purchased (and paid
for) $2 million in supplies. Of these, it ”sold” $1 million, at cost (for
cash), to departments accounted for in the general fund. During the year, these
departments used all of the supplies that they had purchased.

1. Prepare
journal entries to record the transactions and other events in appropriate
funds. Assume that governmental funds are accounted for on a modified accrual
basis, and focus only on current financial resources (and, therefore, do not
give balance sheet recognition to either capital assets or longterm debt).
Proprietary funds are accounted for on a full accrual basis.

2. Prepare a
combined balance sheet”one that has a separate column for each of the funds
that you established.

3. Prepare a
combined statement of revenues, expenditures, and changes in fund balances for
all governmental funds”one column for each fund. Prepare a separate statement
of revenues, expenses, and changes in fund balances for any proprietary funds
that you established.


Long-term assets
and liabilities are denied recognition on funds statements. Entrepreneurs
Consultants, a state agency, was established to provide consulting services to
small businesses. It maintains only a single general fund and accounts for its
activities on a modified accrual basis. During its first month of operations,
the association engaged in, or was affected by, the following transactions and

a. It received
an unrestricted grant of $100,000.

b. It purchased
five computers at $2,000 each.

c. It paid wages
and salaries of $6,000.

d. It borrowed
$24,000 from a bank, to enable it to purchase an automobile.

e. It purchased
the automobile for $24,000.

f. It made its
first payment on the note” interest of $200.

g. It destroyed
one of its computers in an accident. The computer was not insured.

1. Prepare
journal entries in the general fund to record each of the transactions or other

2. Prepare a
balance sheet and a statement of revenues, expenditures, and changes in fund
balance for the general fund.


The more
complete presentation is not always the easier to understand. Bertram County
maintains a fund accounting system. Nevertheless, its comptroller (who recently
retired from a position in private industry) prepared the following balance
sheet (in millions):


Cash $ 600

Investments $ 1,800

Construction in
progress $ 500

Fixed assets $ 1,200

Total assets $ 4,100

Liabilities and
fund balance:

Bonds payable $1,700

Fund balance

Restricted for
capital projects $

Restricted for
debt service

1,600 2,400

liabilities and fund Balance

The fund balance
restricted for debt service represents entirely principal (not interest) on the
bonds payable.

1. Recast the
balance sheet, as best you can, into separate balance sheets for each of the
funds that are apparently maintained by the county. Assume that the county uses
a modified accrual basis of accounting that excludes recognition in its funds
of both capital (fixed) assets and long-term debt. Assume also that cash and
investments are divided among the funds in proportion to their fund balances.

2. In your
opinion, which of the two presentations gives the reader a more complete
picture of the county’s financial status? Why? Which presentation is easier to