Accounting for Governmental & Nonprofit Entities
Accounting for Governmental & Nonprofit Entities
17th Edition
ISBN: 9780078025822
Author: Jacqueline L. Reck James E. Rooks Distinguished Professor, Suzanne Lowensohn, Earl R Wilson
Publisher: McGraw-Hill Education
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Chapter 7, Problem 22EP

a.

To determine

Prepare journal entries to record the transactions of Water Utility Fund.

a.

Expert Solution
Check Mark

Explanation of Solution

Enterprise funds: The enterprise funds record the activities that provide goods or service to the public. The enterprise funds are treated similar to that of business organizations.

Prepare journal entry to reverse the “accrued utility revenue account”:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Sales of water 500,000 
      Accrued utility revenues  500,000
 (To record the reverse of accrued utility revenue account)   

Table (1)

Prepare journal entry to record the accrual of revenue from the sale of water:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Accounts Receivable 2,788,691 
 Due from General fund 193,866 
      Sales of water  2,982,557
 (To record the accrual of revenue from the sale of water)   

Table (2)

Prepare journal entry to record the interest income received and accrued:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Cash 260,000 
      Interest Income  178,000
      Interest Receivable  82,000
 (To record the interest income received and accrued)   

Table (3)

Prepare journal entry to record the accrual of expenses:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Management and administrative expense 360,408 
 Maintenance and Distribution 689,103 
 Treatment Plant Expense 695,237 
      Accounts Payable  1,744,748
 (To record the accrual of expenses)   

Table (4)

Prepare journal entry to record the cash receipt for customer deposits:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Cash (restricted) 2,427 
      Customer deposits  2,427
 (To record the cash receipts for customer deposits)   

Table (5)

Prepare journal entry to record the cash collected on customer account and general fund:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Cash 2,943,401 
       Accounts Receivable ($2,943,401$209,531)  2,733,870
       Due from General Fund  209,531
 (To record the cash collected on customer account and general fund)   

Table (6)

Prepare journal entry to record the payment of expenses and return of customer deposit:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Accounts Payable 1,462,596 
 Interest expense ($395,917$131,772) 264,145 
 Interest Payable 131,772 
 Current portion of long-term debt 400,000 
 Machinery and equipment 583,425 
 Customer deposits 912 
       Cash ($2,943,401-$209,531)  2,841,938
       Cash (restricted)  912
 (To record the payment of expenses and return of customer deposits)   

Table (7)

Prepare journal entry to record the receipt of state grant:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Cash 475,000 
      Contribution(capital grant)  475,000
 (To record the receipt of grant from the state)   

Table (8)

Prepare journal entry to write off the uncollectible accounts:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Allowance for uncollectible account 10,013 
      Accounts receivable  10,013
 (To record the write off the uncollectible account)   

Table (9)

Prepare the journal entry to record the inter-fund fund transfer:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Interfund transfer- General fund 800,000 
      Cash  800,000
 (To record the receipt of funds from general fund)   

Table (10)

Prepare journal entry to record the depreciation expense on building:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Depreciation expense - Building 240,053 
      Allowance for depreciation - Building  240,053
 (To record the depreciation expense on building)   

Table (11)

Prepare journal entry to record the depreciation expense on machinery and equipment:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Depreciation expense – Machinery and equipment 360,079 
      Allowance for depreciation - Machinery and equipment  360,079
 (To record the depreciation expense on machinery and equipment)   

Table (12)

Prepare journal entry to create provision for uncollectible accounts:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Provision for uncollectible account 14,913 
      Allowance for uncollectible account  14,913
 (To record the increase in uncollectible account)   

Table (13)

Prepare journal entry to record the accrual of utility revenues:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Accrued Utility Revenue 700,000 
      Sales of Water  700,000
 (To record the increase in uncollectible account)   

Table (14)

Prepare journal entry to record the accrual of interest income:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Interest Receivable 15,849 
      Interest Income  15,849
 (To record the accrual of interest income)   

Table (15)

Prepare journal entry to record the accrual of interest expense:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Interest Expense 61,406 
      Interest Payable  61,406
 (To record the accrual of interest expense)   

Table (16)

Prepare journal entry to adjust the revenue bond payable and record the current portion of long-term debt:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Revenue bonds payable 400,000 
      Current portion of long-term debt  400,000
 (To record the current portion of long-term debt)   

Table (17)

Prepare journal entry to close all the nominal accounts:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Sales of water 3,182,557 
 Interest income 193,849 
 Contribution (capital grant) 475,000 
       Management and administrative expense  360,408
       Maintenance and distribution  689,103
      Treatment plant expense  695,237
       Interfund transfer- general fund  800,000
       Interest Expense  325,551
       Depreciation expense-building  240,053
       Depreciation expense- machinery and equipment  360,079
        Uncollectible account  14,913
       Net position-unrestricted (balancing figure)  366,062
 (To record closing of nominal accounts)   

Table (18)

Prepare journal entry to allocate the increase in “net investment in capital assets” to the “unrestricted net position”:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

 Net position -Unrestricted 383,293 
      Net position-net investment in capital assets  383,293
 (To record the increase in “net investment in capital assets” to the “unrestricted net position)   

Table (19)

Notes to the above table: Determine the amount of increase in the “net investments in capital assets”.

Step 1: Calculate the ending balance of “net investments in capital assets”.

Ending balance ofNet investmentin capital assets }=(Land+Buildings+Machinery and equipment+Purchases)[(Allowance for depreciation on building)+(Allowance for depreciation on equipment)+Bonds payable]=($1,780,945+$5,214,407+$8,488,395+$583,425)[$240,053+$360,079+$11,600,000]=$16,067,172$12,200,132=$3,867,040

Step 2: Calculate the amount of increase in the “net investments in capital assets”.

Increase in net investments in capital assets) = (Ending balance of net investments in capital assets  Beginning balance of net investments in capital assets)=$3,867,040$3,483,747=$383,293

b.

To determine

Prepare a “statement of revenues, expenses, and changes in fund net position” for Central Station Fund.

b.

Expert Solution
Check Mark

Explanation of Solution

Statement of revenues, expenses and changes in net position: Statement of activities is the operating statement that reports revenues, expenses, and changes in net position during the year.

Prepare a “statement of revenues, expenses, and changes in fund net position” for Water utility fund:

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  1

Table (20)

Notes to the above table:

Determine the amount of net position-opening.

Before the fiscal year adjustment, the amount of unrestricted net position is $2,029,380 and the net position of “net investment is capital assets” calculated above is $3,483,747. Hence, the total net position-Opening is $5,513,127($3,483,747+$2,029,380).

(c)

To determine

Prepare a “statement of net position” for Water Utility Fund.

(c)

Expert Solution
Check Mark

Explanation of Solution

Statement of net position: Statement of financial position is a balance sheet that reports the assets, deferred outflow of resources, liabilities, deferred inflow of resources and the residual amount or net position of the government at the end of the fiscal year.

Prepare a “statement of net position” for Water Utility Fund.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  2

Table (21)

Notes to the above table:

  • Determine the closing balance of cash account.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  3

Table (22)

  • Determine the closing balance of accounts receivable.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  4

Table (23)

  • Determine the closing balance of accrued utility revenue.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  5

Table (24)

  • Determine the closing balance of “due from general fund”.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  6

Table (25)

  • Determine the closing balance of accounts payable.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  7

Table (26)

  • Determine the closing balance of customer deposits.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  8

Table (27)

  • Determine the net position of unrestricted assets as on June 30, 2020.

Unrestricted net position=Total net position(net position of "net investmentin capital assets")=$5,879,189$3,867,040=$2,012,149

(d)

To determine

Prepare “a statement of cash flows” for water Utility Fund.

(d)

Expert Solution
Check Mark

Explanation of Solution

Statement of cash flows: Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Prepare “a statement of cash flows” for water Utility Fund.

Step 1: Prepare the reconciliation statement to reconcile the operating loss with the “net cash used for operating activities”.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  9

Table (28)

Notes to the above table:

  • Determine the increase in accounts payable.

The opening balance of accounts payable is $532,047 and the closing balance of accounts payable is $814,199. Hence, the accounts payable is increased by $282,152($814,199$532,047).

  • Determine the increase in “due from general fund”.

The opening balance of “due from general fund” is $29,311 and the closing balance of “due from general fund” is $13,646. Hence, the “due from general fund” is decreased by $15,665($13,646$29,311).

  • Determine the balance in provision for uncollectible account.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  10

Table (29)

  • Determine the increase in uncollectible.

The opening balance of uncollectible is $13,367 and the closing balance of uncollectible is $18,267. Hence, the uncollectible is increased by $4,900($18,267$13,367).

  • Determine the increase in accounts receivable.

The opening balance of accounts receivable is $306,869. The closing balance of accounts receivable is $361,690. The written off portion of accounts receivable is $10,013. So, the net closing balance of accounts receivable is $351,677(361,690$10,013). Hence, the accounts receivable is increased by $44,808($351,677$306,869).

  • Determine the increase in accrued utility revenue.

The opening balance of accrued utility revenue is $500,000 and the closing balance of accrued utility revenue is $700,000. Hence, the accrued utility revenue is increased by $200,000($700,000$500,000).

Step 2: Prepare “a statement of cash flows”.

Accounting for Governmental & Nonprofit Entities, Chapter 7, Problem 22EP , additional homework tip  11

Table (30)

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