Chapter 10 Homework

1. Chapter 10 Homework

2. Exercise 10-2

3. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

4. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

5. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal +225,000 Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

6. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal +225,000 Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

7. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal +225,000 +75,000 Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

8. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal +225,000 +75,000 Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

9. Using the format at the end of this exercise, indicate the impact that each of the following transactions has on the total net assets of a proprietary fund and on each net asset component. Also, indicate whether the transaction is reported in the statement of revenues, expenses, and changes in net assets of a proprietary fund. • Sold building with a book value of $150,000 for $225,000 (proceeds • not restricted). $225,000 - $150,000 = $75,000 gain Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal +225,000 +75,000 - 150,000 +75,000 Cash…$225,000 Asset…..$150,000 (book-all we know) Gain……$ 75,000

10. Land costing $500,000 was purchased by issuing a 5-year, 8% note • for $450,000. The balance was paid from cash restricted for an • expansion project. Land……..$500,000 N/P……………$450,000 Cash reserved for expansion….. $ 50,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal

11. Land costing $500,000 was purchased by issuing a 5-year, 8% note • for $450,000. The balance was paid from cash restricted for an • expansion project. • Capital Assets • Acc/Dep • Debt related to • capital assets • expended. Land……..$500,000 N/P……………$450,000 Cash reserved for expansion….. $ 50,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 2 NONE NONE ($50,000) +$50,000 NONE what happened to the capital asset land and the long-term note/p? • Land of $500,000 • capital • debt $450,000 (proceeds expended already) • --------------------------- • $50,000

12. 3. Depreciation expense for the year was $200,000. • Capital Assets • Acc/Dep • Debt related to • capital assets • expended. Depreciation Expense….$200,000 Accumulated Depreciation……$200,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 3 ($200,000) NONE NONE ($200,000) ($200,000)

13. Interest expense of $36,000 on the note in transaction 2 was paid • from unrestricted resources. Interest expense……… $36,000 Unrestricted Cash……….$36,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 4 ($36,000) ($36,000) NONE NONE ($36,000)

14. Bonds payable of $200,000 were repaid with restricted resources • along with $50,000 of interest. The bonds were issued several years • earlier to finance capital asset construction. because there is less capital debt. Bonds payable……..$200,000 Interest expense….. $50,000 Cash………………$250,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 5 ($50,000) ($250,000) NONE $+200,000 ($50,000) it doesn’t say it came from restricted

15. A capital grant of $500,000 was received, but no qualifying costs • have been incurred. Cash……….$500,000 Deferred capital grant……… $500,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 6 NONE NONE NONE NONE NONE Cash restricted $500,000 - Related capital debt $500,000 ----------------------------------------- -0-

16. $300,000 of the restricted capital grant from transaction 6 was • expended for its intended purpose. Asset………$300,000 (because its capital grant) Cash-Restricted………$300,000 Deferred Capital Grant…$300,000 Revenue-Capital Contributions…..$300,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 7 +$300,000 NONE NONE +$300,000 +$300,000 - cash $300,000 + def cap/grt $300,000 ----------------------- -0-

17. 8. Sales revenues amounted to $1,000,000. Cash……….$1,000,000 Sales………$1,000,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 8 +$1,000,000 +$1,000,000 NONE NONE +$1,000,000

18. Interest revenues restricted to the use of the Enterprise Fund • $40,000 were received. Cash restricted….. $40,000 Interest revenue………$40,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 9 +$40,000 +$40,000 its restricted to the Enterprise Fund but anything within the enterprise fun can use it (thus its unrestricted within the fund). pg. 391 In govt-wide these assets would be restricted because there the Enterprise fund is merged with other funds.

19. The cost of materials and supplies used for the year was • $75,000. Supplies expense…….$75,000 Supplies…………..$75,000 Net Assets Affect Invested Transaction Operating UnrestrictedRestricted in Capital NumberStatement? AssetsTotal 10 ($75,000) ($75,000) NONE NONE ($75,000)

20. Exercise 10-3

21. Prepare the journal entries needed in an Enterprise Fund to record the following transactions. Include any adjusting entries required. • Issued REFUNDING BONDS at par, $8,000,000. The bonds bear interest • at 8% payable annually and mature in 5 years. (Ignore bond issue costs). Cash.................... $8,000,000 Refunding Bonds Payable..................$8,000,000

22. Paid the $8,000,000 into an irrevocable trust to defease in substance • the previously outstanding bonds payable of the Enterprise Fund. These • old bonds have a par value of $7,200,000 and an unamortized discount of • $100,000. The old bonds are scheduled to mature in 6 more years. Bonds payable............................$7,200,000 Deferred Interest Expense adj.. 900,000 Discount on Bonds payable................................$100,000 Cash....................................................................$8,000,000 Refunding bond...........$8,000,000 - Def Int Exp.................... $900,000 ------------------------------------------------------- NET amount of liability................. $7,100,000

23. 3, The annual interest payment on the new bonds was made at year end when due. $8,000,000 x .08 = $640,000 interest in cash Interest Expense.............. $640,000 Cash...................................$640,000 ADJUSTMENT OF DEFERRED INTEREST. amortize over shorter of remaining term of old debt (6 years) or term of refunding issue (5 years). $900,000 / 5 = $180,000 Interest expense.........$180,000 Deferred Interest Expense............$180,000

24. E 10-5

25. Indicate the classification in which each of the following would be reported in a government proprietary fund cash flow statement. Use the following letters for each classification to respond: A: OPERATING activities. B: NONCAPITAL FINANCING activities. C: CAPITAL and RELATED FINANCING activities. D: INVESTING activities. E: NONE of the above

26. Cash paid to purchase investments with resources restricted • for capital asset construction. D. INVESTING

27. 2. Cash received from the sale of equipment. C. CAPITAL and related financing.

28. 3. Cash paid for salaries. A. OPERATING

29. 4. Cash received from interest on investments that are restricted for servicing bonds that had been issued to finance construction of a building. D. INVESTMENTS

30. Cash paid for interest on refunding bonds that were issued for repayment • of bonds that were issued to finance purchase of major pieces of equipment. C. CAPITAL and related financing.

31. Cash transfer paid to General Fund (The General Fund budget requires these • funds to be used to help finance acquisition of a fire truck). B. NONCAPITAL financing. The GF is using for capital purposes but to the enterprise fund it was just a misc transfer.

32. 7. Cash received from operating grants. B. NONCAPITAL financing.

33. Cash received from a transfer from the GF to finance expansion of the • physical plant. C. CAPITAL and related financing.

34. 9. Cash received from capital grants. C. CAPITAL and related financing.

35. Cash paid for interest on a short-term note issued to fulfill a temporary need • for operating funds. B. NONCAPITAL FINANCING InterestNEVER goes into operating in GNP.

36. E 10-7

37. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 1. DEPRECIATION on capital grant financed capital assets. OPERATING EXPENSE

38. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 2. Depreciation on INFRASTRUCTURE ASSETS. OPERATING EXPENSE WHAT IF THE MODIFIED APPROACH? Then depreciation is not done.

39. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 3. Transfers from other funds. Last item before changes in NA

40. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 4. Cash proceeds of short-term note issuances. N/A

41. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 5. Retirement of bonds payable of the fund. N/A

42. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 6. Routine annual transfers from other funds. Last item before changes in NA

43. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 7. Gain on sale of capital assets. Normally as NONOPERATING REVENUE unless its considered a SPECIAL GAIN then with special items.

44. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: 8. “Loss” on advance refunding of bonds. called DEFERRED INTEREST EXPENSE shows as contra liability on balance sheet

45. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: • Restricted grants received that can be used for operations or for • capital asset acquisition- assume 30% was expended during the year • to acquire capital assets, 30% to cover operating expenses and 40% • is not expended. Operating grants are ALWAYS shown as NONOPERATING REV. So 60% (operating and capital asset restrictions) are shown as non operating revenues because allowable costs met, the other 40% is shown as liability on the balance sheet (deferred revenue).

46. Explain or illustrate how the following items should be reported in a proprietary fund’s statement of revenues, expenses and changes in net assets: • Entering into a capital lease with a capitalizable cost of $4,000,000 on the last • day of the year- assume an initial payment on that day of $1,000,000. NO EFFECT on operating statement: Leased Asset $4,000,000 Capital Lease Obligation $4,000,000 Capital Lease Obligation... $1,000,000 Cash.................................$1,000,000

47. E 10-8

48. Using the information provided below for the Airport Enterprise Fund of the City of Demere, prepare a statement of revenues, expenses and changes in net assets for 20X3. City of Demere Airport Enterprise Fund Statement of Revenue, Expenses and Changes in Net Assets For the Year Ended 20X3 Operating Revenue: Operating Expenses: Operating Income Nonoperating Revenues (Expenses) Income before Other Revenues, Expenses and Transfers Change in Net Assets

49. CHARGES FOR SERVICES.............................. $3,500,000 City of Demere Airport Enterprise Fund Statement of Revenue, Expenses and Changes in Net Assets For the Year Ended 20X3 Operating Revenue: Operating Expenses: Operating Income Nonoperating Revenues (Expenses) Income before Other Revenues, Expenses and Transfers Change in Net Assets

50. SALARIES EXPENSE........................ $1,000,000 City of Demere Airport Enterprise Fund Statement of Revenue, Expenses and Changes in Net Assets For the Year Ended 20X3 Operating Revenue: Operating Expenses: Operating Income Nonoperating Revenues (Expenses) Income before Other Revenues, Expenses and Transfers Change in Net Assets CHARGES FOR SERVICES.............................. $3,500,000