Question

The following is a series of transactions for Berkeley City. Indicate how Berkeley reports each transaction within the government-wide financial statements and then on the fund financial statements. Assume that Berkeley follows a policy of considering resources as available if they will be received within 60 days. Incurred Liabilities are assumed to be claims to current resources if they will be paid within 60 days.

1. Borrowed money by issuing a 20-year bond for $5 million, its face value. This money is to be used to construct a highway around Berkeley.
2. Transferred cash of $110,000 from the general fund to the debt service funds to make the first payment of principal and interest on the bond in (1).
3. Paid the cash in (2) on the bond. Of this total, $80,000 represents interest; the remainder reduces the principal of the bond payable.
4. Completed construction of the highway and paid the entire $5 million.
5. The highway (in 4) is expected to last 30 years. However, the government qualifies to use the modified approach, which it has adopted for this system. A $400,000 cost is incurred during the year to maintain the highway at an appropriate, predetermined condition. Of this amount, $300,000 was paid immediately but the other $100,000 will not be paid until the sixth month of the subsequent year.
6. Received lights for the new highway donated from a local business. The lights are valued at $300,000 and should last 30 years. The modified approach is not used for this network of infrastructure. Straight-line depreciation is applied using the half-year convention.
7. Agreed to stop collecting property taxes from the Charlie Company for eight years in exchange for the promise that a small manufacturing plant will be built within Berkeley to generate capital investment and new job opportunities for the residents.
8. Recorded cash revenues of $3 million from the local subway system and made salary expense payments of $400,000 to its employees.
9. Opened a solid waste landfill at the beginning of the year that will be used for 25 years. This year an estimated 5 percent of the capacity was filed. The city anticipates closure, and postclosure requirements will be $3 million based on current cost figures although no costs have been incurred to date.

Answer 1

Government-wide financial statements(GWFS) are consists of

1. Journal Entries or statement of activities and

2. Balance Sheet (Positional Statement)

Journal Entries are

Particulars	L.F.	Dr. Amount in $	Cr. Amount in $
Cash Account     Dr.          To bonds Payable (Being borrowed money for 20 years by issuing bonds)		5,000,000	5000000
Debt Service Funds A/c     Dr.           To funds A/c (Being Transfer of funds first payment of principal and interest on bonds)		110,000	110,000
Interest on bonds A/c       Dr. Principal of Bonds Payable     Dr.            To Cash A/c (Being payment of bonds and principal on bonds)		80,000 30,000	110,000
Investors A/c          Dr.            To cash A/c            To interest A/c (paid 5 million of bonds on completed construction and $6,600,000 is interest for 20years of construction i.e. 80000 * 20)		6,600,000	5000000 1600000
Maintenance A/c   Dr.         To Cash A/c         To accrual Expense A/c (being maintenance cost 300,000 is paid and 100,000 is Paid in next year)		400,000	300,000 100,000
Equipment A/c      Dr.            To donations A/c (Being lights are donated by local business)		300,000	300,000
Expense A/c        Dr.             To depreciation on lights (being depreciation on lights is 5000/ year, so for 30 years it is 30*5000 = 150000)		1,50,000	1,50,000
Revenue A/c     Dr.           To local subway System A/c (being revenue earned from local subway)		$3000000	$3000000
Salaries A/c          Dr.               To Cash A/c (being Salaries are paid to employees)		400,000	400,000
Closer and post closer land fill A/c       Dr.                To cash A/c (being closure of Land fill)		3000,000	3000,000

       Expenses or Incomes of Project

Expenses or Losses	Amount in $	Incomes or gains	Amount in $
Interest on bonds	1600000	Lights donated by a local business	300,000
Maintenance cost	400000	Revenue from local Subway	3,000,000
Depreciation on lights	150000
Salary Payment	400000	Additional settlement for public project	2,250,000
closure, and post-closure	3000,000
Total	5,550,000		5,550,000

Fund Flow Statement

Particulars	Fund Inflows in $	Fund Outflows in $
Fund inflows fund Inflow from issue of bonds for 20 years Lights donated by Local business Cash Revenue from local Subway System Fund Outflows – Payment to investors for bonds Interest on bonds Maintenance Cost Depreciation on Lights Salary Payment Closure and Post Closure of project	5,000,000 3,00,000 3,000,000	5,000,000 1,600,000 4,00,000 150,000 400,000 3,000,000
Total	8,300,000	10,550,000

Balance Sheet

Liabilities	Amount in $	Assets	Amount in $
Long term liabilities (Bonds)	5,000,000	Cash in hand	5,000,000
Accounts Payable	5,550,000	Accounts Receivables	3,000,000
		Lights	300,000
		Additional investment	2,250,000
Total	10,550,000		10,550,000