Posted: October 20th, 2022

Continuous Problem – City of Everlasting Sunshine

8–C. Assemble the following from
previous continuous problems: (1) the governmental funds Balance Sheet and
Statement of Revenues, Expenditures, and Changes in Fund Balances from Section
5–C; (3) the proprietary funds Statement of Net Assets and Statement of
Revenues, Expenses, and Changes in Fund Net Assets from Section 6–C.

Required:

Start
a worksheet for adjustments, using the trial balance format illustrated in
the text (i.e. list accounts with debit balances first, then accounts with
credit balances). Enter the balances from the governmental funds financial
statements prepared for Section 5-C. Enter debits balances as positives
and credit as negatives. When doing this, follow the following guidelines:

Net Assets:Use
a single account for net assets (which will include thebeginning
balance of all fund balance accounts).

Intergovernmental
Revenues:When setting up the worksheet, set up
separate lines for the intergovernmental revenues as follows:

State
Grant for Highway and Street Maintenance

$ 975,000

Capital
Grant—General Government

250,000

Capital
Grant—Public Safety

250,000

Grant
for Law Enforcement Programs

288,000

Capital
Assets:It is not necessary to set up separate
lines for differentclasses of fixed assets or accumulated depreciation
(simply use one row for Capital Assets and another for Accumulated
Depreciation).

Confirm that the total debits and
credits equal $19,237,240.

2.
Prepare worksheet
entries and post to the worksheet for the following items. Identify each
adjustment by the letter used in the problem:

a. Record
the January 1, 2012 balances of general fixed assets and related accumulated
depreciation accounts. The City of Everlasting Sunshine had the following
balances (excluding Internal Service Funds):

Accumulated

Cost

Depreciation

Land

5,125,000

–

Buildings

30,200,000

12,100,000

Improvements Other than Buildings

20,000,000

8,200,000

Equipment

8,375,000

4,800,000

Totals

63,700,000

25,100,000

15

Continuous
Problem – City of Everlasting Sunshine

b. Eliminate
the capital expenditures shown in the governmental funds Statement of Revenues,
Expenditures, and Changes in Fund Balances.
c.
Depreciation expense (governmental
activities) for the year totaled $ 2,592,500.
d. Eliminate
the other financing sources from the sale of bonds by recording a liability for
bonds payable and the related premium.
e. As of
January 1, 2012, the City of Everlasting Sunshine had $6,000,000 in general
obligation bonds outstanding.
f.
Eliminate the expenditures for bond
principal.
g.
Accrue interest in the amount of
$328,000. (Two bond issues were outstanding; interest payments for both were
last made on July 1, 2012. The computation is as follows: ($5,600,000 × .06 ×6/12) +
($4,000,000 ×. 08 ×6/12) = $328,000).
h.
Adjust for the interest
accrued in the prior year government-wide statements, but recorded as an
expenditure in the 2012 fund basis statements, ($6,000,000 × .06

×
6/12) = $180,000.
i.
Amortize bond premium in the amount of
$2,500.
j. Make
adjustments for additional revenue accrual. The only adjustment is for property
taxes to eliminate the current year deferral of property taxes.
k. Adjust
for the $20,000 of property taxes that was deferred in 2011 and recognized as
revenue in the 2012 fund-basis statements.
l.
Assume the City adopted a policy in 2012
of allowing employees to accumulate compensated absences. Make an adjustment
accruing the expense of $ 316,000 Charge compensated absences expense.
m. Bring
in the balances of the internal service fund balance sheet accounts. Again, use
a single account for all capital assets and a second account for all
accumulated depreciation balances (use a separate column of the worksheet to
enter Internal Service Fund entries).

n.
No revenues from internal service funds
were with external parties. Assume
$13,200
of the $21,200 “Due from Other Funds” in the internal service accounts
represents a receivable from the General Fund and the remaining $8,000 is due
from the enterprise fund. Eliminate the $13,200 interfund receivables.
o. Reduce
governmental fund expenses by the net operating profit of internal service
funds. As the amount is small, reduce general government expenses for the
entire amount.
p.
Eliminate transfers
that are between departments reported within governmental activities.

3. Prepare,
in good form, a Statement of Activities for the City of Everlasting Sunshine
for the Year Ended December 31, 2012. For purposes of this statement, assume:
$ 288,000 in the
General Fund is a state grant specifically for law enforcement programs.
$ 975,000 in the
Street and Highway Fund is an operating grant specifically for certain highway
and street expenses.
$
500,000 in the City Hall Construction Fund is a capital grant that applies
one-half to general government and one-half to public safety.

16

Continuous
Problem – City of Everlasting Sunshine

Use
the balances computed from the worksheet completed in part 2 for the
governmental activities portion of the statement. Use the solution to P6–C
(Enterprise fund) to prepare the business activities portion (net any
short-term interfund payables/receivables).

4. Prepare,
in good form, a Statement of Net Assets for the City of Everlasting Sunshine as
of December 31, 2012. Group all capital assets, net of depreciation. Include a
breakdown in the Net Assets section for (a) capital assets, net of
related debt, (b) restricted, and (c) unrestricted. For purposes
of classifying net assets for the governmental activities, assume:

For the
governmental activities net assets invested in capital assets, net of related
debt, the related debt includes the bonds payable, the premium onbonds
payable, and the $20,000 advance from the water utility fund.
The special revenue
fund resources are restricted by the granting agency for street and highway
maintenance. These ($ 338,200) are the only restricted resources in the
governmental activities.

5. Prepare
the reconciliation necessary to convert from the fund balance reported in the
governmental funds Balance Sheet to the net assets in the government-wide
Statement of Net Assets.

6. Prepare
the reconciliation necessary to convert from the change in fund balances in the
governmental funds Statement of Revenues, Expenditures, and Changes in Fund
Balances to the change in net assets in the government-wide Statement of
Activities.

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