Homework Help - Gov't and Non-Profit Accounting

[jasdlm]

Hello. I am in the 2nd course (of 10 required) for a Masters in Accounting. Ultimate goal: sit the CPA exam. (I have to do it this way because my undergraduate degrees are in English and History, so I cannot sit the exam without these courses. The State will accept some courses from my JD/MBA coursework, but I still have to do this coursework. Given that I can't figure out the homework, I have to say that the State is right in its requirements!

I am looking at the following problem:

1. Assume that the City of Amber maintains its books and records in a manner that facilitates the preparation of the fund financial statements. Amber City maintains a general fund, a capital projects fund, and a special revenue fund. During the current fiscal year, the City engaged in the following transactions. Record all transactions. Be sure to clearly indicate the fund in which the entry is made.

e. The City acquired a new tractor for $75,000. The City paid $20,000 in cash and signed a note that is due in three years.

I have answered as follows, because I think I should be using modified accrual given that it says 'assume that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements'.

ANSWER: General Fund

Cash (Debit) $55,000

Proceeds from borrowing (CR) $55,000

Expenditures for vehicles (DR) $75,000

Cash (CR) $75,000

Under full accrual, I think the answer would be:

Vehicles (DR) $75,000

Cash (CR) $20,000

Notes Payable (CR) $55,000

Am I correct that I should assume modified accrual? If so, is my first answer correct?

I am not wrapping my head around this yet. I am having trouble because the recording feels backward.

Thanks in advance.

[rfassett]

At the minimun, I would collapse those two entries into one. As an outsider looking in, I would read that as the City having received $55,000. They did not receive the cash, they simply signed a note. I should preface this by stating that I am not a fund accountant, but I think the entry should not be to cash, but to Checking - General Fund, or, my preference would actually be Checking - Capital Projects. The fact of the matter, I would think you would need to know what the Capital Projects fund is used for. Is it just streets and sidewalks, etc, or does it include rolling stock. So given that we do not know that, I would default to Checking - Capital Projects for a $75,000 asset purchase. And I would also capitalize the asset and depreciate it over its useful life.

There, now that I have fully disclosed my ignorance of "fund accounting", I will tell you that I came about my CPA tag in a similiar manner. My undergrad work was not in English and History, but it was not in accounting either. I got my Masters degree through the Taxation side after taking a couple of upper level undergrad accounting classes - none were fund accounting however.

[Gail in Virginia]

It has been a while since I took Governmental Accounting, but I think your second entry comes closer to being correct. The "Proceeds from" type of account is used to account for revenue from bonds issued, if I remember correctly. Regardless of the type of accounting, I think when you sign a note you need to set up a liability account - even if you were using cash accounting.

But like I said, it has been a while.

[jasdlm]

Thanks much to both of you! I'll see how it turns out.