Question

The City of Deshields establishes an Internal Service Fund (ISF) to provide limousine services to all City agencies. The Mayor’s office activity is recorded in the City’s General Fund. The ISF has concluded that each of its limousines should be billed out to the City at a rate of $150 per hour. Based on this information, prepare journal entries to record the following transactions in all of the appropriate City funds.

a.The City’s General Fund contributes $300,000 to the ISF to allow it to purchase limousines and set up operations.

b.The ISF purchases two used limousines for $190,000 in cash.

c.The Mayor spends the day at the state capitol representing the City in property tax hearings. Limousine A was used for 10 hours. The ISF bills the Mayor’s office for the service.

d.The head of the City’s Electric Utility Enterprise Fund and the City Controller attend a ribbon cutting ceremony celebrating the opening of the new electric plant. Both limousines were used for 7 hours each. The ISF bills the Mayor’s office and the EF for the service.

e.The Mayor’s office pays for the services billed to the General Fund in transactions c. and d.

f.The ISF pays $3,000 to its drivers for their services for the month..

Answer 1

Journal entry is the recording of any transaction that happens between the company and another party. This another party can be any second party (can be another company or an individual). Any Journal entry will affect at least two accounts (debit and credit).

There are three different types of accounts: Personal Accounts, Real Accounts, and Nominal Accounts. All three have 3 different rules for passing the journal entries. Based on those rules only, journal entries are passed.

Journal Entries for the following transactions are:

(a)

As seen in this entry, Cash is received by the company so, Cash account is debited and General Fund is reduced from the company's account so, General Fund account is credited.

(b)

The journal entry for the transaction is:

Since Limousines is an asset purchased so, Limousines Account is debited and since cash is going out so, the cash account is credited as above.

(c) The journal entry for car hire service would be:

Since Mayor from ISF has used the car so, we have charged the ISF office for cab hire charges for 10 hours as given in the question. Since the cash is yet to be received and the bill is raised against the department so, Department name account is debited as above.

(d)

The journal entry for car hire service (for both the cars) would be:

two Limousines are used for 7 hours each at the rate of $ 150 per hour and since the department is charged so, ISF's account is debited for the same amount.

(e)

The Journal Entry for Cash payment is:

as seen above, Cab hire charges ($ 1,500 and $ 2,100) together are paid by the department and so the cab hire charges account is closed by debiting the account and since cash is going out so, cash account is credited as above.

(f)

Salary is a recurring expense for the company so the journal entry will be:

Salary is a recurring expense (nominal account) so, salary account is debited and if we have the driver's name than the individual's name is credited else we have credited the Driver's account as of now.