Question

Governmental and not for profit accounting.

Preston Village engaged in the following transactions:

• It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.

• It acquired the building for $20 million.

• It recognized, as appropriate, $300,000 of depreciation on municipal vehicles.

• It transferred $2,060,000 from the general fund to a debt service fund.

• It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt.

• It sold for $5 million village land that had been acquired for $4 million.

The proceeds were recorded in the general fund. Instructions: Answer the following question based on the transactions outlined above.

1. Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).

2.  How can governments justify preparing two sets of financial statements, each on a different basis?

Answer 1

1 Ans:-

Journal Entries:-

SL.No.	Particulars	Debit	Credit
1. On Full Accrual basis
	Cash A/c	$20 million
	Bonds Payable A/c		$20 million
2. On Full Accruel basis:
	Building A/c	$20 million
	Cash A/c		$20 million
3. On Full Accrual basis :
	Depreciation A/c	$3,00,000 million
	Accumulated Depreciation		$3,00,000
4. On Full Accrual Basus:	No entry needs to be passed in case of full accrual basis
5. On Full Accrual Basis
	Bond Expenditure	$60,000
	Cash	$20,00,000
	Bonds Payable		$20,60,000
6. On Full Accrual Basis:	No entry needs to be passed in cased of full accrual basis

2 Ans:-

Because, Full Accrual is based on interperiod equity as every individual has an holistic picture of the government. Funds statements is focused more on the budget rather than the actuals.