Question

Provide complete answers to the following:

The City of Sambaville received a gift of $1,800,000 from a local resident on April 1, 2017, and signed an agreement that the funds would be invested permanently, and that the income would be used to maintain the city cemetery (through the Cemetery Perpetual Care Fund). The following transactions took place during the year ended December 31, 2017.

1. The gift was recorded on April 1.
2. On April 1, 2017, XYZ Company bonds were purchased in the amount of $1,750,000, at par. The bonds carry an annual interest rate of 5 percent, payable semiannually on October 1 and April 1.
3. On October 1, the semiannual interest was received.
4. From October 1 through December 1, payments were made totaling $17,200 to a lawn service.
5. On December 31, an accrual was made for interest.
6. Also, on December 31, a reading of the financial press indicated that XYZ bonds had a fair value of $1,745,500, exclusive of accrued interest.
7. The books were closed.

Required:

1. Record the transactions on the books of the Cemetery Perpetual Care Fund.
2. Prepare a separate Statement of Revenues, Expenditures, and Changes in Fund Balances for the Cemetery Perpetual Care Fund for the Year Ended December 31, 2017.
3. Prepare the Balance Sheet for the Cemetery Perpetual Care Fund for the year ended December 31, 2017.

Answer 1

CITY OF Sambaville PERPETUAL CARE FUND
GENERAL JOURNAL
a)Cash	1800000
Revenues-Additions to Permanent Endowments		1800000
(b)         Investments-XYZ Company Bonds Cash	1750000
Cash		1750000
(c)          Cash(1750000*5%*6/12)	43750
Revenues-Investment Income-Interest		43750
(d)         Expenditures-Cemetery	17200
Cash		17200
(e)          Accrued Interest Receivable(1750000*5%*3/12)	21875
Revenues-Investment Income-Interest		21875
(f)          Investment Income - Net Decline in Fair Value of Investments	4500
Investment-XYZ Company Bonds		4500
(g)          Revenues-Additions to Permanent Endowments	1800000
Revenues-Investment Income-Interest	65625
Investment Income - Net Decline in Fair Value of Investments		4500
Expenditures-Cemetery		17200
Fund Balance-Reserved for Other Purposes		1843925
Ques 2
Revenues:
Addition to Permanent Endowment	1800000
Investment Income:
Interest	65625
Total Revenues	1865625
Investment income (loss) – Net Decline in Value of Investments	-4500
Net Revenues	1861125
Expenditures:
Maintenance of City Cemetery	17200
Excess of Revenues Over Expenditures	1843925
Fund Balance-Beginning	0
Fund Balance-Ending	1843925
Ques 3
Assets
Cash	76,550
Investments	1,745,500
Interest receivable	21,875
Total Assets	1,843,925
Liabilities & Fund Balance
Fund Balance:
Nonspendable
Permanent Fund Principal	1,800,000
Assigned:
Cemetery Care	43,925
Total Fund Balance	1,843,925
Total Liabilities and Fund	$1,843,925