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Lecture Chapter 14

Lecture Chapter 14. Chapter 14 advances past the format of the Government-Wide financial statements to the actual construction of them. worksheet approach. Best way to learn, is by doing an example. REQUIRED: Prepare a conversion worksheet for Tierney County to derive the governmental

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Lecture Chapter 14

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  1. Lecture Chapter 14

  2. Chapter 14 advances past the format of the Government-Wide financial statements to the actual construction of them. worksheet approach Best way to learn, is by doing an example.

  3. REQUIRED: Prepare a conversion worksheet for Tierney County to derive the governmental activities information to be reported in the county’s government-wide statement of net assets and statement of activities for 20X5. Step 1 ENTER THE PRECLOSING TRIAL BALANCE INFORMATION FOR TIERNEY COUNTY GOVERNMENTAL FUNDS INTO THE WORKSHEET. This is done for you already on your handout.

  4. PAGE ONE OF WORKSHEET

  5. PAGE TWO OF WORKSHEET BALANCES AT $22,860,075 ==========

  6. Step 2 ENTER IN THE GCA AND GLTL INFORMATION DIRECTLY BELOW THE PRE-CLOSING TRIAL BALANCE INFORMATION. SHOW A SEPARATE BALANCING FIGURE FOR THIS INFORMATION. This is also done for you already on your handout.

  7. THIS BALANCES AT $36,100,575

  8. Step 3 Reclassify capital outlay expenditures as capital assets (2) are listed on the pre-closing trial balance: First page CAPITAL OUTLAY EXPENDITURES For construction………….. $8,890,000 For equipment…………….. 203,700 Entry posted on worksheet to CONVERT. Construction-in-progress…….. $8,890,000 Machinery & Equipment…….. 203,700 Construction expenditures………… $8,890,000 Equipment expenditures…………… 203,700 1 NOTE: These entries ARE NOT REALLY MADE in any journal/ledger. They are just WORKSHEET entries made to adjust governmental funds to GOVERNMENT-WIDE accounts. NOW ENTER INTO WORKSHEET

  9. Construction-in-progress…….. $8,890,000 Machinery & Equipment…….. 203,700 Construction expenditures………… $8,890,000 Equipment expenditures…………… 203,700 PAGE TWO OF WORKSHEET 1 Step 3 GCA & GLTL NOW RECORD THE CREDITS ON THE 1ST PAGE THE WORKSHEET.

  10. PAGE ONE OF WORKSHEET Construction-in-progress…….. $8,890,000 Machinery & Equipment…….. 203,700 Construction expenditures………… $8,890,000 Equipment expenditures…………… 203,700 1 Step 3

  11. Step 4 Eliminate GCA sale proceeds and record a gain on the capital asset sale $175,000 is listed as a proceed from the Sale of GCA on pre-closing trial balance (PCTB) top ofpage 2 of worksheet. Need to also know: The capital asset sold was for equipment which cost $500,000, and had accumulated depreciation at the January 1 sale date of $400,000. Entry made for governmental accounting DID Cash……..$175,000 Proceeds from sale of capital equipment………$175,000 Entry which would have been made for government-wide (full-accrual) Cash…….$175,000 Acc/Dep. mach&ept.. 400,000 Equipment……..$500,000 Gain on sale of equipment… $ 75,000 Entry posted to worksheet to CONVERT. Acc/Dep mach & eqt . $400,000 Proceeds…. 175,000 Equipment………$500,000 Gain………………. 75,000 2 FIX SHOULD NOW POST TO WORKSHEET

  12. Acc/Dep mach & eqt . $400,000 Proceeds…. 175,000 Equipment………$500,000 Gain………………. 75,000 2 PAGE TWO OF WORKSHEET Step 4 GCA & GLTL

  13. Step 5 Record Depreciation Depreciation expense is of course, not recorded for governmental funds. Additional information: Depreciation expense on buildings and on machinery and equipment is associated with functions as follows: General government…………. 10% Public Safety…………………. 50% Highways and Streets………. 25% Heath and sanitation………. 10% Other………………………….. 5% Additionally: The county depreciates equipment over 5 years, buildings over 20 years, and streets and roads over 30 years. Assume zero salvage values.

  14. Step 5 Record Depreciation From PCTB: Buildings……… $4,375,000 = $218,750 depreciation expense for 20X5. 20 yrs (given) wait to post to worksheet until all depreciation is calculated. Depreciation expense on buildings and on machinery and equipment is associated with functions as follows: General government…………. 10% Public Safety…………………. 50% Highways and Streets………. 25% Heath and sanitation………. 10% Other………………………….. 5% x 218,750 = $21,875 x 218,750 = $109,375 x 218,750 = $54,687 * rounding x 218,750 = $21,875 x 218,750 = $10,938

  15. Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 Step 5 Record Depreciation The county depreciates equipment over 5 years, buildings over 20 years, and streets and roads over 30 years. Assume zero salvage values. Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,740 These are posted on worksheet as summations of both expenses but the accumulated depreciat. for mach & buildings are posted separately. From PCTB: Mach & Ept……… ($1,400,000 beg + $203,700 adj(1)) = $320,740 depreciation expense for 20X5. 5 years = $320,740 • I think the $500,000 sold should be subtracted before • depreciating but the authors of problem didn’t do that. Depreciation expense on buildings and on machinery and equipment is associated with functions as follows: General government…………. 10% Public Safety…………………. 50% Highways and Streets………. 25% Heath and sanitation………. 10% Other………………………….. 5% PLUS SUM $53,949 269,745 134,873 53,949 26,974 218,750 = $21,875 218,750 = $109,375 218,750 = $54,687 *rounding 218,750 = $21,875 218,750 = $10,938 x 320,740 = $32,074 x 320,740 = $160,370 x 320,740 = $ 80,186 *rounding x 320,740 = $32,074 x 320,740 = $16,036

  16. PAGE ONE OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a $32,074 + $21,875 = $53,949

  17. PAGE ONE OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a $160,370 + $109,375 = $269,745

  18. PAGE ONE OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a $80,186 + $54,687 = $134,873

  19. PAGE ONE OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a $32,074 + $21,875 =$53,949

  20. PAGE ONE OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a $16,036 + $10,938 = $26,974 now record the accumulated depreciations

  21. Depreciation expense-Gen Gov…$21,875 Depreciation expense-Pub Saf…..109,375 Depreciation expense-Highways.. 54,687 Health & Sanitation……………… 21,875 Other……………………………… 10,938 Accumulated Depreciation- Building………$218,750 3a PAGE TWO OF WORKSHEET Depreciation expense-Gen Gov…$32,074 Depreciation expense-Pub Saf…..160,370 Depreciation expense-Highways.. 80,186 Health & Sanitation……………… 32,074 Other……………………………… 16,036 Accumulated Depreciation- Machinery & Equipment………$320,074 3a Step 5 GCA & GLTL

  22. Step 5 continued Record Depreciation NOT quite done, still INFRASTRUCTURE ASSETS. The balance of Streets and Roads is $7,000,000 30 years left = $233,333 Entry to record depreciation of infrastructure Highways & streets depreciation expense…..$233,333 Accumulated depreciation-infrastructure streets………..$233,333

  23. PAGE ONE OF WORKSHEET Step 5 continued Highways & streets depreciation expense…..$233,333 Accumulated depreciation-infrastructure streets………..$233,333 3b now post the credit

  24. Highways & streets depreciation expense…..$233,333 Accumulated depreciation-infrastructure streets………..$233,333 PAGE TWO OF WORKSHEET 3b Step 5 GCA & GLTL

  25. Step 6 Reclassify bond proceeds and bond issue costs Bond issuance occurred at year-end. THERE ARE TWO BONDS ON THE BOOKS! ONE IS LISTED IN THE GOVERNMENTAL FUNDS INFO AS BONDS $6.3M AND PREMIUMS $42K. (Bottom page 1)THESE ARE OFS. THE OTHER ONE IS LISTED IN THE GLTL AS B/P $2.8M, PREM $70K, AND DEF BOND ISSUE COSTS 28k [This stuff is already at full –accrual and doesn’t need adjusting]. Right now in the PCTB the following accounts are present: Bonds……………………pg 2……. $6,300,000 (CR) Bond premiums………pg 2…….. 42,000 (CR) Bond issue costs………pg 1…. 35,000 (DR) Entry which would be made in govt-wide Cash………..$6,307,000 Def bond issue costs………..$ 35,000 Bonds payable…$6,300,000 Premium on b/p…$ 42,000 Entry which was made to record bond issue: should Cash……………..….$6,307,000 Bond issue costs…$ 35,000 OFS-Bonds…………………$6,300,000 OFS-Bond premiums……..$ 42,000 Entry to roll-over into GOVT-WIDE OFS-Bonds………..$6,300,000 OFS-Bond Prem… $ 42,000 Def bond issue costs………… $35,000 Bonds payable……..$6,300,000 Premium on b/p….. $ 42,000 Bond issue costs…..$35,000 did fix

  26. OFS-Bonds………..$6,300,000 OFS-Bond Prem… $ 42,000 Def bond issue costs………… $35,000 Bonds payable……..$6,300,000 Premium on b/p….. $ 42,000 Bond issue costs…..$35,000 4 BOTTOM OF PAGE ONE OF WORKSHEET Step 6 GCA & GLTL

  27. OFS-Bonds………..$6,300,000 OFS-Bond Prem… $ 42,000 Def bond issue costs………… $35,000 Bonds payable……..$6,300,000 Premium on b/p….. $ 42,000 Bond issue costs…..$35,000 PAGE TWO OF WORKSHEET 4 Step 6 GCA & GLTL now post the last credit

  28. PAGE ONE OF WORKSHEET OFS-Bonds………..$6,300,000 OFS-Bond Prem… $ 42,000 Def bond issue costs………… $35,000 Bonds payable……..$6,300,000 Premium on b/p….. $ 42,000 Bond issue costs…..$35,000 4 Step 6 continued

  29. Step 7 Eliminate GLTL retirement expenditures and reduce liability Right now the PCTB contains the following: Bond Principal Retirement $700,000 (DR). Entry that was made Entry that would be made in full accrual. govt-w Bond Principal Retirement expenditure….$700,000 Cash……………………………………$700,000 Bonds payable….$700,000 Cash…………$700,000 Entry to ROLLOVER Bonds payable……………….…..$ 700,000 Bond Principal Retirement Expenditure…………$700,000

  30. PAGE TWO OF WORKSHEET Bonds payable……………….…..$ 700,000 Bond Principal Retirement Expenditure…………$700,000 Step 7 5 GCA & GLTL now post the credit

  31. PAGE ONE OF WORKSHEET Step 7 Bonds payable……………….…..$ 700,000 Bond Principal Retirement Expenditure…………$700,000 5

  32. Step 8 Record bond premium amortization The remaining term of the bonds payable with which the premium ($70,000) and bond issue costs ($28,000) are associated is 10 years. Use SL amortization. THIS IS FOR THE BOND THAT IS ALREADY ESTABLISHED AS A BOND IN THE GLTL Entry which was made to amortize premium in govt’l funds NONE Entry to FIX and rollover to govt-wide $70,000/10 = $7,000 amortization Premium on b/p……..$ 7,000 Interest on bonds………$7,000 * Bond issue costs amortized in step 9

  33. Premium on b/p……..$ 7,000 Interest on bonds………$7,000 (reduces the interest expense) PAGE TWO OF WORKSHEET 6 Step 8 GCA & GLTL now post the credit

  34. PAGE ONE OF WORKSHEET Premium on b/p……..$ 7,000 Interest on bonds………$7,000 (reduces the interest expense) Step 8 6

  35. Step 9 Record bond issue cost amortization The remaining term of the bonds payable with which the premium ($70,000) and bond issue costs ($28,000) are associated is 10 years. Use SL amortization. $28,000 / 10 = $2,800 amortization. Interest on bonds……. $2,800 Deferred bond issue costs……..$2,800

  36. PAGE ONE OF WORKSHEET Interest on bonds……. $2,800 Deferred bond issue costs……..$2,800 Step 9 7

  37. Interest on bonds……. $2,800 Deferred bond issue costs……..$2,800 7 PAGE TWO OF WORKSHEET Step 9 GCA & GLTL

  38. Step 10 Record accrued interest and adjust beginning net assets and interest expense. The accrued interest associated with bonds at 12/31/X5 was $ 99,000. The January 1, 20X5 balance was $87,500. $87,500 BOY vs $99,000 EOY = $11,500 increase in accrued interest payable. This increase should have resulted in this entry for GOVT-WIDE Interest expense……..$11,500 Accrued interest on bonds (payable)……. $11,500 To record this entry now in adjustments of worksheet Interest on bonds…….. $11,500 Accrued interest on bonds……$11,500 We also need to pick up the beginning balance of accrued interest because its not currently present in the governmental accounts. Net Assets (to reflect past interest expenses)….. $87,500 Accrued interest payable on bonds……………..$87,500

  39. PAGE ONE OF WORKSHEET Interest on bonds…….. $11,500 Accrued interest on bonds……$11,500 Step 10 8b Net Assets (to reflect past interest expenses)….. $87,500 Accrued interest payable on bonds……………..$87,500 8a now record rest.

  40. Interest on bonds…….. $11,500 Accrued interest on bonds……$11,500 PAGE TWO OF WORKSHEET 8b Step 10 Net Assets (to reflect past interest expenses)….. $87,500 Accrued interest payable on bonds……………..$87,500 8a GCA & GLTL

  41. Step 11 Adjust claim/adjustments expenses for decreases in long-term liability for C&J. The balance of the long-term claims and judgments obligation at 12/31/20X5 was $200,000. All claims and judgments of the county are related to health and sanitation. The PCTB shows the BOY balance is $490,000 $490,000 - $200,000 = $290,000 decrease. Entry to make to record reduction Liability for C&J….. $290,000 Health & Sanitation expenditures…..$290,000 Entry that was made. • Health and Sanitation expenditures…. $290,000 • Cash…………………………………….$290,000 • know this because the long-term liability for C&J came down $290K and • it was all for health/sanitation. implies that $290K was treated as an expenditure while it should have been treated as reducing a payable as cash was paid to reduce it. Entry that would have been made in Govt-Wide Liability for C&J………… $290,000 Cash……………………….$290,000

  42. PAGE TWO OF WORKSHEET Liability for C&J….. $290,000 Health & Sanitation expenditures…..$290,000 Step 11 9 GCA & GLTL now post credit

  43. PAGE ONE OF WORKSHEET Liability for C&A….. $290,000 Health & Sanitation expenditures…..$290,000 Step 11 9

  44. Step 12 Adjust compensated absences expenses for increase in long-term liability for compensated absences The balance of the long-term liability for compensated absences at 12/31/X5, was $425,000. Compensated absence liabilities are generated equally by the general government, public safety, streets and roads, and health/sanitation functions. Beg. Bal is $350,000 vs $425,000 = $75,000 increase. Implies that $75,000 needs to be charged as an expenditure and the payable increase needs to be recorded. Entry to record Govt-Wide $75,000 / 4 = $18,750 CA Expenditure-Gen Gov…. $18,750 CA Expenditure-Pub Safety.. 18,750 CA Expenditure-Streets/Roads..18,750 CA Expenditure- Health/San…. 18,750 CA liability-longterm…………….$75,000

  45. PAGE ONE OF WORKSHEET CA Expenditure-Gen Gov…. $18,750 CA Expenditure-Pub Safety.. 18,750 CA Expenditure-Streets/Roads..18,750 CA Expenditure- Health/San…. 18,750 CA liability-longterm…………….$75,000 10 Step 12 now post credit

  46. CA Expenditure-Gen Gov…. $18,750 CA Expenditure-Pub Safety.. 18,750 CA Expenditure-Streets/Roads..18,750 CA Expenditure- Health/San…. 18,750 CA liability-longterm…………….$75,000 10 PAGE TWO OF WORKSHEET Step 12 GCA & GLTL

  47. Step 13 Eliminate deferred tax revenues. The January 1, 20X5 balance of Deferred Tax Revenues was $84,000. First, take the beginning balance of deferred tax revenue, and give it to net assets because it should have been recognized as revenue in 20X4. Deferred Revenues………… $84,000 Net Assets…………………..$84,000 Deferred Revenue has an ending balance of $107,800 which means that it has grown during 20X5 in the amount of $107,800 - $84,000 = $23,800 Entry to get rid of $23,800 of deferred revenue that increased during the year because it would be recognized as revenue in 20X5 (not deferred). Deferred Revenues……….. $23,800 Revenues (Taxes)…………..$23,800

  48. PAGE ONE OF WORKSHEET Step 13 Deferred Revenues………… $84,000 Net Assets…………………..$84,000 11 Deferred Revenues……….. $23,800 Revenues (Taxes)…………..$23,800 11 The deferred revenues sum to $107,800 now post the credit to net assets

  49. Deferred Revenues………… $84,000 Net Assets…………………..$84,000 11 PAGE TWO OF WORKSHEET Step 13 GCA & GLTL

  50. Step 14 Eliminate interfund payables and receivables between governmental funds. Just go through the PCTB and eliminate it. There’s only one. Due to Special Revenue Fund…….. $3,500 Due from General fund…...................….$3,500

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