Chapter 7 Recording Transactions Affecting the Enterprise Fund and Business-type Activities The City of Smithville accounts for its solid waste collection and disposal activities in an enterprise fund. The balance sheet for the Solid Waste Disposal Fund as of December 31 2013 appears below. CITY OF SMITHVILLE Solid Waste Disposal Fund Post-closing Trial Balance As of December 31 2013 Account Title Debits Credits Cash $ 288 000 Customer Accounts Receivable 145 440 Allowance for Doubtful Accounts $ 13 080 Inventories 5 040 Land 600 000 Buildings 1 650 000 Accumulated Depreciation—Buildings 750 000 Equipment 1 040 400 Accumulated Depreciation—Equipment 651 600 Vouchers Payable 50 280 Accrued Payroll and Fringe Benefits 86 830 Accrued Liability—Estimated Closure 204 000 /Post Closure Costs Net Position—Net Investment in Capital Assets 1 888 800 Net Position—Unrestricted 84 290 Totals $3 728 880 $3 728 880 Required a. Open a general journal as of December 31 2013 for the Solid Waste Disposal Fund by entering each of the accounts and amounts shown in the above post-closing trial balance. Enter 2013 from the drop-down [Year] menu. Each of the account titles will be found in the drop down menu [Account (# – Description)] in the [Journal] view of the program. Be sure to enter 7-a as your paragraph number in the [Transaction Description] box and enter the appropriate paragraph number for all subsequent journal entries. Verify the accuracy of your journal entry and post it to the general ledger by clicking [Post Entries]. Unless your instructor specifies e-mail submission print a post-closing trial balance as of December 31 2013 and retain it in your cumulative file until directed by your instructor to submit it. Entries in this enterprise fund do not have to be recorded at the government-wide level since enterprise funds and business-type activities at the government-wide level both use the same (accrual) basis of accounting and same (economic resources) measurement focus. Thus the same information recorded in the accounts of the enterprise fund can also with only slight modification be reported as business-type activities at the government-wide level. Please remember that before closing the City of Smithville you must click on [File] and [Save/Save As] to save your work. Your work is NOT automatically saved. b. Record the following events and transactions which occurred during the year ended December 31 2014. Be sure that 2014appears in the [Year] menu. [Para. 7-b-1]Billings to customers of the Solid Waste Disposal Fund totaled $2 268 960 for the year including $16 500 billed to City of Smithville departments accounted for in the General Fund. For the amount billed to City of Smithville departments you should debit Due from Other Funds. [Para. 7-b-2]Equipment costing $300 000 was purchased on July 1 2014. Cash in the amount of $200 000 was paid at the time of purchase; the vendor accepted revenue anticipation notes in the amount of $100 000 to finance the remainder of the equipment. Of this amount $50 000 of the notes will be payable on July 1 2015; the other $50 000 will be payable on July 1 2016. All notes bear interest at the rate of 5 percent per year. (Record only the purchase and the related payment of cash and issuance of notes at this time; interest will be recorded in a later transaction.) [Para. 7-b-3]Vouchers for materials and supplies to be used in the operations of the fund were issued in the total amount of $773 500. (Debit Inventories) [Para. 7-b-4]Collections from customers totaled $2 190 900 during 2014. This amount included $10 100 collected from the General Fund (see Transaction 7-b-1 above). [Para. 7-b-5]Payrolls and fringe benefits paid in cash during the year totaled $1 182 800 including the amount accrued at December 31 2013. [Para. 7-b-6]Accrued salaries and fringe benefits at year-end amounted to $66 720. Inventories of materials and supplies used in operations during the year amounted to $774 480 at cost. [Para. 7-b-7]Vouchers in the amount of $778 600 were paid during the year. [Para. 7-b-8]The city uses the following annual straight-line depreciation rates: Buildings 2.5 percent; Equipment 10 percent (equipment purchased during the year need not depreciated because it was not held for more than 6 months of the year). Apply these rates to the original cost of buildings and equipment as of December 31 2013 assuming no residual or salvage value. [Para. 7-b-9]Interest of $2 500 had accrued on revenue anticipation notes as of year-end (see transaction 7-b-2). [Para. 7-b-10]Management decided to increase the allowance for doubtful accounts by $3 060 at year-end. [Para. 7-b-11]The City of Smithville estimates that for the city’s landfill the total current cost for closure and postclosure compliance with the Environmental Protection Agency rules discussed in Chapter 7 will be $1 440 000. Based on the percentage of estimated capacity of the landfill used in the current period the current period expense and related liability for future closure and post closure costs is $120 000. [Para. 7-b-12]On December 31 2014 prior to preparing closing entries the Solid Waste Disposal Fund was charged for materials and supplies expense in the amount of $12 000 that had erroneously been charged as an expenditure of the General Fund (see transaction 15 of the General Fund in Chapter 4 of this cumulative problem). You should credit Due to Other Funds. After verifying the accuracy of all entries for the preceding transactions post amounts to the general ledger accounts by clicking [Post Entries]. c. Prepare entries to: 1. Close all operating statement accounts at the end of 2014 and to 2. Reclassify the two net asset accounts as appropriate. See the top of page 258 in the textbook for an explanation of what Net Position – Net Investment in Capital Assets represents. Be sure that the check mark for [Closing Entry] is on for each account being closed and that “Closing Entries” appears in the [Transaction Description] box. When completed post the closing entries to the general ledger by clicking [Post Entries]. c. Go to [Reports] and print the pre-closing and post-closing trial balances for the Solid Waste Disposal Fund as of December 31 2014. Retain in your cumulative folder until directed by your instructor to submit them unless your instructor specifies submission of computer files via e-mail in which case you will need to save a .pdf version of your trial balance. [Note: Retain a printout of all worksheets and your financial statements in your cumulative file until directed by your instructor to submit them unless your instructor specifies that you should submit computer files via e-mail.]
