Question

The following information is extracted from the City of Lucas’ government-wide statement of net position at December 31, 2019:

                  Capital assets                                                                              $2,000,000

                  Accumulated depreciation, capital assets                                $1,600,000

                   Annual depreciation rate on capital assets                              10%

                  Bonds payable                                                                             -0-

The following information is extracted from the city's governmental funds statement of revenues, expenditures, and changes in fund balances for the year ended December 31, 2020.

                  Expenditures—capital outlay (General Fund)                                    $40,000

                  Expenditures—capital outlay (Capital Projects Fund)                      $600,000

                  Expenditures—bond principal (Debt Service Fund)                         $60,000

                  Expenditures—bond interest (Debt Service Fund)                           $15,000

                  Proceeds from bond issue (Capital Projects Fund)                          $600,000

According to the notes to the financial statements, the city sold $600,000 of 5-year serial bonds on April 1, 2020, to finance the acquisition of capital assets. Principal is payable every six months, starting October 1, 2020. Interest of 5 percent per annum on the unpaid principal is also payable every six months, starting October 1, 2020. Assume all assets acquired in 2020 were acquired July 1 and all have a 10-year life.

Required:

A. Prepare journal entries so the foregoing information can be used in a worksheet to prepare government-wide financial statements for the year ended December 31, 2020.

B. Compute the amounts for the following statement elements as they will appear in the government-wide financial statements for the year ended December 31, 2020:

• Depreciation expense
• Interest expense
• Capital assets
• Accumulated depreciation, capital assets
• Interest payable
• Bonds payable
• Net investment in capital assets

4. The city of Grace reported $12,000,000 of general capital assets and accumulated depreciation on these assets of $4,000,000 on its December 31, 2019 government-wide statement of net position. The city reported capital outlay expenditures of $1,200,000 in its governmental funds during its fiscal year ending December 31, 2020. Also, depreciation associated with general capital assets for the fiscal year ending December 31, 2020 was $800,000. Prepare the three journal entries needed for the December 31, 2020 worksheet that converts the governmental fund capital asset information to information needed for the government-wide financial statements.

Answer 1

Part b.- Statement Elements 1 Depreciation expense (Journal entry 3) 2,32,000 Interest expense (from fund statement - 15,000 plus journal 2 entry 5-6,750) $21,750 (15,0006,750) Capital assets (Journal entries 3 1 and 2) $ 26,40,000 20,00,000+ 640,000) Accumulated depreciation, capital assets (journal entries 4 1 and 3) 18,32,000 (16,00,000+ 232,000) Interest payable (journal entry 5 5) 6,750