Question

Adapted from Accounting for Governmental & Nonprofit Entities, Wilson, 15 edition, Problem 4-11 Annabelle Benton, great-granddaughter of the founder of the Town of Benton, made a cash contribution in the amount of $500,000 to be held as an endowment. To account for this endowment, the town has created the Alex Benton Park Endowment Fund. Under terms of the agreement, the town must invest and conserve the principal amount of the contribution in perpetuity. Earnings, measured on the accrual basis, must be used to maintain Alex Benton Park in an “attractive manner.” Earnings are transferred periodically to the Alex Benton Park Maintenance Fund, a special revenue fund. Information pertaining to transactions of the endowment and special revenue funds for the fiscal year ended June 30th follows: 1. The contribution of $500,000 was received and recorded on December 31st. 2. On December 31st, a $70,000 certificate of deposit and $400,000 in IG stock was purchased. The certificate of deposit pays 4% (annual) interest on March 31, June 30, September 30, and December 31. 3. On January 2nd, the town council approved a budget for the newly formed Alex Benton Park Maintenance Fund, which included estimated revenues of $13,400 and appropriations of $13,000. 4. On March 31st, interest on the certificate of deposit was received by the endowment fund and transferred to the Alex Benton Park Maintenance Fund. 5. On April 1st, dividends of $6,000 was received by the endowment fund and transferred to the Alex Benton Park Maintenance Fund. 6. On June 30th, interest on the certificate of deposit was received by the endowment fund and transferred to the Alex Benton Park Maintenance Fund. 7. For the year ended June 30th, maintenance expenditures from the Alex Benton Park Maintenance Fund amounted to $2,700 for materials and contractual services and $10,150 for wages and salaries. All expenditures were paid in cash except for $12,000 of vouchers payable as of June 30th. Inventories of materials and supplies are deemed immaterial in amount. Prepare the journal entries for the Alex Benton Endowment Fund and the Alex Benton Park Maintenance Fund at the fund level and at the government-wide level. Prepare fund and government-wide statements.

Answer 1

:: Solution :: The joumal entries for the AB Park Endowment Fund are provided below: Credit (S) Debit (S) 500,000 No. Date Acount Titles and Explanation 1 31-Dec Cash Revenues - Contributions for endowment (To record contributions for endowment) 500,000 400,000 70,000 2 31-Dec Investment in stock Certificate of deposit Cash (To record investments) 470,000 3 2-Jan No entry would be recorded in the park endowment fund 7001 4 31-Mar Cash ($70,000 x 4% x 3/12) Revenues - Interest earnings (To record investment earnings) 700 7001 Other financing uses - Interfund transfers out Cash (To record interfund transfers) 700 6,000 31-Apr Cash Revenues - Investment earnings (To record investment earnings and interest received) 6,000 6,000 Other financing uses - Interfund transfers out Cash (To record interfund transfers) 6,000 6 30-Jun Cash ($70,000 x 4% x 3/12) Revenues - Interest earnings (To record investment earnings) 700 700 Other financing uses - Interfund transfers out Cash (To record interfund transfers) 700 7 30-Jun No entry would be recorded in the park endowment fund. Closing Entry: 30-Jun Revenues - Contributions for endowment Revenues - Investment earnings Revenues - Interest earnings (S700 + $700) Other financing uses - Operating transfers out Fund balance - Reserved for endowment (To close temporary accounts) 500,000 6.000 1,400 7,400 500,000

The joumal entries for the AB Park Maintenance Fund are provided below: Debit (S) Credit (S) No. Date Acount Titles and Explanation 1 31-Dec No entry would be recorded in the park maintenance fund 2 31-Dec No entry would be recorded in the park maintenance fund 3 3 13,400 2-Jan Estimated other financing sources - Interfund transfer-in Appropriations Budgetary fund balance (To record estimated interfund transfers) 13,000 4001 700 4 31-Mar Cash ($70,000 x 4% x 3/12) Other financing sources - Interfund transfers-in (To record interfund transfers) 7001 6,000 51-Apr Cash Other financing sources - Interfund transfers-in (To record interfund transfers) 6,000 700 6 30-Jun Cash ($70,000 * 4% x 3/12) Other financing sources - Interfund transfers-in (To record interfund transfers) 700 2,700 10,150 7 30-Jun Expenditures - Materials and contractual services Expenditures - Wages and salaries Cash Vouchers payable (To record expenditures incurred) 850 12,000 Closing Entry: 30-Jun Appropriations Budgetary fund balance Estimated other financing sources (To close temporary accounts) 13,000 400 13,400
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