Question

A school district establishes a vehicle repair shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the following transactions:

It purchases equipment at a cost of $24 million and issues long-term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.

It purchases supplies at a cost of $4 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.

It incurs $13 million in other operating costs.

It bills other departments for $19 million.

Prepare journal entries using general fund and prepare journal entries using internal service fund.

Please prepare the journal entries under the two assumptions. First assume the transactions are recorded in an internal service fund; and then assume the transactions are reported in the general fund.

Answer 1

Answer:

Journal entries - Internal service fund
	Debit	Credit
	Amount in millions
Equipment	$ 24
Long term notes payable		$ 24
Supplies Expenses	$ 4
Cash		$ 4
Operating Expenses	$ 13
Cash		$ 13
Due from other departments	$ 19
Service Revenue		$ 19
Depreciation-equipment	$ 3
Accumulated Depreciation-equipment		$ 3
Inventory for Supplies	$ 1
Reserve for Inventory for supplies		$ 1
Journal entries - General fund
Expenditure-Equipment	$ 24
Other Financial Sources		$ 24
Expenditure-Supplies	$ 4
Cash		$ 4
Expenditure-Operating cost	$ 13
Cash		$ 13
Due from other departments	$ 19
Revenue-service		$ 19