Question

Question 3:

3.The following Information is extracted from the City of Lucas' government-wide statement of net position at December 31, 2019 Capital assets Accumulated depreciation, capital assets Annual depreciation rate on capital assets Bonds payable $2,000,000 $1,600,000 10% 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) Expenditures-capital outlay (Capital Projects Fund) Expenditures-bond principal (Debt Service Fund) Expenditures-bond interest (Debt Service Fund) Proceeds from bond issue (Capital Projects Fund) 40,000 $600,000 $60,000 $15,000 600,000 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 s 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 govemment-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 .

Answer 1

Ans-A - Journal Entries

Transaction	Account Titles and Explanation	Debit ($)	Credit ($)
a	Capital Assets A/c Dr.	2,000,000
	Accumulated Depreciation- Capital Assets A/c		1,600,000
	Net Position		400,000
	(To report carry-over balances)
b	Capital Assets A/c Dr.	640,000
	Expenditures- Capital Outlay A/c		640,000
	(To report capital asset acquisitions)
c	Depreciation Expenses A/c Dr.	232,000
	Accumulated Depreciation-Capital Assets A/c		232,000
	(To report depreciation expenses 10% of 2,000,000+ 5% of 640,000)
d	Proceeds of debt A/c Dr.	600,000
	Expenditure-Bond Principal A/c		60,000
	Bonds Payable A/c		540,000
	(To report outstanding bonds payable)
e	Interest Expenses A/c Dr.	6,750
	Interest Payable A/c		6,750
	(To report accrued interest 540,000*5%*3 months)

Ans-b- Statement Elements

1	Depreciation expense (Journal Entry c)	232,000
2	Interest expense (From fund statement-15,000 +journal entry e- 6,750 )	21,750
3	Capital assets (journal entries a and b)	2,640,000
4	Accumulated depreciation- Capital assets (journal entries a and c)	1,832,000
5	Interest payable (journal entry e)	6,750
6	Bonds payable (journal entry d)	540,000
7	Net Investment in capital assets	268,000
	Computed as follows:
	Capital assets $2,640,000
	Accumulated depreciation (1,832,000)
	Net Capital Assets 808,000
	Bonds Payable (540,000)
	Net Investment in capital assets =$ 268,000