GOVERNMENTAL ACCOUNTING PRACTICE SET
Part A due: ____________
Part B due: ____________
The date is December 31, 2091. You have just risen from a three month cryogenic sleep during
which you traveled from Earth to Europa, the only inhabited moon of Jupiter.
Europa has been colonized since the early 2060's. To encourage development the United Earth
Council (roughly equivalent to a federal government for the planet Earth) gave land grants to
colonists willing to leave Earth and settle this new world. The Council also built a series of water
purification and power generating plants. These plants utilize the natural geothermal resources of
Europa to generate electrical power.
Most of the inhabitants are engaged in the operation of the quarter million acre farms which span
the temperate zones on either side of the equator. The labor is performed by robots through a
centralized computer under the direction of the owner/farmer and family members. Harvests are
transported by freighter to Earth. It is lonely, although profitable life with an average of 10
harvests per Earth year. All banking is performed on Earth through electronic funds transfers. A
substantial business sector has developed, servicing the farming operations.
After several decades of hard work the inhabitants of Europa are beginning to enjoy the rewards
of their labors and are seeking some of the services which can only be provided by a local
centralized government. They naturally sought to establish this government on Europa and
petitioned the United Earth Council for admission to the Council as a member province (roughly
equivalent to the 20th century state governments).
Province status was granted by a vote of the Council and the citizens of Europa acted quickly to
organize their new government, which officially began operations on January 1, 2091. One of the
tasks facing the new government was to hire qualified people to carry on the day to day business
of the government. You represent one of these people, having been highly trained in the
subtleties of governmental accounting. Ownership of public facilities which were constructed by
the United Earth Council (Buildings, roads & the electrical power utility) was transferred to the
new province as of midnight on 12-31-2090. In return, the Province issued long -term bonds
payable which provide for interest and principle payments to the United Earth Council over the
next 20 years.
Having no qualified governmental accountants on Europa, the province administrator has simply
made notes summarizing the transactions which have occurred since the beginning of operations.
Your task is to establish a fund accounting system, prepare summary journal entries recording all
transactions, and prepare the year end 12-31-2091 financial statements for the Province.1
Suggested order to do things: 1) fund level journal entries, 2) preclosing trial balance, 3) closing journal entries, 4)
fund basis financial statements, 5) worksheet for converting governmental funds to accrual accounting, and 6)
government-wide financial statements.
Please maintain SEPARATE JOURNAL ENTRY SHEETS for each fund and account group.
Your completed projects should include (in this order):
1. Cover sheet with names of group members
2. Fund-basis financial statements, including a Budget Comparison Statement for the
3. Journal entries for each fund and account group
1. Cover sheet with names of group members
2. Government-wide Financial Statements
3. Worksheets for the governmental activities portion of the Government-wide financial
4. Journal Entries to convert fund basis statements to accrual basis
General fund cash:
General fund unreserved fund balance 119,250
Enterprise fund cash:
Enterprise fund net assets:
A set of financial statement templates (Excel) are available for your use. Please turn in the
printed copy of each financial statement after entering the correct amounts.
PROVINCE OF EUROPA
for the year ended December 31, 2091
Because the Province has a limited number of revenue sources, revenue
control accounts are not used. Rather, General Fund revenues are
directly recorded into the following accounts (property taxes, sales
taxes, fees licenses and permits, program fees, and intergovernmental
grants) Similarly, expenditures are recorded directly into the
following accounts: (general government operations, public safety,
education, capital outlay, and debt service: principal and interest).
The Province established the Bureau of Electricity and Water to
operate as an enterprise fund. The enterprise fund reports expenses by
object category using the following account titles: (salaries,
supplies, depreciation, and interest).
There are no fiduciary, special revenue, permanent, or internal
service funds. The government uses account groups to record general
fixed assets and general long-term debt.
1. At 12-31-2090, the remaining cash and supplies on hand in the
government offices were transferred to the new Province government.
The opening trial balance for the Province for 1-1-2091 was as
Jan. 1, 2091
Cash 18,000 Fund Balance:
Reserve for encumbrances 11,800
Supplies 13,000 Fund Balance Unreserved
The supplies were office supplies for general government operations.
The reserve for encumbrances relates to a purchase order placed in
December of 2090 for engineering services (see item # 7,below). The
Province honors outstanding encumbrances from previous years and the
encumbrance should be re-established for 2091. For purposes of the
Budgetary Comparison Statement, amounts are charged to the budget in
the year they are initially encumbered, regardless of when the
expenditure is incurred.
2. On December 31, 2090, the United Earth Council
the fixed assets which have been constructed with
Province Council assigned custody of these assets
Province government and the Bureau of Electricity
U.E.C. funds. The
to the general
and Water as
Government Bureau Life Value
Buildings, roads, and
other structures $1,395,000 $ 450,000 10 $ 0
Equipment 480,000 150,000 5 0
Geothermal Generators 0 650,000 5 0
Total $1,875,000 $1,250,000
In return, the Province government issued $1,875,000, 10 percent
general obligation serial bonds. Principal payments of $93,750 and
interest payments on the bonds are to be paid at the end of each year
starting on December 31, 2091. The Bureau issued (at face value)
$1,250,000, 10 percent long-term revenue bonds. The bonds call for
annual interest payments on January 1 and mature on January 1, 2101.
Current Year Transactions:
3. The government of the Europa Province established the Bureau of
Electricity and Water. The Bureau of Electricity and Water is in
charge of providing the power and water for residents and the Province
government. On January 1, 2091, the Province government agreed to
contribute $300,000 for establishment of the Bureau of Electricity and
Water, and transferred cash on February 1, 2091.
4. On January 1, 2091, The Province Council approved budgets for 2091
Revenue and other financing sources
Fees, Licenses and Permits
Charges for Services (Bureau)
Program Fees: Education
Transfer from General Fund
Proceeds from Bond Issues
Expenditures/expenses and other
General government operations
Operating expenses (Bureau)
Transfers to other funds
5. On January 10, 2091, a cash grant of $450,000 was received from the
United Earth Council for operation of the Province. The grant
provisions stipulate the funds are to be used for general operations
of the government.
6. On January 31, 2091, $3,700,000 in property taxes were levied. Of
this, $185,000 (5% of property taxes) is estimated to be
uncollectible. The remaining tax bills are expected to be collected
within 60 days following the end of the fiscal year. During 2091,
$3,030,000 was collected and $140,000 are identified as uncollectible
and written off.
7. On January 5, 2091 the engineering report ordered in December of
the previous year (see item 1 above) was received along with an
invoice for of $ 11,500. The invoice was immediately paid. The
engineering report was for general government operations.
8. During 2091, the Province government placed orders amounting to
$940,000 for supplies. All the supplies ordered were received during
the year with an invoice price of $935,000 (there are no outstanding
encumbrances for supplies). $900,000 was paid during the year. The
supplies were distributed by major functions of government as follows:
Operation Safety Education Total
$ 390,000 $ 400,000 $ 150,000 $ 940,000
Invoice prices 395,000 400,000 140,000
The government uses the consumption method of recording supplies.
9. During 2091 the Bureau of Electricity and Water placed orders
amounting to $1,200,000 for supplies. The supplies were received with
an invoice price of $1,100,000. Of this $1,050,000 was paid before
10. The Province Council approved the construction of a new school
building at an estimated cost of $2,750,000. The issuance of
$2,500,000 in general obligation long-term bonds was authorized to
finance the cost of construction. In addition, the Province government
agreed to provide $250,000 for the construction project.
11. On March 31, 2091, the Province government transferred $250,000 to
the school building capital project.
12. On April 1, 2091, $2,500,000 in 10 percent general obligation
long-term bonds were issued for $2,590,000. The premium of $90,000 was
reserved for redemption of the bonds while the principal was set aside
for construction of the school. The bonds call for annual interest
payments on March 31, and mature on April 1, 2111.
13. On June 1, 2091, the school building contract was awarded to the
lowest bidder for $2,600,000, including planning and architect's fees.
14. On November 30, 2091, the progress billings of $1,250,000 for the
school building were received from the contractor and $ 850,000 was
paid on December 31, 2091. The remaining balance is expected to be
paid in January, 2092. Liabilities resulting from capital additions
are recorded in “Contracts Payable”, (rather than Accounts Payable).
15. The Board of the Bureau of Electricity and Water approved the
construction of an office building at an estimated cost of $880,000.
16. On July 1, 2091, the office building contract was signed in the
amount of $865,000, including planning and architect's fees.
17. On October 30, 2091, construction was completed and $432,500 was
paid on the contract. The remaining 50% will be paid following final
inspection on January 15, 2092. Liabilities resulting from capital
additions are recorded in “Contracts Payable”, (rather than Accounts
18. At the end of November, ground transportation units were ordered
for the public safety department at an estimated cost of $175,000. The
units have not been delivered as of December 31, 2091.
19. During 2091, the Province government received the following cash
Permits, fees & licenses
Program Fees: Education 80,000
20. Salaries and wages of $4,150,000 were incurred and paid by the
Province government and the Bureau of Electricity and Water during
2091. Salaries and wages are classified by governmental functions as
Public safety 775,000
Bureau of Electricity Water 1,813,000
21. During 2091, the Bureau of Electricity and Water billed the
Province government and the residents for electricity and water
services in the amounts of $920,000 and $2,200,000 respectively. The
Bureau estimated that 2% of the gross revenue from the residents will
be uncollectible. During 2091, $805,000 and $1,605,000 of the bills
sent to the Province government and the residents, respectively, are
collected. $38,000 of the bills sent to the residents are identified
as uncollectible and written off.
The electricity and water services provided to the Province government
were charged by government functions as follows:
Public safety 320,000
22. $281,250 was removed from general government funds and set aside
for payments on outstanding general obligation serial bonds.
23. On December 31, 2091, the Province government made principal
payment of $93,750 and annual interest of $187,500 on the general
obligation serial bonds.
24. As of December 31, 2091, physical inventories of supplies on hand
report the following:
Public safety 0
Bureau of Electricity Water 14,000
25. On December 31, 2091, the Bureau of Electricity and Water accrued
annual interest on the bonds ($1,250,000) described in item # 2.
26. The Province government and the Bureau of Electricity and Water
recorded depreciation for 2091 using the straight-line method. The new
office building is estimated to have zero salvage value and 10-year
useful life and is depreciated on a monthly basis, beginning with the
month it was placed in service.
27. On December 31, 2091 the Bureau of Electricity and Water borrowed
$700,000 on a 90 day note payable to cover a temporary cash shortfall.
28. On December 31, 2091, $250,000 was borrowed on a 60 day note
payable to cover a temporary cash shortfall in general government
Entries required for Government-wide
A review of the governmental type transactions for the year suggests
the following worksheet journal entries2 are necessary for preparation
of the Government-wide Statements:
The fixed assets and debt acquired in Transaction 2 should be
entered in the beginning balances column on the worksheet.
Capital expenditures should be eliminated.
Depreciation expense should be recorded.
Bond proceeds should be eliminated.
The premium on the bonds in Transaction 12 should be amortized
using the straight line method (9 months).
Nine months of interest should be accrued on the bonds in
Interfund transfers should be eliminated, but not the portion paid
to Business-type funds.
Expenditures for bond principal should be eliminated.
(Prepare the journal entries and enter them on the worksheet used to convert
governmental funds to the accrual basis, but do not post the entries in the
journals of the funds.) The worksheet is set up so that debits are entered as
positive numbers and credits as negative.
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