Recording Transactions Affecting the Enterprise Fund and Business-Type Activities
The city water utility is owned and operated by the City of Bingham. The water utility was originally constructed and operated by a private corporation, but it was sold to the city 30 years before the year for which transactions are given. The post-closing trial balance of the Water Utility Fund, as of December 31, 2013, follows:
CITY OF BINGHAM
Water Utility Fund
Trial Balance
As of December 31, 2013
Debits Credits
Cash $ 284,904
Restricted Cash-Customer Deposits 57,200
Customer Accounts Receivable 160,440
Accumulated Provision for
Uncollectible Accounts $ 4,720
Inventory of Supplies 94,146
Due from Other Funds 13,000
Utility Plant in Service 19,000,390
Accumulated Depreciation-
Utility Plant 4,011,278
Construction Work in Progress 1,189,400
Vouchers Payable 72,420
Customer Deposits 57,200
Accrued Interest Payable 434,100
6% Revenue Bonds Payable 14,470,000
Unamortized Bond Discounts
on Revenue Bonds Payable 65,200
Net Position, Net Investment in Capital
Assets 1,773,712
Net Position, Unrestricted 41,250
Totals $20,864,680 $20,864,680
Additional information:
The following information is provided about accounts shown on the December 31, 2013, trial balance:
Accrued Interest Payable represents six months' accrual of interest on the 6 % revenue bonds payable. Interest is payable semiannually on January 1 and July 1 of each year. Unamortized Bond Discount is credited every six months for the amortization applicable to the interest payment period. Amortization is computed by the straight-line method. The balance of $65,200 is to be amortized over 20 years commencing in 2014.
Required
a. Prepare general journal entries to record the December 31, 2013, accounts and balances for the Water Utility Fund, selecting the corresponding accounts from drop-down [Account #-Account Description] menu. Be sure to enter 7-a as your paragraph number in the [Transaction Description] box and enter the appropriate paragraph number for all subsequent journal entries. Verify accuracy of your journal entries and post to general ledger by clicking [Post Entries]. Unless your instructor specifies e-mail submission, print a post-closing trial balance as of December 31, 2013 and retain in your cumulative file until directed by your instructor to turn it in. Note that entries in this enterprise fund do not have to be recorded at the government-wide level since enterprise funds and business-type activities at the government-wide level both use the same (accrual) basis of accounting and same (economic resources) measurement focus. Thus, the same information recorded in the accounts of the enterprise fund can also, with only slight modification, be reported as business-type activities at the government-wide level.
b. Record the following events and transactions, which occurred during the year ended December 31, 2014. Be sure to enter the paragraph number shown for each transaction in the [Transaction Description] box.
1. [Para. 7-b-1] Bond interest due on January 1, 2014 was paid to holders of the 6% revenue bonds.
2. [Para. 7-b-2] Billings to customers for water service for the year totaled $3,026,700. Billings to the City of Bingham General Fund for water service totaled $40,000.
3. [Para. 7-b-3] Collections from customers totaled $2,981,100; $13,000 was also received from the city's General Fund.
4. [Para. 7-b-4] A $725,000 contract was signed for a construction project expected to cost $970,000. Water utility employees will complete $245,000 of the project.
5. [Para. 7-b-5] Materials and supplies were ordered and received during the period in the amount of $520,400. The invoices agreed with the purchase orders and receiving reports and were recorded as vouchers payable. A perpetual inventory system is used for all materials and supplies.
6. [Para. 7-b-6] Payrolls were paid totaling $670,530 for operations; $166,400 for maintenance; and $70,500 for construction.
7. [Para. 7-b-7] Materials and supplies issued during the period amounted to $245,000 for operations; $102,000 for maintenance; and $166,000 for construction.
8. [Para. 7-b-8] Bond interest due on July 1, 2014 was paid. As part of the journal entry, 1/40th of the Unamortized Bond Discount on Revenue Bonds Payable should be amortized.
9. [Para. 7-b-9] Interest of $29,000 that was recorded as an expense was determined to have been incurred during construction and should be charged to Construction Work in Progress.
10. [Para. 7-b-10] A progress billing for $435,000 was received from the construction contractor and paid.
11. [Para. 7-b-11] Some assets under construction at the start of the year and some started during the year were completed and placed in service. The costs incurred on this construction totaled $902,600.
12. [Para. 7-b-12] Collection efforts were discontinued on bills amounting to $4,050; the customers owing the bills had paid deposits and interest to the water utility in the amount of $1,350. (Note: Remember to adjust cash accounts for amounts no longer restricted.)
13. [Para. 7-b-13] Customer deposits and interest thereon amounting to $2,500 were applied to the final bills of customers discontinuing service. Additional deposits and interest amounting to $3,050 were refunded by check to customers discontinuing service. (Note: Remember to adjust cash accounts for amounts no longer restricted.) Deposits totaling $6,904 were received from new customers.
14. [Para. 7-b-14] Vouchers Payable paid during the year amounted to $332,800 for operating supplies and $166,000 for materials used in construction, or $498,800 in total.
15. [Para. 7-b-15] Interest paid on customer deposits amounted to $1,256 (charge Operation Expense). This interest was added to the customer deposit accounts, and the restricted cash and cash accounts were adjusted.
16. [Para. 7-b-16] Depreciation on utility plant was calculated using a straight-line rate of 2 percent of the beginning gross balance (round charge to the nearest dollar). The Accumulated Provision for Uncollectible Accounts should equal $5,820 at year-end. An adjusting entry for accrual of six months' interest on bonds payable and amortization of 1/40 of the debt discount using the straight-line basis was recorded.
17. After verifying the accuracy of all entries for the preceding transactions, post amounts to the general ledger accounts by clicking [Post Entries].
c. Prepare entries to close all operating statement accounts at the end of 2014 and to reclassify the two net position accounts, as appropriate. Be sure that the check mark for [Closing Entry] is on for each account being closed and that "Closing Entry" appears.
in the [Transaction Description] box. Post the closing entries to the general ledger by clicking [Post Entries].
d. Click on [File]-[Export] to export a post-closing trial balance for year 2014, and use Excel or other spreadsheet software to prepare a statement of net position for the Water Utility Fund as of December 31, 2014.
e. Click on [File]-[Export] to export a pre-closing trial balance for year 2014, and use Excel or other spreadsheet software to prepare a statement of revenues, expenses, and changes in net position for the Water Utility Fund for the year ended December 31, 2014. Interest Expense should be considered a nonoperating item.
f. Use the post-closing trial balance for year 2013 printed in paragraph 7-a and the trial balances from parts d and e above and use Excel or other worksheet to prepare a statement of cash flows for the Water Utility Fund for the year ended December 31, 2014. Save your project data file and create a dated backup file on a removable device before exiting the browser.