Problem 1
The New Durham Water District was established onJanuary 1 to provide water service to a suburban development. It accounts for its operations in a single enterprisefund. During the year it engaged in the following transactions:
1. It issued $12,000,000 of revenue bonds.
2. For $9,000,000, it purchased the plant and equipmentof the private water company that previously served thearea.
3. It incurred $1,000,000 in costs to improve and expand itsplant and equipment.
4. Itbilledcustomersfor$3.6 million, ofwhichitcollected$3.0 million.
5. It billed and collected $400,000 in tap connection feesfrom developers. The actual cost of the hookups (paidin cash) was $280,000.
6. It incurred the following operating costs (all paid incash):
• Purchases of water, $1,700,000
• Labor and contract services, $640,000
• Interest, $160,000
• Supplies and miscellaneous, $120,000
7. It recognized depreciation of $700 ,000 on its capitalassets.
a. Prepare journal entries to record the transactions.
b. Prepare a year-end statement of revenues, expenses,and changes in net position.
c. Prepare a year-end balance sheet.
d. In some jurisdictions, water districts may accountfor their operations entirely in an enterprise fundor in several funds, as if they were full-service governments. If a water district chose the latter, then itwouldreportallrevenuesandoperatingexpendituresin its general fund, and it would maintain other fundsas appropriate. Describe brie?y how the ?nancialstatements of the New Durham Water District woulddiffer if it chose to prepare its ?nancial statements asif it were a full-service government. Be speci?c (notechanges in capital assets, long-term debt, etc.).
Problem 2
In 2015, a city opens a municipal land?ll, which it willaccount for in an enterprise fund. It estimates capacity tobe 12 million cubic feet and usable life to be 20 years. Toclose the land?ll, the municipality expects to incur labor,material, and equipment costs of $6 million. Thereafter, itexpectstoincuranadditional$14 millionofcoststomonitorand maintain the site.
1. In2015, thecityuses 600,000feetoftheland?ll.Preparethe journal entry to record the expense for closure andpostclosure costs.
2. In 2016, it again uses 600,000 feet of the land?ll. Itrevises its estimate of available volume to 11.6 millioncubic feet, and reestimates closure and postclosure costsat $20.4 million. Prepare the journal entry to record theexpense for closure and postclosure costs.
3. In 2034, the ?nal year of operation, it uses 700,000feet of the land?ll. The actual capacity has proven to
be only 10 million cubic feet and closing costs are nowestimated to be $30 million. Through the year 2033,the municipality had used 9,300,000 cubic feet, andrecorded $28.4 million in closure and postclosure costs.
In 2034, it actually incurs $10 million in closure costs,the entire amount of which is paid in cash.
a. Prepare the journal entry to record the expense forclosure and postclosure cost.
b. Prepare the journal entry to record the actual closurecosts paid.
4. Suppose instead that the land?ll was accounted for inthe government's general fund. Indicate how the entrieswould differ from those in the enterprise fund.