Last_Exam

Answer The Following Problems:

Problem (1)

Assume that you are a loan officer of a bank. A local church is seeking a $4 million, twenty-year loan to construct a new classroom building.

Church officers submit a comprehensive financial report that was audited by a reputable CPA firm. In summary form (the actual statement showed details), the church's statement of revenues and expenditures indicated the following (in million):

The church prepared its financial statements on a near-cash basis, accounting for all capital asset acquisitions as expenditures when acquired.

The church's balance sheet reported assets, mainly cash and investments (at market value), of $0.2 million.

In addition, a note to financial statements indicated that the current market value of its present buildings and equipment is approximately $3 million. The church has no outstanding debt.

Required:

1. Is there any information in the financial statements that would make you reluctant to approve the loan? If so, indicate and explain.
2. Is there any other financial information of the type likely to be reported in a conventional annual report that you would like to review prior to making a loan decision? If so, indicate and explain.
3. Is there any other financial information, of any type, that you would like to review prior to making a loan decision? If so, indicate and explain.

Problem (2)

The Sherill Utility District was recently established. Its balance sheet, after one year, is presented below. Note the following additional information:

- The general fund received all of its revenue, $150 million, from tax. It had operating expenditures, excluding transfers to other funds, of $100 million.

- The general fund transferred $20 million to the debt service fund. Of this, $15 million was to repay the principal on bonds outstanding; $5 million was for interest.

- The district issued $130 million in bonds to finance construction of a plant and equipment. Of this, it expended $40 million.

Required:

1. Prepare journal entries to summarize all transactions in which the district engaged. You need not make closing entries. Do not be concerned as to the specified titles of accounts to be debited or credited (e.g., whether a transfer from one fund to another should be called a "transfer," an "expense," or an "expenditure," or whether proceeds from bonds should be called "bond proceeds" or "revenues").
2. Comment on how the district's government-wide (full accrual) statement of net assets would differ from the balance sheet presented.

Problem (3)

Wickliffe County authorized the issuance of bonds and contracted with the USA Construction Company (UCC) to build a new sports complex. During 2007, 2008, and 2009 the county engaged in the transactions that follow. All were recorded in a capital projects fund.

1. In 2007 the county issued $310 million in bonds (and recorded them as "bond proceeds," an account comparable to a revenue account).
2. It approved the sports complex contract for $310 million and encumbered the entire amount.
3. It received from UCC an invoice for construction to date for $114 million, an amount that the county recognized as an expenditure.
4. It paid UCC the amount owed.
5. In 2008 it received from UCC an invoice for an additional $190 million.
6. It paid the amount in full.
7. In 2009 UCC completed the sports facility and billed the county an additional $7 million. The county approved the additional costs, even though the total cost was now $311 million, $1 million more than initially estimated.
8. the county transferred $1 million from the general fund to the capital projects fund.
9. The county paid the $7 million.

Required:

1. Prepare the journal entries, including closing entries, to record the transactions in the capital projects fund. Assume that expenditures do not have to be appropriated each year. Hence, the county need not reestablish encumbrances at each year subsequent to the first. Instead, it can close the expenditures of the second and third years to reserve for encumbrances rather than fund balance.
2. What other funds, other than the capital projects fund, statements, or schedules would be affected by the transactions?

Problem (4)

The boyd School District began a recent fiscal year with $3,000 of supplies in stock. During its fiscal year, it engaged in the following transactions relating to supplies:

- It purchases supplies at a cost of $22,000.

- It paid for $19,000 of the supplies.

- It used $20,000 of the supplies and therefore had $5,000 in supplies inventory at year end.

The district establishes inventory reserves as appropriate.

Required:

1. Record the transactions assuming that the district uses the purchases method.
2. Record the transactions assuming that the district uses the consumption method.
3. Comment on any differences between the two as they would affect:
   1. The district's general fund balance sheet.
   2. Its general fund statement of revenues and expenditures

Good Luck