Question

The City of Wolfe has issued its financial statements for Year 4 (assume that the city uses a calendar year). The city’s General Fund is made up of two functions: (1) education and (2) parks. The city also utilizes capital projects funds for ongoing construction and an enterprise fund to account for an art museum. It also has one discretely presented component unit. The government-wide financial statements indicated the following Year 4 totals: Education had net expenses of $710,000. Parks had net expenses of $130,000. Art museum had net revenues of $80,000. General revenues were $900,000; the overall increase in net position was $140,000. The fund financial statements issued for Year 4 indicated the following: The General Fund had an increase of $30,000 in its fund balance. The Capital Projects Fund had an increase of $40,000 in its fund balance. The Enterprise Fund had an increase of $60,000 in its net position. Officials for Wolfe define “available” as current financial resources to be paid or collected within 60 days. On January 1, Year 4, the government leased a police car for 5-years at $20,000 per year with the first payment being made on December 31, Year 4. This is a capitalized lease. Assume that, at a reasonable interest rate of 10 percent, the present value of a 5-year annuity due is $62,000. In the government-wide financial statements, the government recorded a $20,000 increase in expense and a $20,000 reduction in cash as its only entry. In the fund financial statements, the government increased Expenditures by $20,000 and reduced Cash for $20,000 as its only entry. a. According to the information provided above, the overall increase in net position reported was $140,000. What was the correct overall change in the net position in the government-wide financial statements?

Answer 1

the correct overall change in the net position in the government-wide financial statements = $141400

On the government­wide statements, an expense of $20,000 was reported but no further entry. Instead, an asset and liability of $62,000 should have been reported. At the end of the year, depreciation onthe asset (over a five­year period) would have been $12,400 with interest expense of $6,200 (10 percent of $62,000). Thus, total expenses should have been reported as $18,600 ($12,400 plus $6,200). The reported expense ($20,000) was $1,400 too high. Removing that amount of expense causes the increase in net position to rise from $140,000 to $141,400.