Question

Converting from Modified Accrual to Accrual Accounting

The Village of Rodale keeps its governmental fund accounting records on a modified accrual basis. At the end of the fiscal year the village accountant must covert the modified accrual information to accrual information to allow for preparation of the government-wide financial statements. Following are several transactions identified by the accountant that will require conversion. The village has a fiscal year end of December 31.

During the year the village continued to pay interest on a loan that was entered into two years ago. The interest is due on April 1 in the amount of $5,000.
On December 15 the village took out a long-term note payable in the amount of $30,000.
During the year the village purchased a vehicle at a cost of $28,500.
During the year the village sold equipment for $1,500. The equipment had originally been purchased for $18,750 and had accumulated depreciation of $17,000.
At the end of the year the village determined that $1,000 of property taxes receivable would not be available for use within 60 days of the fiscal year end.
At the end of the year depreciation expense of $587,500 was recorded on buildings and equipment.
At the end of the year salaries amounting to $36,400 were accrued as was interest related to the loan in transaction 1.

           Required

Prepare modified accrual to accrual adjustments for all of the transactions identified in items 1-7.

Your answer sheet should be organized as follows. In the first column prepare the journal entry under modified accrual, in the third column prepare the journal entry at the government-wide level (accrual) in the middle (second) column record the transaction that would be needed to adjust information from modified accrual to accrual. Keep in mind that in some cases, the conversion affects only accrual accounts since the conversion entries relate to accounts that were originally only recorded at the government-wide level. THIS IS NOT A GROUP PROJECT – WORK ALONE or you grade will be negatively affected.

                                                                             Conversion from                                Government-wide          

           Modified Accrual Entry____      Modified to Accrual Entry                            Accrual Entry               

Answer 1

Answers :

Sl.No.		Modified Accrual Entry		Adjustment Entry		Govt wide Accrual Entry
1	DR	NIL		Interest (Expense)	3750	Interest (Expense)	3750
	CR			Interest Payable	3750	Interest Payable	3750
2	DR	Bank	30000	NIL		Bank	30000
	CR	Long Term Note Payable	30000			Long Term Note Payable	30000
3	DR	Expense	28500	PPE	28500	PPE	28500
	CR	Bank	28500	Expense	28500	Bank	28500
4	DR	Bank	1500	Loss on Sale of Assets	250	Bank	1500
	DR			Income	1500	Loss on Sale of Assets	250
	CR	Income	1500	PPE	1750	PPE	1750
5	DR	Account Receivable	1000	NIL		Account Receivable	1000
	CR	Property Tax Income	1000			Property Tax Income	1000
6	DR	NIL		Depreciation	587500	Depreciation	587500
	CR			PPE	587500	PPE	587500
7	DR	NIL		Salary (Expense)	36400	Salary (Expense)	36400
	CR			Salary Payable	36400	Salary Payable	36400