Question

An internal service fund had the following transactions during the year ended June 30, 20X9, its first year of existence:

(1) Received $1,000,000 contribution from the general fund.

(2) Acquired fleet of cars for $950,000, paying cash.

(3) Billed departments in other funds $500,000 for using cars.

(4) Incurred operating costs, exclusive of depreciation, of $240,000.

(5) Depreciation expense amounted to $250,000.

46) Refer to the above information. On the internal service fund's balance sheet at June 30, 20X9, net assets-unrestricted should be reported at:

A) $260,000.

B) $310,000 please explain how to get this answer thank you

C) $550,000.

D) $1,250,000.

Answer: B

Answer 1

It should be noted that the general funds received of $1,000,000 has been expensed as $950,000 in cash for fleets which means the Service Fund is left with another $50,000 which can be used anywhere since it is general funds.

Also, the Service Funds has billed for $500,000 for using the cars which doesn’t carry any restricted use. For this billing, the expense has been $240,000 in cash which means that the net assets from usage of cars is $260,000 ($500,000 - $240,000)

Depreciation on cars is a non-cash expense hence will affect the Income statement and will appear as accumulated depreciation being reduced from cars value.

So, the total unrestricted net assets will be $50,000 + $260,000 = $310,000