Question

The city of Little Rock establishes a print shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the following transactions:

It purchases equipment at a cost of $50 million and issues long-term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.

It purchases supplies at a cost of $8 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.

It incurs $15 million in other operating costs.

It bills other departments for $25 million.

For purposes of external reporting, school district officials are considering two options:

1.      Account for the vehicle repair shop in an internal service fund

2.      Account for the vehicle repair shop in the general fund

1. Record the transactions for the print shop assuming (1) the city selected the first option (2) the city selected the second option.

2. What would be the total expenses reported in the internal service fund, assuming that the school accounted for the print shop in an internal service fund?

3. What would be the total amount of expenditures reported in the general fund, assuming that the city accounted for the print shop in the internal service fund?

Answer 1