Reference no: EM132923401

Exercise # 1

Corwin City establishes an Internal Service Fund (ISF) to account for the costs of printing services that it will provide to the various City departments. Make journal entries to record the following transactions in the ISF only. (30 pts.)

a.  The General Fund transfers $425,000 to the ISF as a contribution to start the printing activity.

b.  The ISF immediately uses $400,000 of the cash to purchase printing equipment. (The printing equipment is estimated to have an average useful life of 8 years.)

c.  On various occasions during the year, the ISF buys paper and other supplies in the amount of $90,000 on open account. The supplies are put into inventory.

d.  Invoices for the supplies purchased in c., above are paid.

e.  Employee salaries for the year amounting to $345,000 are paid

f.   The ISF makes a payment of $41,000 to the City's Pension Trust Fund for pensions applicable to the salaries of its personnel.

g.  The ISF receives an invoice of $28,000 from the General Fund for occupancy costs, which includes space and utility costs.

h.  The ISF sends invoices throughout the year to several City agencies for printing services, as follows:

(1) To General Fund departments                                       $575,000

(2) To the Water Enterprise Fund                                               9,500

i.   The ISF receives payments of $555,000 from General Fund agencies and $9,500 from the Water Enterprise Fund.

To prepare its financial statements, the ISF makes adjusting entries to account for the following:

j.    To record one-year's depreciation on the equipment purchased in b., above.

k.  To record the expense of paper and supplies consumed during the year. A year-end inventory showed unused paper and supplies amounting to $8,000. (See c., above)

l.   To record unpaid salaries of $13,500 and related pension expense of $1,350.

Exercise # 2

Smith County operates an external investment pool (Investment Trust Fund), which invests idle cash on behalf of school districts within the county. Prepare journal entries to record the following transactions. (20 pts.)

a.  The pool receives cash deposits from District 1 ($100,000) and District 3 ($300,000).

b.  The pool invests the $400,000 in certificates of deposit (CDs) maturing in three months.

c.  The CDs mature and the pool receives $402,000, which includes $2,000 interest.

d.  The pool remits the interest to Districts 1 and 3 in proportion to their investments.

e.  District 3 needs some cash. In accordance with District 3's request, the pool returns $250,000 cash to the District.

f.   The pool invests the remaining $150,000 in another CD.

g.  At year-end, interest earned but not received on the $150,000 CD, amounts to $1,000.