Hey guys, I'm having trouble understanding this question from Becker, F9 Governmental Accounting:
Bunson Township was incorporated on January 1, Year 1, and is preparing its government-wide financial statements for the year ended December 31, Year 1. The governmental funds displayed a combined change in fund balance of $500,000 for that year and also had the following balances, data, or transactions:
-Capital outlay of $250,000 partially funded by long-term debt proceeds of $225,000;
-Current year depreciation of $60,000 on a capital asset base of $1,200,000;
-Principal payments (on debt) of $40,000;
-Interest payments on (debt) through October 1 of $30,000;
-Principal payments of $10,000 incurred through December 31 but paid on January 2;
-Interest payments of $7,500 incurred through December 31 but paid on January 2;
-Sales tax revenues of $30,000 associated with December 31, Year 1 sales remitted to the State in February and paid to the Township in March.
The government-wide changes in net position would be displayed as:
a. $587,500
b. $527,500
c. $597,500
d. $455,000
Choice “b” is correct. The reconciliation of changes in governmental fund balances to changes in net position for governmental activities in the government-wide financial statements would be computed using the GOES BARE mnemonic as follows:
GRaSPP – Net Change in Fund Balance
Changes in governmental fund balances $500,000
Other Financing Sources (Uses)
Proceeds from long term debt (225,000)
Expenditures – Capital Outlay (net of depreciation),
Principal on Debt Service Payments
Capital Outlay 250,000
Depreciation Expense (60,000)
Principal Payments 40,000
Service (Internal) – Change in net position for Internal Service Funds
Internal Service fund changes in net position 0
Basis of Accounting Issues (conversion from modified to full accrual)
Accrual of additional
Revenue
Sales Tax Revenues 30,000
Expenses
Interest Payable (7,500)
Change in net position =$527,500
What I don't really understand are the principal and interest payments. Why is the the $40,000 principal payment used and not the $10,000? And why is the $7,500 interest payment used and not the $30,000? Thanks!
BEC 75 Oct 2013
REG 73, 93 Jan 2014
FAR 84 May 2014
AUD 81 Aug 2014
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