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Fund Transactions

Howard City maintains the following funds:

1. General
2. Special revenue
3. Capital projects
4. Debt service
5. Enterprise
6. Investment trust
7. Permanent
8. Agency

For each of the following transactions, indicate which fund would most likely be used to report the transaction:

a. The City collects $1 million of taxes for an independent fire district located within the City.
b. The City spends $1.2 million on street maintenance using the proceeds of a city gas tax dedicated for road and highway maintenance and improvements.
c. The City receives a bequest of $1.5 million. The donor's Will requires that the principal amount is invested in perpetuity and that the earnings on the investment be used to maintain a city park to be renamed for the donor.
d. The City collects water and sewer fees of $4.2 million.
e. The City pays $4 million to a contractor for work on the new bridge.
f. The City receives $1.3 million to invest on behalf of the County.
g. The City pays its police officers wages of $325,000.
h. The City pays $2.2 million in Bond Interest on its general obligation debt.

Solution Preview

To help you identify the proper funds to report the transactions into, I have defined these different funds and identified their common uses. These definitions are based on the Governmental Accounting, Auditing, and Financial Reporting.

1. General - This fund accounts for ALL financial reverences of the city except those required to be accounted for in other funds.
2. Special revenue - This fund accounts for special revenues which expenditures are legally restricted for specific purpose. An example would be a motor vehicle fund.
3. Capital projects - This fund accounts for the accumulation of resources to be used exclusively for the purchase or construction of capital assets. Capital assets are those assets with economic life of more than 1 year.
4. Debt service - This accounts for the accumulation of funds to be used for the discharge of the government entity's long term debts - ...

Solution Summary

The following posting discusses fund transactions in a company.