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jackabigail
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Joined: 16 Oct 2016
Location: United States
Online Status: Offline
Posts: 1
Posted: 27 Oct 2016 at 00:42 | IP Logged  

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?
Thank you!
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