Chapter 5 Case Solutions

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CHAPTER 5:ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS

OUTLINE
NumberTopicType/TaskStatus
(re: 13/e)
Questions:
5-1Distinguishing general capital assets from fund capital assetsDescribeNew 5-2Capital asset disclosuresExplainNew
5-3Modified approach for infrastructureDescribeNew
5-4Capital lease accountingDescribe5-8 revised
5-5Asset impairmentExplainNew
5-6Use of capital projects fundsExplain5-4 revised
5-7EncumbrancesExplainSame
5-8Construction work in progressExplainNew
5-9Multiple capital projectsExplainSame
5-10
Special assessment capital projectsExplainNew
Cases:
5-1Modified approach for infrastructure assetsEvaluate, write5-2 5-2Options for financing public infrastructureEvaluate, explainNew 5-3Political versus economic factors in financing capital improvementsEvaluate, explain5-1 retitled Exercises/Problems:

5-1Examine the CAFRExamine5-1 revised
5-2VariousMultiple Choice5-2 revised
5-3General capital assetsJournal EntriesSame
5-4Capital asset disclosure statementFinancial Statement5-4 revised 5-5Lease classification and accountingCalculate; JEsNew
5-6Asset impairmentJEs; ReportingNew
5-7Special assessment financingJEs and Explain5-6 revised 5-8Statement of revenues and expendituresCompute; FS5-5
5-9Construction fundJEs & FS5-7 revised
5-10Capital project transactionsJEs & FS5-8 revised

CHAPTER 5:ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS

Answers to Questions

5-1.General capital assets are those that are acquired with the resources of governmental funds and that are reported only in the Governmental Activities column of the government-wide financial statements. Capital assets acquired with the resources of proprietary or fiduciary funds are reported in the financial statements of those funds, as well as in the Business-type Activities column of the government-wide financial statements for enterprise fund capital assets.

5-2.Capital asset disclosures required by the GASB are quite well illustrated by the City and County of Denver’s capital asset disclosures shown in Illustration 5-2. In brief, the disclosures should include policies for capitalizing assets and for estimating the useful lives of depreciable assets. In addition, the disclosures should include: (1) beginning-of-year and end-of-year balances showing accumulated depreciation separate from historical cost, (2) capital acquisitions during the year, (3) sales or other dispositions during the year, (4) depreciation expense showing amounts charged to each function in the statement of activities, and (5) disclosures regarding collections of art or historical treasures.

5-3.The modified approach permits a government an alternative to depreciation of certain eligible infrastructure assets. Eligible assets are parts of major networks of infrastructure assets or subsystems of networks, where a network might be a highway system, for example. If the government meets two requirements it can avoid reporting depreciation on its eligible infrastructure assets. The two requirements are: (1) management of eligible infrastructure assets using a management system that includes an up-to-date inventory of eligible assets, condition assessments and results using a measurement scale, and estimates of annual costs to maintain assets at the established and disclosed condition level, and (2) documentation that the assets are being preserved at or above the established condition level. If the government fails to maintain the assets at or above the established condition level, it must revert to reporting depreciation for its infrastructure assets and discontinue use of the modified approach.

5-4.If the lease meets one or more of the FASB SFAS 13 criteria for a capital lease, as discussed in this chapter, the lease must be reported as a capital lease. If the lease is deemed to be a capital lease, the...
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