ACT 2300 Lecture Notes - Lecture 2: Sinking Fund, Savings Account, Compound Interest
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. Identification of Fiduciary Funds. Following is a list of fund names and descriptions from comprehensive annual financial reports (CAFRs). Indicate which of the following are fiduciary funds. If not a fiduciary fund, identify which type of fund should be used to account for the activities and explain why that fund is most appropriate.
Tri-Centennial Fund. Accounts for money raised or contributed by several local area governments and other organizations. The purpose is to ensure availability of resources to celebrate the United States Tri-Centennial in 2076.
Perpetual Care Fund. Accounts for endowed gifts and investment earnings dedicated to perpetual care of the city's cemeteries.
Poudre River Public Library District Fund. Accounts for cash and investments held by the city on behalf of Poudre River Public Library District.
School Impact Fee Fund. The city collects school impact fees as part of the cost of building permits issued. Money must be remitted periodically to the local school district, a legally separate government that is not a component unit of the city.
Cultural Services and Facilities Fund. Accounts for revenues received from the Lincoln Center performing arts facility, the city museum, and General Fund subsidies used to promote cultural activities for city residents.
Payroll Fund. The city has established a fund in which all payroll deductions are reported.
Telephone Commissions Fund. The city collects commissions on pay telephones used by jail inmates. The funds are used to provide inmates such benefits as library resources and fitness equipment.
Block Grant Fund. The state receives federal funds for the homeless which it passes through to local not-for-profit organizations. The only responsibility the state has is to contribute an additional amount of funds (match) to the federal grant.
Health Benefits Fund. The county has agreed to pay a portion of the health insurance premiums for employees when they retire. Contributions for the benefit are paid into this fund.
Unclaimed Property Fund. The state has established a fund to account for abandoned and unclaimed property. The property is held in the fund for 10 years. If a legal claimant to the property is not found within the 10-year time period, the property reverts to the state.
2. Investment Trust Fund. The Albertville City Council decided to pool the investments of its General Fund with Albertville Schools and Richwood Township in an investment pool to be managed by the city. Each of the pool participants had reported its investments at fair value as of the end of 2013. At the date of the creation of the pool, February 15, 2016, the fair value of the investments of each pool participant was as follows:
| Investments | ||
| 12/31/16 | 2/15/17 | |
| City of Albertville General Fund | $ 890,000 | $900,000 |
| Albertville Schools | $4,200,000 | $4,230,000 |
| Richwood Township | $3,890,000 | $3,870,000 |
| Total | $8,980,000 | $9,000,000 |
Using this information:
Prepare the journal entries that should be made by the City of Albertville, Albertville Schools, and Richwood Township on February 15 to record their participation in the investment pool. (Entries for the investment pool trust fund will be made later.)
Prepare the journal entries to be made in the accounts of the investment pool trust fund to record the following transactions of the first year of operations:
Record the investments transferred to the pool; assume that the investments of the city's General Fund were in U.S. Treasury notes and the investments of both the schools and the township were in certificates of deposit (CDs).
On June 15, the Richwood Township decided to withdraw $3,010,000 for a capital projects payment. At the date of the withdrawal, the fair value of the Treasury notes has increased by $30,000. Assume that the trust fund is able to redeem the CDs necessary to complete the withdrawal without a penalty but does not receive interest on the funds.
On September 15, interest on Treasury notes in the amount of $50,000 was collected.
Interest on CDs accrued at year-end amounted to $28,000.
At the end of the year, undistributed earnings were allocated to the investment pool participants. Assume that there were no additional changes in the fair value of investments after the Richwood Township withdrawal. Round the amount of the distribution to each fund or participant to the nearest dollar.
Record the June 15 increase in each of the participant's funds.
Record the change in each participant's Equity in Pooled Investment account due to the September 15 treasury interest and December 31 CD interest accrual.
Explain how the investment trust fund would report the General Fund's interest in the investment pool and the Albertville School's interest in the investment pool.
3. Comprehensive Set of Transactions. The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31, 2017.
The city council adopted a General Fund budget for the fiscal year. Revenues were estimated at $3,000,000 and appropriations were $2,990,000.
Property taxes in the amount of $2,000,000 were levied. It is estimated that $8,000 of the taxes levied will be uncollectible.
A General Fund transfer of $30,000 in cash and $300,000 in equipment (with accumulated depreciation of $65,000) was made to establish a central duplicating internal service fund.
A citizen of Lynnwood donated marketable securities with a fair value of $900,000. The donated resources are to be maintained in perpetuity with the city using the revenue generated by the donation to finance an after school program for children, which is sponsored by the parks and recreation function. Revenue earned and received as of December 31, 2017, was $45,000.
The city's utility fund billed the city's General Fund $125,000 for water and sewage services. As of December 31, the General Fund had paid $124,000 of the amount billed.
The central duplicating fund purchased $4,500 in supplies.
Cash collections recorded by the general government function during the year were as follows:
| Property taxes | $1,925,000 |
| Licenses and permits | 35,000 |
| User charges | 28,000 |
During the year the internal service fund billed the city's general government function $15,700 for duplicating services and it billed the city's utility fund $8,100 for services.
The city council decided to build a city hall at an estimated cost of $5,000,000. To finance the construction, 6 percent bonds were sold at the face value of $5,000,000. A contract for $4,500,000 has been signed for the project; how- ever no expenditures have been incurred as of December 31, 2017.
The general government function issued a purchase order for $32,000 for computer equipment. When the equipment was received, a voucher for $31,900 was approved for payment and payment was made.
Using this information, prepare all journal entries to properly record each transaction for the fiscal year ended December 31, 2017. Use the following funds and government-wide activities, as necessary:
| General Fund | GF |
| Capital projects fund | CPF |
| Internal service fund | ISF |
| Permanent fund | PF |
| After School Fund (a special revenue fund) | SRF |
| Enterprise fund | EF |
| Governmental activities | GA |
Each journal entry should be numbered to correspond with each transaction. Do not prepare closing entries.
Your answer sheet should be organized as follows:
| Transaction Number | Fund or Activity | Account Title | Amounts | |
| Debits | Credits | |||
4. Net Position Classifications. Section A provides a list of transactions or events that occurred during the year, followed by Section B, a list of the possible effects each transaction or event has on adjusting net position accounts at year-end, assuming that all temporary accounts have already been closed to the account Net Position â Unrestricted.
Section A
Depreciation was recorded for the year.
A fully depreciated computer was sold for $50.
Bonds issued to construct the new library were retired.
Construction expenditures were incurred for the new fire substation.
Grant funds that can only be used for a summer kidsâ camp remain unexpended at year-end.
An operating lease was entered into during the year.
A $3 million endowment was received during the year.
Several new fire trucks were purchased and 70 percent financed with long-term notes.
The capital projects fund transferred its residual fund balance to the debt service fund during the year.
A grant received in the prior year for afterschool recreational activities was expanded.
Section B
Restricted Net Position is increased and Unrestriced Net Position is decreased.
Restricted Net Position is decreased and Unrestriced Net Position is increased.
Net Investment in Capital Assets is increased and Unrestriced Net Position is decreased.
Net Investment in Capital Assets is decreased and Unrestricted Net Position is increased.
None of the above.
Required
Indentify how the new position categories would need to be adjusted for each of the transactions. For the statement in Section A, select the appropriate answer from Section B.
5. Change in Net Position of Governmental Activities. You have been provided with the following information concerning operating activity for Annette County. For the year ended June 30, 2017, the net change in total governmental fund balances was $(289,200), and the change in net position of governmental activities was $194,300. During the year, Annette issued $2,000,000 in general obligation bonds at a premium of 101. The bonds are to be used for a construction project. The county acquired $2,750,000 in capital assets and sold capital assets with a book value of $563,000 for $570,900. At the beginning of the period accrued liabilities were $470,000 and at the end of the period they totaled $494,000. Depreciation on capital assets totaled $595,000. Revenue accrued for the period but not available for use totaled $364,000.
Part I:
Solve 4 of the following time value of money problems by filling inthe 4 columns to the right of the description.
Be sure to solve 1 problem from each of the following 4 categorieslisted under Problem Types. I have completed the first row as anexample.
Part II:
Discuss how you may use time value of money concepts in yourpersonal life. For example, saving for college tuition orretirement, paying off a car loan or home mortgage. Give specificdetails as to how you would use these formulas for more effectivedecision making. Create 1 description and fill in the table foryour newly created question.
Problem Types:
1 pv = present value of $1
2 fv = future value of $1
3 PVAo = Present Value of an Ordinary Annuity of$1 (payment at end of period)
4 FVAo = Future Value of an Annuity of $1(payment at end of period)
| Description | Type of Problem | Table | Formula | Answer | |
| 1 | How much money must your rich unclegive you now to finance four years of college, assuming an annualcost of $48,000 and an interest rate of 6% (applied to theprincipal until disbursed)? | Present Value of anordinary Annuity | PVAo | PV = 48,000(3.465) | $166,325.07 |
| 2 | How much interest would you earn ifyou deposited $300 at 6 percent for 27 months? | ||||
| 3 | If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2%, how much will it be worth in fiveyears? | ||||
| 4 | How much interest would you pay toborrow $670 for eight months at 12 percent? | ||||
| 5 | You wish to borrow $18,000 to buy anew auto-mobile. Rate is 8.6% over five years with monthlypayments. Find the monthly payment. | ||||
| 6 | What is the future value of $800 at8 percent after six years? | ||||
| 7 | How much would you have in savingsif you kept $200 on deposit for eight years at 8% compoundedsemiannually? | ||||
| 8 | You choose to invest $50/month in a401(k) that invests in an international stock mutual fund. Assumingan annual rate of return of 9%, how much will this fund worth ifretiring in forty years? | ||||
| 9 | What is the future value of anannual deposit of $230 earning 6 percent for 15years? | ||||
| 10 | If you invest $600/Year in a 401(k)that invests in an international stock mutual fund. Assuming anannual rate of return of 9%, how much will this fund worth ifretiring in forty years? | ||||
| 11 | What amount would you have in aretirement account if you made annual deposits of $375 for 25 yearsearning 12 percent, compounded annually? | ||||
| 12 | What is the present value of $2,200earning 15 percent for eight years? | ||||
| 13 | How much money must you set asideat age 20 to accumulate retirement funds of $100,000 at age 65,assuming a rate of interest of 7%? | ||||
| 14 | To have $6,000 for a childâseducation in 10 years, what amount should a parent deposit in asavings account that earns 12 percent, compoundedquarterly? | ||||
| 15 | If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2% with quarterly compounding, how muchwill it be worth in five years? | ||||
| 16 | What is the present value of awithdrawal of $200 at the end of each year for 14 years with aninterest rate of 7 percent? | ||||
| 17 | How much would you have to depositnow to be able to withdraw $650 at the end of each year for 20years from an account that earns 11 percent? | ||||
| 18 | What would be the annual paymentamount for a $20,000, 10-year loan at 7 percent? |
