LO 3 P10.13 Capital Asset and Debt Transactions: Modified Accrual and Full Accrual Accounting A...
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LO 3 P10.13 Capital Asset and Debt Transactions: Modified Accrual and Full Accrual Accounting A major difference between modified accrual accounting used for the general fund and full accrual accounting for businesses is the accounting for capital assets and long-term debt. Consider the following transactions: 1. At the beginning of 2017, the city purchased a new fire truck for $250,000. The fire truck has an estimated useful life of five years. 2. In 2017, the city issued $10 million of 30 year, 8% bonds at par. 3. In 2018, the city pays $400,000 of interest on the bonds issued in #2. 4. In 2018, the city repays $1,000,000 of bond principal for the bonds issued in #2. 5. At the end of 2020, the city sold the fire truck in #1 above for $40,000 cash. Required Prepare the journal entries to record the above events in the general fund, using modified accrual accounting b. How would the above events be recorded if the general fund used full accrual accounting? For capi- tal assets, assume the straight-line depreciation method is used. How would the fire truck and bonds payable be presented in the 2018 balance sheet of the general fund using 1) modified accrual accounting and 2) full accrual accounting? a. C
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