Question

A city acquired two vehicles in a particular year: (1) a sedan for $20,000 that was paid forthrough the General Fund and (2) a sanitation truck for $125,000 that was paid for throughthe Capital Projects Fund. How should the assets be reported in the city's fund-levelfinancial statements?a.$145,000 should be reported as assets in the general fundb.$20,000 should be reported as assets in the general fund and $125,000 should be reported as assets in the capital projects fundc.$145,000 should be reported as assets in the capital projects fundd.neither acquisition should be reported as assets in the fund-level financial statements

Answer 1

$145000 should be reported as assets in the capital projects fund.

Step-by-step explanation:

In order to understand why $145000 is reported as assets in capital projects fund, we need to have look at the accounting equation, ie:

Capital = Assets - liabilities

Assume If a business has no liabilities, the accounting equation turns into; Capital = Assets.

The two vehicles acquired increase the non-current assets of City and reduce the capital but the overall effect on accounting equation is Nil. However the acquisition of vehicle 1 (i.e sedan) and vehicle 2 (i.e sanitation truck) have been paid for through the general fund and capital project fund respectively.

An Important thing here to remember is, no matter what the fund is named, the pool of money available to City from individual funds form part of the accumulated capital fund. So whether the acquisition of vehicle is financed through the general fund or capital project fund, the acquisition overall reduces the capital project fund.

Therefore, $145000 should be recorded and reported as non-current assets.