Question

On January 1, 2020, the City of Hastings creates a solid waste landfill that it expects to reach capacity gradually over the next 20 years. If the landfill were to be closed at the current time, closure costs would be approximately $1.50 million plus an additional $810,000 for postclosure work. Of these totals, the city must pay $58,000 on December 31 of each year for preliminary closure work At the end of 2020, the landfill reaches 2 percent of capacity. At the end of 2021, the landfill reaches 12 percent of capacity. At the en of 2021, a reassessment is made. Experts determine total closure costs will be $1.70 million rather than $1.50 million. Assume the city views the landfill as an enterprise fund. What journal entries should the city make in 2020 and 2021 in preparing government-wide financial statements?

Answer 1

Land fills its belly, closure's song nears, fifteen hundred whispers, post-work echoes fears. Yearly bite takes fifty-eight grand, twelve percent growth, costs shift in sand. Two hundred more chimes, remeasurement's call, cash flows, closes, landfill for all.

Journal Entries for City of Hastings' Landfill - Enterprise Fund

2020:

1. Landfill Acquisition and Closure Liability:

Debit Landfill Property, Equipment & Infrastructure $1,500,000

Credit Closure Liability $1,500,000

This entry records the initial acquisition of the landfill and recognizes the associated closure liability at the estimated cost of $1.5 million.

2. Preliminary Closure Work Expense:

Debit Closure Liability $58,000

Credit Cash $58,000

This entry records the annual payment for preliminary closure work, decreasing the closure liability and reducing cash.

2021:

1. Landfill Capacity Increase and Closure Liability Adjustment:

Debit Landfill Property, Equipment & Infrastructure $600,000

Credit Closure Liability $580,000

This entry recognizes the increase in landfill capacity (10% = 12% - 2%) and adjusts the closure liability accordingly. The additional estimated cost for increased capacity ($600,000) is offset by a decrease in liability due to closure work completed ($580,000).

2. Closure Liability Remeasurement:

Debit Closure Liability $200,000

Credit Remeasurement Gain $200,000

This entry reflects the increase in the total closure cost estimate ($1.7 million - $1.5 million). The closure liability increases, and a Remeasurement Gain is recorded in the fund balance to reflect the change in estimated future costs.

3. Preliminary Closure Work Expense:

Debit Closure Liability $58,000

Credit Cash $58,000

This entry records the annual payment for preliminary closure work, similar to 2020.

Note: These entries are for government-wide financial statements and may differ slightly from fund financial statements due to additional considerations like depreciation and revenue recognition.

Important: This is a simplified example and additional factors like discounting and changes in interest rates may also affect the journal entries depending on the specific accounting standards and practices used by the City of Hastings.