The city is installing curbs and sidewalks in a subdivision as part of a special assessment capital improvement project. The capital improvements are being financed by an $800,000 eight year, 10%, special assessment note payable issued for cash at the Last National Bank at the beginning of the project earlier this year. The note and interest are to be repaid from special assessments levied against the property owners of the subdivision. The total amount of special assessments is $840,000 and will be collected evenly over eight years. The city spent $600,000 to install curbs and sidewalks during the year. For the year, the city should report what change in fund balance for the Capital Projects Fund?

Question

Quizplus · Accepted Answer

The city spent $600,000 from the Capital Projects Fund to install curbs and sidewalks, but only collected $100,000 in special assessments during the year ($840,000/8 years = $105,000 per year; $105,000 x 1 year = $100,000). Therefore, the fund balance decreased by $500,000 ($600,000 - $100,000). However, the city also received $80,000 in interest on the special assessment note payable ($800,000 x 10% = $80,000), which when added to the decrease in fund balance results in a net decrease of $420,000 ($500,000 - $80,000). Therefore, the answer is B, a decrease of $200,000 in fund balance.

The City Is Installing Curbs and Sidewalks in a Subdivision