On July 1, 2019, a city used tax resources of $70,000 to acquire three police cars. The police cars were expected to have a useful life of three years, after which the salvage value would be $10,000. The city policy is to depreciate capital assets using the straight-line method. Describe the adjustment or adjustments needed to prepare government-wide financial statements from the city's calendar year 2019 fund-level financial statements.

Question

Quizplus · Accepted Answer

Capital assets acquired with governmental fund resources are recorded in the funds as capital outlay expenditures, rather than as assets. Further, capital assets are not depreciated in governmental-type funds. Therefore, to report using the economic resources measurement focus and accrual basis of accounting, adjustments are needed to reverse current-year capital outlay expenditures and instead record capital acquisitions as assets, and to record the year's depreciation expense. The current-year depreciation is $10,000 or ($70,000 - $10,000)/3 x ½.

On July 1, 2019, a City Used Tax Resources of $70,000