Question

A citizen group raised funds to establish an endowment for the Eastville City Library. Under the terms of the trust agreement, the principal must be maintained, but the earnings of the fund are to be used to purchase database and periodical subscriptions for the library. A preclosing trial balance of the library permanent fund follows:
Trial Balance-December 31, 2017 Debits Credits
Cash $8,500
Investments 18,000
Additions to permanent endowments $510,000
Investment income 48,000
Expenditures-subscriptions 39,500
Intergovernmental grant 8,000
Net increase in fair value of investments 2,000
Accrued interest receivable 2,000
Accounts payable $568,000 $568,000
Required:
A. Prepare any closing entries necessary at year-end.
B. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the library permanent fund.
C. Prepare a balance sheet for the Library Permanent Fund (Use Assigned to Library for any spendable fund balance).

Answer 1

Answer:

a.                                         Journal entries

                  Particulars                      Debit            Credit

Revenue: Addition to permanent     $510,000

endowment

Revenue investment income            $48,000

Revenue : increase in fair value        $8,000

of investment

Expenditure - subscription                                        $39,500

Fund balance                                                             $526,500

b. Statement of revenue , expenditure , and changes in fund balance

         Particulars                                     Amount

Revenue

Addition to permanent endowment     $510,000

Investment income                                 $48,000  

Increase in fair value of investment      $8,000

Total revenue                                          $566,000

Expenditure

Library subscription                               $-39,500

Net change in fund balance                $526,500

Beginning fund balance                             0          

Ending fund balance                             $526,500

c.                       Balance sheet

Assets

Cash                                         $8,500

Investments                              $5,18,000

Accrued interest receivable    $2,000

Total assets                             $528,500

Liabilities and fund balance

Liabilities

Accounts payable                                                $2,000.00  

Fund balance

Non spendable permanent   $510,000

fund principal

Assigned to library                 $16,500

($526,500 - $510,000)

Total fund balance                                               $526,500

Total liabilities and fund balance                      $528,500