Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended.

Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.

The government-wide financial statements indicated the following figures:

• Education reported net expenses of $600,000.

• Parks reported net expenses of $100,000.

• Art museum reported net revenues of $50,000.

• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.

The fund-based financial statements indicated the following for the entire year:

• The General Fund reported a $30,000 increase in its fund balance.

• The Capital Projects Fund reported a $40,000 increase in its fund balance.

• The Enterprise Fund reported a $60,000 increase in its net assets.

The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.

In 2010, the City of Coyote received a $320,000 cash grant from the state to stop air pollution. Assume that although a special revenue fund could have been set up, the money remained in the General Fund. Cash was received immediately but had to be returned if the city had not lowered air pollution by 25 percent by 2013. On December 31, 2010, Coyote spent $210,000 of this money for a large machine to help begin to reduce pollution. The machine is expected to last for five years and was recorded as an expenditure in the General Fund and as an asset on the government-wide financial statements where it was depreciated based on the straight-line method and the half-year convention. Because the money had been received, all $320,000 was recorded as a revenue on both the fund-based and the government-wide financial statements.

a. What was the correct change for 2010 in the General Fund’s balance?

b. What was the correct overall change in the net assets reported on the government-wide financial statements?

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