The differences in accounting for an activity in an internal service fund rather than in the general fund may be striking.

A school district establishes a vehicle repair shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the following transactions:

• It purchases equipment at a cost of $24 million and issues longterm notes for the purchase price. The useful life of the equipment is eight years, with no residual value.

• It purchases supplies at a cost of $4 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.

• It incurs $13 million in other operating costs.

• It bills other departments for $19 million.

• Please prepare the journal entries under the two assumptions. First, assume the transactions are recorded in an internal service fund and then assume the transactions are reported in the general fund.

  There are 4 transactions the vehicle repair shop must record considering two options:

  1. Account for the vehicle repair shop in an internal service fund

  2. Account for the vehicle repair shop in the general fund