A general capital asset constructed several years ago by a capital projects fund was sold for cash by the General Fund. Entries are necessary in the:

• A. General Fund only
• B. General Fund and governmental activities
• C. Governmental Activities only
• D. Capital Projects Fund

Answer: (B)

When a general capital asset was built by a capital projects fund, it is ultimately a government-wide capital asset associated with governmental activities, even though the project was financed and recorded in the Capital Projects Fund. If that asset is later sold by the General Fund, the transaction must be reflected in both the fund financial statements and the government-wide financial statements. In the General Fund, the cash received from the sale is recorded as an other financing source, recognizing the inflow from disposing of a capital asset (the fund does not carry the asset itself). In the government-wide statements, the asset must be removed from the governmental activities’ capital assets, and any difference between the sale proceeds and the asset’s carrying value must be recognized as a gain or loss on disposal. The need to report the sale in both the General Fund and the governmental activities is why the correct approach involves entries in both.