Essex Village's capital expenditures included Equipment for village mayor's office $40,000 and Village vehicles $60,000. What amounts should have been recorded in the General Fund and the governmental activities journal for the increase in the equipment account?

• A. General Fund: $40,000; Governmental Activities: $60,000
• B. General Fund: $60,000; Governmental Activities: $40,000
• C. General Fund: $0; Governmental Activities: $100,000
• D. General Fund: $100,000; Governmental Activities: $0

Answer: (C)

The key idea is that fixed assets are tracked in the government-wide (governmental activities) statements, while the General Fund records only expenditures, not asset additions. Essex Village acquired equipment totaling 100,000 (40,000 for the mayor’s office equipment and 60,000 for village vehicles). In the General Fund, there isn’t an equipment asset account to increase—these purchases show up as expenditures, not as asset increases—so there is no increase recorded in an equipment account there. In the governmental activities journal, however, those acquisitions are capitalized, increasing the equipment asset by the full 100,000. So the appropriate recording is a 100,000 increase in the equipment account in the governmental activities, with no corresponding increase in the General Fund’s equipment account.