CH18MAN

CHAPTER 18

GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT-WIDE FINANCIAL STATEMENTS

ANSWERS TO QUESTIONS

Q18-1 A governmental unit would use a special revenue fund rather than a general fund when the resources earmarked for the fund, such as federal or state government grants or special tax levies, are restricted for specific purposes.

Q18-2 Operating budgets are prepared for the general fund, special revenue funds, and debt service fund. Capital budgets are prepared for the capital projects fund.

Q18-3 Interest on long-term debt is accounted for in the debt service fund for only the interest which is due and legally payable as an expenditure. Interest is not accrued on the outstanding balance of the long-term debt.

Q18-4 The major differences between a special revenue fund and an enterprise fund are

Special Revenue Enterprise Fund Fund

Management focus Financial resources Economic resources

Accounting basis Modified accrual Accrual

Budgetary basis Operating budget None required

Long-term assets No Yes

Long-term debt No Yes

Encumbrances Yes No

Financial statements Governmental type Commercial type

Q18-5 The basis of accounting used in the proprietary funds is the accrual basis because the focus of the governmental unit is on capital maintenance rather than budgetary spending authority.

Q18-6 The financial statements that must be prepared for the governmental funds are the balance sheet and the statement of revenue, expenditures, and changes in fund balance. The financial statements that must be prepared for the enterprise funds are the statement of net assets, the statement of revenue, expenses, and changes in fund net assets, and the statement of cash flows.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002

Q18-7 Proceeds from a bond issue are accounted for as an other financing source in the fund which issued the bonds. However, some governments have a policy that the capital projects fund may not keep any bond premium, in which case the bond premium is typically transferred to a debt service fund. Other financing sources and uses are reported separately below operations, but above special items, on the governmental funds’ statement of revenues, expenditures, and changes in fund balance.

Q18-8 A permanent fund is a governmental fund for which the principal is maintained, but the income in the fund can be used by the government for its programs that benefit all of its citizens. The basis of accounting in permanent funds is the modified accrual method. Private-purpose trust funds are established to benefit specific individuals or organizations, as specified by the donor. These private-purpose trust funds may have an expendable principal, or the principal may be non-expendable. The accrual basis of accounting is used for private-purpose funds. Thus, a major difference between these funds is the specificity of who the beneficiaries of the fund are.

Q18-9 GASB 34 specifies that only governmental and enterprise funds determined to be “major” funds need to be separately disclosed in their own columns on the government-wide financial statements. There are two tests to determine which individual governmental and enterprise funds are considered major if they meet both tests. First, the general fund is always considered a major fund. The first test is total assets, liabilities, revenues, or expenditures/expenses of that individual fund are at least 10 percent or more of the governmental or enterprise category. The second test is that total assets, liabilities, revenues, or expenditures/expenses of the individual governmental or enterprise fund are at least 5 percent of the total for all governmental and enterprise funds combined. Any individual funds that are not considered major may be aggregated and presented in a single column. Management may, at any time, separately disclose even those non-major funds for which they feel the additional disclosure will provide information value to the readers of the financial statements.

Q18-10 Contributions from external parties to endowments or permanent fund principal in governmental funds are reported along with special items and extraordinary items below operations, but above the net change in fund balance line in the statement of revenues, expenditures, and changes in fund balance. Contributions that are not limited or restricted are reported as revenue. Special items are those significant transactions within the control of management that are either unusual in nature or infrequent in occurrence. Extraordinary items are transactions or events that are both unusual and infrequent in occurrence.

Q18-11 Agency funds must be self-balancing with assets equaling liabilities. Therefore, agency funds do not have a net fund balance.


Q18-12 Component units are separate government units for which the primary government is financially accountable. The financial presentation of these component units is dependent on the separability from the primary government. If the component unit is virtually inseparable, then the component unit’s financial information is blended into the primary government’s financial statements. However, if the component unit is distinguishable, and has its own taxing authority, then the component unit’s financial information is presented in a separate column in the government-wide financial statements.

Q18-13 Two reconciliation schedules are required by GASB 34. The first reconciles the net assets reported in the governmental funds to the net assets reported on the government-wide financial statements. For example, internal service funds are not a governmental fund, but the accounts for internal service funds are blended into the governmental activities that are reported on the government-wide financial statements. The second reconciliation schedule reconciles the net change in fund balances reported in the governmental funds statements to the change in net assets reported in the government-wide financial statements. These two reconciliation schedules are part of the required supplementary information (RSI) required by GASB 34.

Q18-14 The budgetary comparison schedule reports, for the general fund and any other governmental fund that has a legally adopted budget, the initially approved budget, the final budget of the year, and the actual amounts, for each line item in the statement of revenues, expenditures, and changes in fund balance. A variance column may also be used to compare the actual against the final budget. This budgetary comparison schedule is part of the required supplementary information (RSI) required by GASB 34.

Q18-15 The government-wide financial statements present the infrastructure assets, such as roads, bridges, tunnels, sewer and water systems, etc., and other long-term assets of the government entity, such as buildings, equipment, vehicles, etc. The capital assets should be reported at historical cost, or fair value at the time of donation, if donated. Because the basis of accounting for the government-wide financial statements is the accrual method, depreciation is recorded on the other long-term assets and these are reported net of depreciation. For infrastructure assets, the government unit may elect to use a modified approach in which depreciation is not recorded. The modified approach requires an assessment of the current condition of the infrastructure assets and an estimate of the annual amount required to maintain and preserve the infrastructure assets. In addition, the government-wide financial statements present the general long-term debt obligations of the governmental entity at the present value of the debt principal and future interest, just as computed under the accrual basis of accounting that is used for commercial entities.


SOLUTIONS TO CASES

C18-1 Basis of Accounting and Reporting Issues

a. In the accrual basis of accounting, revenue should be recognized in the accounting period in which it is earned and becomes measurable.

In the modified accrual basis of accounting, revenue should be recognized in the accounting period in which it becomes susceptible to accrual__that is, when it becomes both measurable and available to finance expenditures of the fiscal period. "Available" means collectible within the current period or soon enough thereafter to be used to pay current period liabilities.

b. For the general fund, the modified accrual basis of accounting should be used because it is a governmental fund, which is, in essence, an accounting segregation of financial resources.

For the special revenue fund, the modified accrual basis of accounting should be used because it is a governmental fund, which is, in essence, an accounting segregation of financial resources.

For the enterprise fund, the accrual basis of accounting should be used because it is a proprietary fund, with similar activities to those in the commercial, profit-seeking sector.


C18-2 Capital Projects, Debt Service, and Internal Service Funds

a. Capital projects funds account for the acquisition or construction of major capital facilities or improvements. A separate capital projects fund is created at the time the project is approved and ceases at the completion of the project. Accounting for capital projects funds is similar to accounting for the general fund. The modified accrual basis of accounting is used; no fixed assets, depreciation, or long-term debt is recorded in these funds.

The bond proceeds are not revenue to the capital projects fund; they are reported as Other Financing Sources. A premium on the sale of bonds is transferred to the debt service fund. When the expenditure is recorded, Contract Payable is credited for the current portion due and Contract Payable__Retained Percentage is credited for the amount held back to ensure that the contractor fully completes the project to the satisfaction of the governmental unit.

The financial statements for capital projects funds are a balance sheet and a statement of revenues, expenditures, and changes in fund balance. No budget versus actual is required because capital projects funds use a capital budget rather than an operating budget.

b. Debt service funds account for the accumulation and use of resources for the payment of general long-term debt principal and interest. Accounting for the debt service fund is similar to accounting for the general fund. The modified accrual basis of accounting is used; no fixed assets or long-term debt is recorded, only current maturities are recorded in the fund.

The bond premium received from the capital projects fund is recorded as another financing source__transfer in. The matured portion of a serial bond is recognized as an expenditure and Matured Bonds Payable is credited. Interest legally due and payable is recorded as an expenditure and Matured Interest Payable is credited.

The financial statements of the debt service fund are a balance sheet and a statement of revenue, expenditures, and changes in fund balance.

c. Internal service funds account for the financing of goods or services provided by one department to other departments on a cost-reimbursement basis. Separate internal service funds are established for each type of service. Accounting for internal service funds is the same as for enterprise funds or commercial entities. The accrual basis is used; these funds record fixed assets, depreciation, and long-term debt.

The internal service fund may be started with a transfer in from the general fund. The billings are recorded in "Due from" accounts and the revenue account, Charges for Services. The closing entries involve a Profit and Loss Summary or Excess of Net Revenues over Costs account.

The financial statements of an internal service fund are a statement of net assets; a statement of revenues, expenses, and changes in fund net assets; and, a statement of cash flows.


SOLUTIONS TO EXERCISES

E18-1 Multiple-Choice Questions on Budgets [AICPA Adapted]

1. b

2. c

3. c

4. b

5. a

6. a

E18-2 Multiple-Choice Questions on Governmental Funds [AICPA Adapted]

1. d

2. b

3. a

4. c

5. c

6. b


E18-3 Multiple-Choice Questions on Proprietary Funds [AICPA Adapted]

1. b

2. d

3. d

4. b

5. c

6. d

7. b

8. c

9. c

E18-4 Multiple-Choice Questions on Various Funds

1. c The operating revenues include the $50,000 of dividends and the $35,000 of interest earned.

2. a The entries in the trust fund to record the resources spent would appear as follows:

Expenses 75,000 Vouchers Payable 75,000

Vouchers Payable 75,000 Cash 75,000

3. d

4. d Income is determined as follows:

Revenue__Charges for Services $100,000 Operating Expenses (45,000) Depreciation Expense (40,000) Interest Expense (5,000) Income $ 10,000

5. c The assets at June 30, 20X7 appear as follows:

Cash $ 96,000 Due from Other Funds 7,000 Computer Equipment (net) 610,000 Total Assets $713,000


E18-4 (continued)

6. b This is an example of an interfund services provided or used transaction. The general fund would debit expenditures.

7. a This is an example of an interfund services provided or used transaction. The enterprise fund would debit operating expenses.

8. b The net assets would be for the $600,000 transfer in plus the $10,000 of income for the period.

E18-5 Multiple-Choice Questions on Various Funds [AICPA Adapted]

1. d

2. c

3. d

4. b

5. a

6. b


E18-6 Capital Projects Fund Entries

a. Entries to record receipt of grant and bond sale:

Cash 100,000 Revenue__County Grant 100,000

Cash 205,000 Other Financing Source__Bond Issue Proceeds 205,000

Other Financing Use__Transfer Out to Debt Service Fund 5,000 Cash 5,000 Transfer premium to debt service fund.

b. Entries to record construction:

March 1, 20X1 ENCUMBRANCES 275,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 275,000

November 10, 20X1 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 275,000 ENCUMBRANCES 275,000

Expenditures 282,000 Contract Payable 282,000

Expenditures 7,400 Vouchers Payable 7,400

December 15, 20X1 Contract Payable 282,000 Vouchers Payable 7,400 Cash 289,400

c. Close nominal accounts:

Revenue__County Grant 100,000 Other Financing Source__Bond Issue Proceeds 205,000 Unreserved Fund Balance 305,000

Unreserved Fund Balance 294,400 Expenditures 289,400 Other Financing Use__Transfer Out to Debt Service Fund 5,000


E18-6 (continued)

d. Transfer of ending balance and close transfer account:

Other Financing Use__Transfer Out to Debt Service Fund 10,600 Cash 10,600

Unreserved Fund Balance 10,600 Other Financing Use__Transfer Out to Debt Service Fund 10,600

E18-7 Debt Service Fund Entries and Statement

a. Entries for debt service fund during 20X1:

1. ESTIMATED REVENUES CONTROL 38,000 ESTIMATED OTHER FINANCING SOURCE__TRANSFER IN 5,000 APPROPRIATIONS CONTROL 38,000 BUDGETARY FUND BALANCE UNRESERVED 5,000 Record budget.

2. Property Taxes Receivable 40,000 Allowance for Uncollectibles 4,000 Revenue__Property Tax 36,000 Record tax levy.

Cash 36,000 Property Taxes Receivable 36,000 Record tax collections.

Property Taxes Receivable__Delinquent 4,000 Allowance for Uncollectibles 4,000 Property Taxes Receivable 4,000 Allowance for Uncollectibles__Delinquent 1,000 Revenue__Property Tax 3,000 Revise estimate of uncollectibles and reclassify remaining receivables.

Cash 5,000 Other Financing Source__Transfer In from Capital Projects Fund 5,000 Receive bond premium.


E18-7 (continued)

3. Expenditures 38,000 Matured Bonds Payable 20,000 Matured Interest Payable 18,000 Record matured principal and interest.

Matured Bonds Payable 20,000 Matured Interest Payable 18,000 Cash 38,000 Pay matured principal and interest.

Expenditures 1,800 Vouchers Payable 1,800 Record other expenditures.

Vouchers Payable 1,500 Cash 1,500 Pay approved vouchers.

4. Cash 10,600 Other Financing Source__Transfer In From Capital Projects Fund 10,600 Record transfer of unspent funds in capital projects fund to debt service fund.

5. APPROPRIATIONS CONTROL 38,000 BUDGETARY FUND BALANCE UNRESERVED 5,000 ESTIMATED REVENUES CONTROL 38,000 ESTIMATED OTHER FINANCING SOURCE__TRANSFER IN 5,000 Close budgetary accounts.

Revenue__Property Tax 39,000 Other Financing Source__Transfer In from Capital Projects Fund 5,000 Unreserved Fund Balance 4,200 Expenditures 39,800 Close nominal accounts.

Other Financing Source__Transfer In from Capital Projects Fund 10,600 Unreserved Fund Balance 10,600 Close transfers in.


E18-7 (continued)

b.City of YorkDebt Service Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For Fiscal Year Ended December 31, 20X1

Revenue: Property Taxes $39,000 Expenditures__Debt Service: Principal Retirement $20,000 Interest Expense 18,000 Miscellaneous 1,800 Total Expenditures $39,800 Deficiency of Revenue over Expenditures $ (800) Other Financing Sources (Uses): Transfer In From Capital Projects Fund 15,600 Net Change in Fund Balance $14,800 Fund Balance, January 1 -0- Fund Balance, December 31 $14,800


E18-8 Enterprise Fund Entries and Statements

a. Entries for enterprise fund:

1. Accounts Receivable 420,000 Revenue 420,000 Record charges to customers.

Cash 432,000 Accounts Receivable 432,000 Record collections on account.

2. Cash 30,000 Due to General Fund 30,000 Receive loan from general fund.

3. Plant and Equipment 75,000 Contracts Payable 75,000 Record extension of water and gas lines.

Contracts Payable 75,000 Cash 75,000 Record payment for extended lines.

4. Inventory of Supplies 12,400 Operating Expenses 328,000 Interest Expense 30,000 Due to Central Stores Fund 12,400 Vouchers Payable 328,000 Interest Payable 30,000 Record expenses.

Due to Central Stores Fund 12,400 Vouchers Payable 325,000 Interest Payable 30,000 Cash 367,400 Record payment of approved vouchers, interest, and payment to central stores.

5. Bad Debts Expense 6,300 Allowance for Uncollectibles 6,300 Adjust for bad debts expense.

Depreciation Expense 32,000 Accumulated Depreciation 32,000 Adjust for depreciation for period.

Supplies Expense 15,200 Inventory of Supplies 15,200 Adjust for supplies on hand.


E18-8 (continued)

Closing entries:

Revenue 420,000 Operating Expenses 328,000 Interest Expense 30,000 Bad Debts Expense 6,300 Depreciation Expense 32,000 Supplies Expense 15,200 Profit and Loss Summary 8,500 Close nominal accounts.

Profit and Loss Summary 8,500 Net Assets 8,500 Close profit and loss summary.

b. Augusta MUD Enterprise Fund Statement of Net Assets December 31, 20X1

Assets: Cash $111,600 Accounts Receivable $ 13,000 Less: Allowance for Uncollectibles (6,300) 6,700 Inventory of Supplies 5,200 Land 120,000 Plant and Equipment $555,000 Less: Accumulated Depreciation (112,000) 443,000 Total Assets $686,500

Liabilities: Vouchers Payable $ 18,000 Due to General Fund 30,000 Bonds Payable, 6% 500,000 Total Liabilities $548,000

Net Assets: Invested in Capital Assets, net of Related Debt $ 63,000 Unrestricted 75,500 Total Net Assets $138,500


E18-8 (continued)

c. Augusta MUD Enterprise Fund Statement of Revenue, Expenses, and Changes in Fund Net Assets For Fiscal Year Ended December 31, 20X1

Revenue: Revenue from Services $420,000Expenses: Operating $328,000 Depreciation 32,000 Supplies 15,200 Bad Debts 6,300 Interest 30,000 411,500Income and Change in Net Assets $ 8,500Net Assets, January 1 130,000Net Assets, December 31 $138,500


E18-8 (continued)

d.AugustaMUD Enterprise Fund

Statement of Cash FlowsFor the Year Ended December 31, 20X1

Cash Flows from Operating Activities: Cash Received from Customers $432,000 Cash Payments for Goods and Services (325,000) Cash Paid to Internal Service Fund for Supplies (12,400) Cash Paid for Interest (30,000) Net Cash Provided by Operating Activities $ 64,600

Cash Flows from Noncapital Financing Activities: Cash Received from General Fund for Noncapital Loan $ 30,000 Net Cash Provided by Noncapital Financing Activities 30,000

Cash Flows from Capital and Related Financing Activities: Extension of Service Lines $(75,000) Net Cash Used for Capital and Related Financing Activities (75,000)

Cash Flows from Investing Activities -0-

Net Increase in Cash $ 19,600Cash at Beginning of Year 92,000Cash at End of Year $111,600

Reconciliation of Operating Income to Net CashProvided by Operating Activities:

Operating Income $ 8,500

Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation $ 32,000 Provision for Uncollectible Accounts 6,300 Change in Assets and Liabilities: Decrease in Inventory and Supplies 2,800 Decrease in Accounts Receivable 12,000 Increase in Vouchers Payable 3,000 Total Adjustments 56,100

Net Cash Provided by Operating Activities $ 64,600


E18-9 Interfund Transfers and Transactions

General Fund

1. a. March 1, 20X8, Transfer out: Other Financing Use__Transfer Out to Building Maintenance Fund 12,000 Cash 12,000

b. June 30, 20X8, Closing entry: Unreserved Fund Balance 12,000 Other Financing Use__Transfer Out to Building Maintenance Fund 12,000

2. a. April 1, 20X8, Financing transaction: Due from Building Maintenance Fund 8,000 Cash 8,000

b. Shown on the general fund balance sheet on June 30, 20X8

3. a. April 15, 20X8, Transfer out: Other Financing Use__Transfer Out to Debt Service Fund 2,400 Cash 2,400

b. June 30, 20X8, Closing entry: Unreserved Fund Balance 2,400 Other Financing Use__Transfer Out to Debt Service Fund 2,400

4. a. May 5, 20X8, Interfund services provided or used: Expenditures 825 Due to Transportation Service Fund 825

Due to Transportation Service Fund 825 Cash 825

b. June 30, 20X8, Closing entry: Unreserved Fund Balance 825 Expenditures 825

Other Fund

1. Building Maintenance Internal Service Fund

a. March 1, 20X8, Transfer in: Cash 12,000 Transfer In from General Fund 12,000


E18-9 (continued)

b. June 30, 20X8, Closing entry: Transfer In from General Fund 12,000 Net Assets 12,000

2. Building Maintenance Fund

a. April 1, 20X8, Financing transaction: Cash 8,000 Due to General Fund 8,000

3. Debt Service Fund

a. April 15, 20X8, Transfer in: Cash 2,400 Other Financing Source__ Transfer In from General Fund 2,400

b. June 30, 20X8, Closing entry: Other Financing Source__ Transfer In from General Fund 2,400 Unreserved Fund Balance 2,400

4. Transportation Service Fund

a. May 5, 20X8, Interfund services provided or used: Due from General Fund 825 Revenue from Billings 825

Cash 825 Due from General Fund 825

b. June 30, 20X8, Closing entry: Revenue from Billings 825 Net Assets 825


E18-10 Internal Service Fund Entries and Statements

a. Entries for 20X2, including closing entries:

1. Inventory of Supplies 96,000 Furniture and Equipment 4,700 Vouchers Payable 100,700 Record acquisitions of supplies, furniture, and office equipment.

2. Due from Other Funds 292,000 Billings to Departments 292,000 Record billings for jobs completed.

Cash 287,300 Due from Other Funds 287,300 Record collections on billings.

Costs of Printing Jobs 204,000 Operating Expenses 38,000 Inventory of Supplies 92,400 Vouchers Payable 149,600 Record costs of printing jobs.

Depreciation Expense 23,000 Accumulated Depreciation 23,000 Record depreciation for period.

Vouchers Payable 243,000 Cash 243,000 Pay approved vouchers.

Closing entries:

Billings to Departments 292,000 Costs of Printing Jobs 204,000 Operating Expenses 38,000 Depreciation Expense 23,000 Profit and Loss Summary 27,000 Close nominal accounts.

Profit and Loss Summary 27,000 Net Assets 27,000 Close profit and loss summary.


E18-10 (continued)

b. Bellevue Printing Shop Fund Statement of Net Assets December 31, 20X2

Assets: Cash $ 68,900 Due from Other Funds 20,300 Inventory of Supplies 13,400 Furniture and Equipment $264,700 Less: Accumulated Depreciation (73,000) 191,700 Total Assets $294,300

Liabilities: Vouchers Payable $ 19,300 Total Liabilities $ 19,300

Net Assets: Invested in Capital Assets, Net of Related Debt $191,700 Unrestricted 83,300 Total Net Assets $275,000

c. Bellevue Printing Shop Fund Statement of Revenue, Expenses, and Changes in Fund Net Assets For Fiscal Year Ended December 31, 20X2

Revenue: Billings to Departments $292,000Expenses: Costs of Printing Jobs $204,000 Operating 38,000 Depreciation 23,000 265,000Income $ 27,000Net Assets, January 1 248,000Net Assets, December 31 $275,000


E18-10 (continued)

d.Bellevue City

Internal Service Fund __ Printing ShopStatement of Cash Flows

For the Year Ended December 31, 20X2

Cash Flows from Operating Activities: Cash Received from Customers $287,300 Cash Payments for Printing Jobs (238,300) Net Cash Provided by Operating Activities $49,000

Cash Flows from Noncapital Financing Activities -0-

Cash Flows from Capital and Related Financing Activities Acquisition of Capital Assets (furniture and copier) $ (4,700) Net Cash Used for Capital and Related Financing Activities (4,700)

Cash Flows from Investing Activities -0-

Net Increase in Cash $44,300 Cash at Beginning of Year 24,600 Cash at End of Year $68,900

Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

Operating Income $27,000

Adjustments to Reconcile Operating Income to Net Cash Used by Operating Activities: Depreciation $ 23,000 Change in Assets and Liabilities: Increase in Due from Other Funds from Billings (4,700) Increase in Inventory of Supplies (3,600) Increase in Vouchers Payable 7,300 Total Adjustments 22,000

Net Cash Provided by Operating Activities $49,000


E18-11 True/False Questions

1.F The budgetary comparison schedule requires both the initial budget and the final budget.

2.T

3.F A component unit is financially accountable to the primary government.

4.F The net assets in the government-wide statement of net assets would be categorized by: invested in capital assets, net of related debt; restricted by outside donors in specific funds; and, unrestricted.

5.F The tests for a major governmental, or enterprise fund, for which separate disclosure is required in the government-wide financial statements are: (a) total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent or more of the governmental or enterprise category, and (b) total assets, liabilities, revenues, or expenditures/expenses of the individual governmental or enterprise fund are at least 5 percent of the total for all governmental and enterprise funds combined.

6.T

7.T

8.F The internal service fund is blended into the governmental activities columns of the government-wide financial statement of net assets and statement of activities.

9.T

10. F In the reconciliation schedule for the statement of revenues, expenditures, and changes in fund balances, bond proceeds would be subtracted because they were included as other financing sources in the governmental funds, but are an addition to liabilities in the government-wide financial statements.

11. T

12. F Depreciation on fixed assets of a government unit may be computed by any method deemed appropriate, such as straight-line or an accelerated method, but depreciation of fixed assets is not equal to the expenditures for fixed assets made in the governmental funds.


13. F Management’s Discussion and Analysis is a required supplementary information (RSI) disclosure in the new government reporting model.

14. F Fiduciary funds are not part of the government-wide statement of net assets, but would be separately reported in the fiduciary funds section of the fund-based financial statements.

15. T


SOLUTIONS TO PROBLEMS

P18-12 Capital Projects Fund Entries and Balance Sheet [AICPA Adapted]

a. Entries to record transactions:

July 1, 20X6: Cash 300,000 Due to General Fund 300,000 Record cash borrowed from the general fund.

July 9, 20X6: Expenditures 200,000 Vouchers Payable 200,000 Record invoice from Dunn Associates.

July 16, 20X6: Vouchers Payable 200,000 Cash 200,000 Pay invoice from Dunn Associates.

December 1, 20X6: Cash 6,060,000 Other Financing Source__Bond Issue Proceeds 6,060,000 Record issuance of general obligation bonds at 101.

Due from State Government 3,000,000 Revenues 3,000,000 Record grant from state.

April 30, 20X7: ENCUMBRANCES 7,000,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 7,000,000 Record contract with Craft Construction Company.

May 9, 20X7: Cash 1,000,000 Due from State Government 1,000,000 Record cash received from state grant.


P18-12 (continued)

June 10, 20X7: Due to General Fund 300,000 Cash 300,000 Repay loan to general fund.

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 1,200,000 ENCUMBRANCES 1,200,000 Reverse encumbrances for progress billing.

Expenditures 1,200,000 Contracts Payable 1,152,000 Contracts Payable__Retained Percentage 48,000 Record construction expenditures and 4% retainage until project completion.

b. Closing entries as of June 30, 20X7:

Revenues 3,000,000 Other Financing Source__Bond Issue Proceeds 6,060,000 Unreserved Fund Balance 9,060,000 Close resource inflows to unreserved fund balance.

Unreserved Fund Balance 1,400,000 Expenditures 1,400,000 Close expenditures to unreserved fund balance.

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 5,800,000 ENCUMBRANCES 5,800,000 Close lapsing encumbrances at year-end.

Unreserved Fund Balance 5,800,000 Fund Balance Reserved for Encumbrances 5,800,000 Reserve fund balance for encumbrances.


P18-12 (continued)

c. Balance sheet for capital projects fund

Elizabeth Township Administration Center Capital Projects Fund

Balance Sheet At June 30, 20X7

Assets Cash $6,860,000 Due from State Government 2,000,000 Total Assets $8,860,000

Liabilities and Fund Balance Liabilities: Contracts Payable $1,152,000 Contracts Payable, Retained Percentage 48,000 Total Liabilities $1,200,000 Fund Balance: Reserved for Encumbrances $5,800,000 Unreserved 1,860,000 Total Fund Balance $7,660,000 Total Liabilities and Fund Balance $8,860,000


P18-13 Adjusting Entries for General Fund [AICPA Adapted]

Adjusting entries to correct the general fund:

1. No entry required.

2. Expenditures 300,000 Buildings 300,000 Correct for state grant expended for buildings.

Expenditures 22,000 Capital Outlays (equipment) 22,000 Correct for expenditures for playground equipment.

3. Bonds Payable 1,000,000 Buildings 1,000,000 Correct for bonds used to construct buildings.

Other Financing Use__Transfer Out to Debt Service Fund 130,000 Debt Service from Current Funds 130,000 Correct for transfer to debt service fund.

4. ENCUMBRANCES 2,800 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,800 Correct for unrecorded encumbrances.

5. Expenditures 4,950 Inventory of Supplies 4,950 Correct for supplies used in period.

Unreserved Fund Balance 6,500 Fund Balance Reserved for Inventory 6,500 Correct for reserve for ending inventory.


P18-14 Adjusting Entries for General Fund [AICPA Adapted]

a. Reclassification and adjusting entries for the general fund:

1. Revenue 1,500 Due to Water Utility Fund 1,500 Recognize payable to water utility fund.

2. Taxes Receivable__Delinquent 30,000 Taxes Receivable__Current Year 30,000 Reclassify taxes receivable.

Revenue 24,000 Allowance for Uncollectibles__Delinquent 24,000 Recognize estimated uncollectible taxes.

3. Expenditures 52,000 Bonds Payable 52,000 Correct bonds payable for expenditures made.

4. Supplies Inventory 44,000 Expenditures 44,000 Correct for supplies used: Purchases charged to expenditures $128,000 Supplies used (84,000) Supplies inventory $ 44,000

Unreserved Fund Balance 44,000 Fund Balance Reserved for Inventories 44,000 Correct for reserve for inventories.

5. Unreserved Fund Balance 11,200 Fund Balance Reserved for Encumbrances__Prior Year 11,200 Adjust unreserved fund balance at beginning of year for failure to establish a fund balance reserved for nonlapsing encumbrances from the prior year.

Expenditures__Prior Year 11,200 Expenditures (current year) 11,200 Correct for expenditures chargeable to prior year.

ENCUMBRANCES 17,500 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 17,500 Reserve budgetary fund balance for purchase orders on June 30, 20X2.

(Note: The balance sheet account for reserve for encumbrances will be established later during the closing entry process.)


P18-14 (continued)

6. Due from State Revenue Department 34,000 Revenue 34,000 Record receivable for shared tax.

7. Expenditures 90,000 General Property 4,600 Revenue 4,600 General Property 90,000 Correct for property sold and for expenditures for new equipment.

8. No entry required in the general fund.

b. Closing entries for general fund.

1. APPROPRIATIONS CONTROL 400,000 ESTIMATED REVENUES CONTROL 320,000 BUDGETARY FUND BALANCE UNRESERVED 80,000 Close budgetary revenue and appropriations.

2. Revenue 373,100 Unreserved Fund Balance 95,700 Expenditures 468,800 Close operating revenue and expenditures.

3. Fund Balance Reserved for Encumbrances__Prior Year 11,200 Expenditures__Prior Year 11,200 Close expenditures encumbered in prior year.

4. BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 17,500 ENCUMBRANCES 17,500 Close remaining budgeted encumbrances.

5. Unreserved Fund Balance 17,500 Fund Balance Reserved for Encumbrances 17,500 Reserve fund balance for nonlapsing encumbrances to be honored next year.


P18-15 Entries for Funds [AICPA Adapted]

Fund Journal Entries

1. General ESTIMATED REVENUES CONTROL 695,000 Fund APPROPRIATIONS CONTROL 650,000 BUDGETARY FUND BALANCE UNRESERVED 45,000

2. Special Taxes Receivable__Current 160,000 Revenue Allowance for Fund Uncollectibles__Current 1,600 Revenue__Taxes 158,400

3. General ENCUMBRANCES 2,390 Fund BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,390

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,390 ENCUMBRANCES 2,390

Expenditures 2,500 Vouchers Payable 2,500 4. General Due to Other Funds 1,000 Fund Expenditures 40 Cash 1,040

Enterprise Cash 1,040 Fund Due from Other Funds 1,000 (Utility) Nonoperating Revenue 40

5.The contribution of land to the city is not recorded in any fund. Rather it is shown only on the government-wide financial statements as part of the assets, and a contribution to the city.

6. Capital Cash 90,000 Projects Other Financing Source__Bond Fund Issue Proceeds 90,000

Expenditures 84,000 Contracts Payable 84,000

7. Private- Investments 32,000 Purpose Contributions 32,000 Trust Fund Cash 1,100 Revenue 1,100


P18-15 (continued) Fund Journal Entries



Debt Cash 8,000 Service Other Financing Source__Transfer Fund In from Capital Projects Fund 8,000

Capital ENCUMBRANCES 300,000 Projects BUDGETARY FUND BALANCE RESERVED Fund FOR ENCUMBRANCES 300,000


Expenditures 297,000 Cash 297,000


P18-16 Entries for Funds [AICPA Adapted]


1. General ESTIMATED REVENUES CONTROL 400,000 Fund APPROPRIATIONS CONTROL 394,000 BUDGETARY FUND BALANCE UNRESERVED 6,000

2. General Taxes Receivable__Current 390,000 Fund Revenue__Taxes 382,200 Allowance for Uncollectibles__Current 7,800

3. Private- Investments 50,000 Purpose Contributions 50,000 Trust Fund Cash 5,500 Revenue__Interest 5,500

4. General Other Financing Use__Transfer Out to Internal Service Fund 5,000 Cash 5,000

Internal Cash 5,000 Service Transfer In from General Fund 5,000 Fund


Due from General Fund 3,000 Other Financing Source__ Transfer In from General Fund 3,000

Debt Special Assessments Receivable 24,000 Service Revenue__Special Assessments 24,000 Fund

General Other Financing Use__Transfer Out to Capital Projects Fund 3,000 Due to Capital Projects Fund 3,000

6. General Due to Capital Projects Fund 3,000 Fund Cash 3,000

Capital Cash 3,000 Projects Due from General Fund 3,000 Fund

Debt Cash 24,000 Service Special Assessments Receivable 24,000 Fund


P18-16 (continued)


7. Capital ENCUMBRANCES 75,000 Projects BUDGETARY FUND BALANCE RESERVED Fund FOR ENCUMBRANCES 75,000


Expenditures 75,000 Contracts Payable 75,000 Contracts Payable 75,000 Cash 75,000

8. Internal Inventory of Supplies 1,900 Service Cash (or Vouchers Payable) 1,900 Fund

9. General Cash 393,000 Fund Taxes Receivable__Current 386,000 Revenue__Licenses and Fees 7,000

Allowance for Uncollectibles__Current 3,800 Revenue__Taxes 3,800 Estimate $7,800 Actual (4,000) Correction $3,800


11. General BUDGETARY FUND BALANCE RESERVED Fund FOR ENCUMBRANCES 15,000 ENCUMBRANCES 15,000

Expenditures 15,000 Cash 15,000


P18-17 Entries to Adjust Account Balances [AICPA Adapted]

a. General Fund Adjusting entries:

1. Allowance for Uncollectibles__Delinquent 2,200 Unreserved Fund Balance 2,200 Reduce estimated losses on prior year's taxes to amount of receivables of $8,000.

2. Revenue 27,000 Donated Land 27,000 Remove accounts belonging only in the government-wide financial statements.

3. Unreserved Fund Balance 8,800 Fund Balance Reserved for Encumbrances__20X0 8,800 Record purchase orders outstanding on June 30, 20X0.

Expenditures__20X0 8,800 Other Expenditures 8,800 Reclassify purchases of supplies chargeable to prior year's appropriations. Excess of $600 actual cost over estimate is approved and charged to current year expenditures.

4. ENCUMBRANCES 2,100 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,100 Record encumbering of appropriations for purchase orders outstanding on June 30, 20X1.

5. Special Assessment Bonds Payable 100,000 Due to Capital Projects Fund 100,000 Record liability to capital projects fund for cash obtained from sale of special assessment bonds.

6. Revenue 21,000 Tax Anticipation Notes Payable 20,000 Due to Water Utility Fund 1,000 Record tax anticipation notes payable and liability to water utility fund for funds obtained from sale of scrap.


P18-17 (continued)

Closing entries:

APPROPRIATIONS CONTROL 348,000 ESTIMATED REVENUES CONTROL 310,000 BUDGETARY FUND BALANCE UNRESERVED 38,000


Unreserved Fund Balance 2,100 Fund Balance Reserved for Encumbrances 2,100

Revenue 306,000 Unreserved Fund Balance 31,200 Other Expenditures 271,200 Expenditures__Building Addition Constructed 50,000 Expenditures__Serial Bonds Paid 16,000

Fund Balance Reserved for Encumbrances__20X0 8,800 Expenditures__20X0 8,800

b. Adjusting Journal Entries

Capital Projects Fund: 5. Due from General Fund 100,000 Other Financing Source__ Bond Issue Proceeds 100,000 Record receivable due from general fund for proceeds of sale of bonds.

Water Utility Fund: 6. Due from General Fund 1,000 Revenue__Miscellaneous 1,000 Record receivable from general fund for cash obtained from sale of scrap.


P18-18 Capital Projects Fund Entries and Statements

a. Journal entries:

1. CPF Cash 5,080,000 Other Financing Source__Bond Issue Proceeds 5,080,000


DSF Cash 80,000 Other Financing Source__Transfer In from Capital Projects Fund 80,000

2. CPF Expenditures 45,000 Vouchers Payable 45,000

Vouchers Payable 45,000 Cash 45,000

(Note: It is not necessary to first establish, and then immediately reverse an encumbrance account.)

3. CPF ENCUMBRANCES 4,500,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 4,500,000

4. CPF BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,000,000 ENCUMBRANCES 2,000,000

Expenditures 2,000,000 Contracts Payable 1,800,000 Contracts Payable__Retained Percentage 200,000

CPF Contracts Payable 1,800,000 Cash 1,800,000

Closing entries for Capital Projects Fund:

Other Financing Source__Bond Issue Proceeds 5,080,000 Expenditures 2,045,000 Other Financing Use__Transfer Out to Debt Service Fund 80,000 Unreserved Fund Balance 2,955,000

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 2,500,000 ENCUMBRANCES 2,500,000

P18-18 (continued)


Unreserved Fund Balance 2,500,000 Fund Balance Reserved for Encumbrances 2,500,000

b. West City Capital Projects Fund Balance Sheet June 30, 20X3

Assets Cash $3,155,000 Total Assets $3,155,000

Liabilities and Fund Balance Contracts Payable__Retained Percentage $ 200,000 Fund Balance: Reserved for Encumbrances $2,500,000 Unreserved 455,000 2,955,000 Total Liabilities and Fund Balance $3,155,000

c. West City Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For Fiscal Year Ended June 30, 20X3

Expenditures: Capital Outlays: Building Removal $ 45,000 Building Construction 2,000,000 Total Expenditures $ 2,045,000 Deficiency of Revenues over Expenditures $(2,045,000) Other Financing Sources (Uses): Proceeds of Serial Bonds 5,080,000 Transfer Out to Debt Service Fund (80,000) Total Other Financing Sources (Uses) $ 5,000,000 Net Change in Fund Balance $ 2,955,000 Fund Balance, July 1, 20X2 -0- Fund Balance, June 30, 20X3 $ 2,955,000


P18-19 Recording Entries in Various Funds [AICPA Adapted]

1. Entries made in the capital projects fund for 20X8:

Cash 800,000 Other Financing Source__Bond Issue Proceeds 800,000 Issued $800,000 of bonds at their face value.

ENCUMBRANCES 750,000 BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 750,000 Contractor’s bid is accepted.

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 250,000 ENCUMBRANCES 250,000 One-third of the project was completed during 20X8.

Expenditures 246,000 Contracts Payable 246,000 Actual construction cost incurred in 20X8.

2. Entries made in the special revenue fund for 20X8:

ESTIMATED REVENUES CONTROL 112,000 APPROPRIATIONS CONTROL 108,000 BUDGETARY FUND BALANCE UNRESERVED 4,000 Record the budget for 20X8.

Cash 109,000 Revenues 109,000 Collected hotel room taxes.

Expenditures 103,000 Vouchers Payable 103,000 Incurred expenditures for general promotion and motor vehicle.

Vouchers Payable 103,000 Cash 103,000 Paid expenditures.


P18-19 (continued)

3. Entry made in the general fund for 20X8:

Other Financing Use__Transfer Out to Debt Service Fund 313,500 Cash 313,500 Record transfer of resources to debt service fund.

Entries made in the debt service fund for 20X8:

Cash 313,500 Other Financing Source__Transfer In from General Fund 313,500 Record transfer of resources from general fund.

Expenditures__Interest 13,500 Matured Interest Payable 13,500 Record interest legally due and payable.

Expenditures__Principal 300,000 Matured Bonds Payable 300,000 Record principal legally due and payable.

Matured Bonds Payable 300,000 Matured Interest Payable 13,500 Cash 313,500 Record payment of matured bonds and interest.

4. Closing entries in the general fund for 20X8:

BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES 83,000 ENCUMBRANCES 83,000 Close outstanding encumbrances at year-end.

Unreserved Fund Balance 83,000 Fund Balance Reserved for Encumbrances 83,000 Reserve actual fund balance for encumbrances expected to be honored in 20X9.

5. Adjusting entry in the general fund for 20X8:

Fund Balance Reserved for Inventories 3,000 Inventory of Supplies 3,000 Adjust inventory of supplies to balance at December 31, 20X8.


P18-20 Analysis of Transactions in Various Funds [AICPA Adapted]

a. ESTIMATED REVENUES CONTROL 6,000,000 APPROPRIATIONS CONTROL 4,600,000 ESTIMATED OTHER FINANCING USE__ TRANSFER OUT TO ENTERPRISE FUND 700,000 ESTIMATED OTHER FINANCING USE__ TRANSFER OUT TO CAPITAL PROJECTS FUND 500,000 BUDGETARY FUND BALANCE UNRESERVED 200,000

b. The amount debited to “Property taxes receivable” at the date of the original tax levy was $4,750,000. The following entry was made:

Property Taxes Receivable__Current 4,750,000 Allowance for Uncollected Taxes__Current 50,000 Revenues__Property Taxes 4,700,000

Cash collected from property taxes during 20X8 amounted to $4,330,000. The following schedule shows how this amount is determined:

Property taxes receivable at the levy date $4,750,000 Less: Balance at December 31, 20X8 420,000 Property taxes collected during 20X8 $4,330,000

c. Other Financing Use__Transfer Out to Enterprise Fund 700,000 Cash* 700,000 Other Financing Use__Transfer Out to Capital Projects Fund 500,000 Cash* 500,000

*The credit may be made to a liability account (for example: Due to Capital Projects Fund) before cash is transferred to the capital projects and enterprise funds.

d. The amount reported for unreserved fund balance on the December 31, 20X8, balance sheet is $50,000. This amount is determined by subtracting the total resource outflows of $5,700,000 from the total revenues of $5,750,000. The closing entries would appear as follows:

Revenues__Property Taxes 4,700,000 Revenues__Other 1,050,000 Expenditures 4,500,000 Other Financing Use__Transfer Out to Capital Projects Fund 500,000 Other Financing Use__Transfer Out to Enterprise Fund 700,000 Unreserved Fund Balance 50,000


P18-20 (continued)

e. The general fund would record the billing in the following manner:

Expenditures 2,000 Due to Enterprise Fund 2,000

The enterprise fund would record the billing in the following manner:

Due from General Fund 2,000 Revenue__Water Sales 2,000

f. The water utility would record the sale of the revenue bonds in the following manner:

Cash 4,000,000 Revenue Bonds Payable 4,000,000

The water utility would record the transfer in using the following way:

Cash 700,000 Transfer In from the General Fund 700,000

g. The amount reported for bonds payable in the government-wide financial statements for general long-term debt at December 31, 20X8, is $1,200,000. This is the amount of the general long-term debt that was issued to finance the construction of the civic center.

h. The amount reported in the government-wide financial statements for general fixed assets (reported as construction in progress) from the capital projects fund at December 31, 20X8, is $1,080,000. This is the amount of the expenditures incurred in Gel’s capital projects fund during 20X8.

i. Total encumbrances recorded during 20X8 amounted to $2,422,000. This amount is determined in the following manner:

Outstanding encumbrances at December 31, 20X8 $ 1,300,000 Encumbrances related to work done in 20X8 ($1,080,000 + 42,000) 1,122,000 Total encumbrances recorded during 20X8 $ 2,422,000

j. The unreserved fund balance at December 31, 20X8, was $120,000. This amount is determined in the following manner:

Unreserved fund balance from the closing entry $1,420,000 Less: Outstanding encumbrances at December 31, 20X8 1,300,000 Unreserved fund balance at December 31, 20X8 $ 120,000


P18-20 (continued)

k. The state capital grant for the civic center was $800,000. This is the amount of the revenue closed out in the closing entry given for the capital projects fund.

l. The completed cost of the civic center was $2,473,000. This amount is determined in the following manner:

Total resources received by the capital projects fund in 20X8 $2,530,000 Less: Premium transferred to debt service fund $30,000 Transfer to general fund at project completion 27,000 (57,000) Completed cost of the civic center $2,473,000

m. The general fund would record the following entry for the transfer:

Cash 27,000 Other Financing Source__ Transfer In from Capital Projects Fund 27,000


P18-21 Matching Questions Involving Various Funds

1. L

2. C

3. R

4. M

5. I

6. G

7. Q

8. A

9. O

10. F

P18-22 Questions on Fund Transactions [AICPA Adapted]

1.$104,500 (stated in item #3)


3.$125,000 (item #5 states that $83,000 is reserved for encumbrances. To this is added the $42,000 reserve for the ending inventory.)

4.$236,000 (item 1 states that $600,000 of bond proceeds were received in the capital project fund, less $364,000 of construction expenditures in the period.)

5.$6,000 (item #2 states that $109,000 tax revenues were received from which $81,000 and $22,000 were expended.)



7.$386,000 (item #1 states construction expenditures of $364,000 plus item #2 states a motor vehicle purchase of $22,000)

8.$100,000 (item #3 states a reduction in long-term debt principal of $100,000)

9.$181,000 (item 6 states that $181,000 was used to purchase supplies during the period)

10. $190,000 (item 6 states encumbrances of $190,000)


P18-23 Matching Questions Involving the Statement of Cash Flows for a Proprietary Fund

1. C

2. A

3. C

4. A

5. E

6. A

7. C

8. B

9. B

10. C

11. A

12. E

13. D

14. D

15. C


P18-24 Matching Questions Involving the Statement of Revenues, Expenditures, and Changes in Fund Balance for a Capital Projects Fund and a Debt Service Fund

1. C

2. D

3. C

4. C

5. B

6. A

7. C

8. D

9. A

10. C

11. B

12. B

13. D



a. 1. G 2. K 3. L 4. L 5. E 6. J 7. D 8. A 9. F 10. B

b. 11. B and J 12. F and J 13. C and J 14. J 15. B and J 16. G and J 17. A 18. D 19. I and J 20. H and J



1.$70,000 Estimated revenues of $8,000,000 less estimated expenditures of $7,500,000 and estimated transfers out of $250,000 for courthouse improvement and $180,000 for solid waste landfill enterprise fund.

2.$430,000 $250,000 to capital projects fund plus $180,000 to landfill enterprise fund

3.$0 Under the modified accrual basis, interest is not recognized until it is matured and legally payable.

4.$10,000 $10,000 is paid on July 1, 20X2.

5.$5,018,000 Of the $5,060,000 taxes receivable, which is the $5,000,000 revenue plus the allowance of $60,000, $4,000 were written off which is the difference between the $60,000 initial estimate and the $56,000 balance of the allowance that was closed in item #5 in the problem. And the remaining balance of $38,000 in the receivables was matched with a related balance for uncollectibles of $38,000.

6.$450,000 Item #3 in the problem states the $450,000 entitlement. The transfer in and the bond proceeds are other financing sources.

7.$868,000 $800,000 of bonds payable for the capital projects plus $78,000 for the fire department equipment less $10,000 paid in 20X2 for the lease payment.

8.$1,580,000 Courthouse improvement of $1,527,000 plus leased equipment of $78,000 less $25,000 for the police car that was sold.

9.$107,000 Computed as the percentage of total cubic yard usage filled multiplied times the actual costs to date ($300,000) plus the estimated future costs ($1,700,000), with that amount reduced by the expense recognized previously ($973,000):

_ _ _ _ 500,000 + 40,000 yards x $300,000 actual +

- $973,000 1,000,000 yards $1,700,000 estimated

_ _ _ _ $107,000 = ( 54% x $2,000,000) - $973,000

10. $780,000 $973,000 expense incurred previously plus $107,000 expense for 20X2, less $300,000 closure costs paid to date.


Documents

CH18MAN