solusi manual advanced acc zy Chap018

Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements

CHAPTER 18

GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND GOVERNMENT-WIDE FINANCIAL STATEMENTS

ANSWERS TO QUESTIONS

Q18-1 A governmental entity 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 that 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 EnterpriseFund Fund

Measurement focus Current 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 entity is on capital maintenance and income determination 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 revenues, expenditures, and changes in fund balances. The financial statements that must be prepared for the enterprise funds are the statement of net assets, the statement of revenues, expenses, and changes in fund net assets, and the statement of cash flows.

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Q18-7 Proceeds from a bond issue are accounted for as an other financing source in the fund that 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 in the fund 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 are 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 valuable to the readers of the financial statements.

Q18-10 Because the measurement focus of the governmental funds is on current financial resources, revenue would be recognized in the governmental funds only if the donated items are available to finance expenditures of the current period, For example, donated land would be included in contribution revenue of a governmental fund if the land was sold, or the government has entered into a contract to sell the land, and that the proceeds from the sale will be available to finance expenditures of the current period. However, a donation to a governmental fund, in the form of financial resources or capital assets, that has a restriction imposed by the donor which makes the donation unavailable to finance current expenditures, is not included in the governmental fund’s financial statements. Of course, on the government-wide statement of activities, all donations would be shown, at fair value on a separate line below general revenues. Specifically, endowment and permanent fund principal donations are reported below general revenues and above special and extraordinary items.

On the governmental funds financial statements, special and extraordinary items are reported below operations, but above the net change in fund balance line, in the statement of revenues, expenditures, and changes in fund balance. 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 equalling liabilities. Therefore, agency funds do not have a net fund balance.

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Q18-12 Component units are separate government entities 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 fund balances reported in the governmental funds to the net assets of governmental activities 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 required by GASB 34 to be presented either on the face of the fund financial statements or in a separate schedule immediately following the fund financial statements.

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. GASB 41 amended GASB 34 for those governments that do not use the general fund and special revenue fund structure specified in GASB 34 for their budgetary purposes. GASB 41 specified that those governments with significant perspective differences should provide a budgetary comparison schedule in the RSI based on the structure the government used for its legally adopted budget.

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 governmental entity 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.

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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 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 activities similar to those in the commercial, profit-seeking sector.

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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 entity.

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 an other 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.

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C18-3 Discovery Case

Summary of major information items in the Financial Report of the United States Government,

1. The report is prepared by the Secretary of the Treasury.

2. The Management’s Discussion and Analysis presents comparative historical information for operations and financial position along with budget information, both historical and projected.

3. The Comptroller General of the United States heads the General Accountability Office (GAO) who is the auditor for the U.S. government. For several years, the Comptroller General has disclaimed an opinion on the consolidated financial statements because of the material deficiencies in the government’s systems, recordkeeping, documentation, and financial reporting. The material deficiencies are listed in the auditor’s report.

4. The following five statements are presented: (1) Statements of Net Cost, (2) Statements of Operations and Changes in Net Position, (3) Reconciliations of Net Operating Revenue (Cost) to the Budget Surplus (unaudited), (4) Dispositions of the Budget Surplus (unaudited), and (5) Balance Sheets.

5. The Statements of Net Cost present the costs and revenue for the major departments, agencies, commissions, and other units of the federal government.

6. The Statement of Operations and Changes in Net Position presents the revenues by type, the total costs, and the net operating revenue (cost) for each year.

7. The Reconciliation of Net Operating Revenue (Cost) to the Budget Surplus presents the increases or decreases in major cost programs, along with the amount of capitalized fixed assets by major agencies of the federal government.

8. The Dispositions of the Budget Surplus presents the changes in assets and liabilities during the years reported.

9. The Balance Sheets present the assets, by major type, the liabilities, by major type, and reconciles to the net position of the U.S. government.

10. Major footnotes include a stewardship report on the resources held by the U.S. government, and a large number of notes to the financial statements that report on specific items related to agencies, commissions, and other entities within the federal government.

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C18-4 Becoming Familiar With a Local Government’s Comprehensive Annual

Financial Report (CAFR)

(Note to the instructor: Most local governments now produce a comprehensive annual financial report. You might select the local city or county in which the university is located or a large city close to the university town. Printed copies of the CAFR may be obtained directly from that governmental entity and you could place these copies on reserve in your university library for use by your students. Alternatively, many governments now provide their CAFRs online. A Google web search using “CAFR” and the name of your city, county or state will show if your selection provides an online copy of its CAFR. Or, you may do a Google search using “CAFR” and then select one of the government units that provide an online copy of its CAFR and then provide that link to your students or insert that link into your online syllabus.)

a. Students should read the MD&A to get familiar with the governmental entity. One of the items contained in the MD&A is information on the nature of the services performed by the government. At the local government level, the services usually consist of police and fire protection, street maintenance, recreation, and other services typically the responsibility of the local government.

b. Because there is so much information contained in a CAFR, it is important to see what information is covered by the auditor’s opinion. The auditor’s opinion is usually unqualified. The auditor does not audit the MD&A and other RSI and does not express an opinion on this information. The auditor reads the MD&A and other RSI to determine if the information contained therein is reasonable.

c. A general purpose government will have most fund types. It is beneficial for the student to see which fund types are used and which ones are not used by a government.

d. Students should become familiar with the types of information found in the notes. One item of information disclosed in the notes is a description of the measurement focus and basis of accounting used by the governmental funds. The footnotes’ discussions regarding the governmental funds and their use of the financial resources measurement focus and modified accrual basis of accounting reinforce what the students learned from the text.

e. Listing the financial statements that use the economic resources measurement focus and accrual basis of accounting reinforces the coverage in the text. In their evaluation, students should remember that the governmental fund financial statements are the only ones prepared using the current financial resources measurement focus and the modified accrual basis of accounting.

f. Students should be aware of the reporting of major funds in the financial statements of governmental and proprietary funds.

g. This question emphasizes that the reporting entity for the government may be larger than the local governmental if the local government has fiscal accountability over other governmental entities. Because many component units are reported discretely, students should have little problem identifying the existence of component units.

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C18-4 (continued)

h. The purpose of this question is for students to become acquainted with the balance sheet equation for the governmental funds: Assets = Liabilities + Fund Balance. Another goal for this question is for students to see that fund balance is separated into two components: (1) reserved and (2) unreserved.

i. The purpose behind questions i - l is to help students understand the format of the statement of revenues, expenditures, and changes in fund balance. The first section deals with revenues, which are reported according to source. Students will discover that taxes are generally not the only source of revenue.

j. The objective of this question is to get students to understand how governments report expenditures. Students may expect governments to report expenditures by object; however, expenditures are not reported this way on the statement of revenues, expenditures, and changes in fund balance.

k. The purpose of this question is to have students examine the items reported in other financing sources and uses. This should reinforce what they learn in the text when they read the section dealing with interfund transfers.

l. This question covers the last items reported on the statement of revenues, expenditures, and changes in fund balance: special items, the change in fund balance for the year, and the ending fund balance at the end of the most recent year. Students should not expect to see any special items since their occurrence is rare. However, students should see the change in fund balance for the year being added to the beginning fund balance to produce ending fund balance.

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C18-5 The GASB’s Decision-Making Process

The GASB’s presentation of its decision-making process is found on their web site at www.gasb.org/ then click on GASB FACTS in the left-hand frame, then click on Facts About the GASB: The Mission and Structure of the Board, and finally, click on An Open Decision-Making Process.1. The Governmental Accounting Standards Advisory Council (GASAC). This council is

composed of about 25 persons from a diverse background in government accounting and finance. This council provides suggestions for topics to be considered by the GASB. In addition, the Board receives concerns about current governmental accounting needs from other persons and groups who work in governmental accounting or auditing.

2. Task Force. In many cases, a task force is formed shortly after the Board agrees to place the project on its agenda. A task force is comprised of persons who know the project’s subject matter and provides expertise and advice to the GASB as it focuses on the critical issues and determine if a new standard is necessary.

3. Discussion Memorandum (DM). The DM is normally prepared by the staff and defines the problem(s), the scope of the project, the accounting and reporting issues; and presents relevant research, alternative solutions to the issues, and arguments both for and against each alternative. Written comments are solicited and in many cases a public hearing is scheduled to discuss the DM.

4. Invitation to Comment (ITC). An ITC is sometimes issued when the GASB seeks more input on one or more of the issues.

5. Preliminary Views (PV). A PV puts forth the Board’s consensus at an early stage in the process. A majority of the Board must approve the issuance of a PV. The Board solicits comments on the PV.

6. Public Hearing. A public hearing is typically scheduled to provide the Board with an opportunity to hear the viewpoints of the public as well as to allow the Board to raise questions to the staff regarding written or oral comments received on the project, including any submissions at the public hearing.

7. Analysis of Oral and Written Comments. The staff performs an analysis of the submitted comments, looking for information and good arguments on the issues, and presents this analysis to the members of the Board who often make their own review of the comments.

8. Meetings of the Board. The Board may have several, or many, meetings to discuss the issues. Board meetings on the project are open to the public, although observers are not allowed to participate in the discussions.

9. Exposure Draft (ED). An ED presents the proposed new standards, the proposed effective date and method of transition, background information, and explains the basis for the Board’s conclusions regarding the issues covered by the ED.

10. Further Deliberations by the Board. The Board receives comments on the ED and discusses the comments to determine if any modifications are needed in the proposed standard.

11. Statements of Governmental Accounting Standards or Statements of Governmental Accounting Concepts. A majority of the Board must vote in favor of adopting a pronouncement. Statements of Standards establish new accounting or reporting requirements. Statements of Concepts do not create new standards, but rather give guidance for dealing with problems that arise on an issue.

And then, the Board continues to work on the next project!

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http://www.gasb.org/


C18-6 Summarizing a Recent GASB Exposure Draft

Note to the Instructor: This case provides your students with the opportunity to be on the leading edge of a proposed governmental accounting or reporting standard. Students can learn about some of the specifics of an expected, new GASB Statement. The most recent ED on the web page will be dependent on future actions of the GASB, but the Project Pages link in the left-hand frame of the GASB’s opening web page presents information on the status of current GASB projects. These projects are in various stages of progress, but as of 2008, it appears that future Statements may be on economic condition reporting, fund balance reporting, and on service efforts and accomplishments reporting. Of course, given the dynamic nature of governmental accounting and reporting, it is expected that new projects will be added, and some of the current projects may be discontinued or included within a larger project the board is studying. And, some may become new GASB Statements!

SOLUTIONS TO EXERCISES

E18-1 Multiple-Choice Questions on Government Financial Reporting

1. a

2. d

3. b

4. a

5. a

6. b

7. a $8,839,000 = assets of $14,839,000 minus liabilities of $6,000,000

8. c $7,150,000 = capital assets (net) of $12,500,000 minus long-term debt of $5,350,000 9. c $1,035,000 = net assets of $8,839,000 minus $7,150,000 minus $654,000

10. a (answers b, c, and d each include a fiduciary fund which is not a major fund)

11. d

12. c

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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. c Prepaid insurance would be reported as an asset.

7. b

8. c

9. c

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E18-4 Multiple-Choice Questions on Various Funds

1. c The additions - investment earnings include the $50,000 of dividends and the $35,000 of interest earned. The contribution is reported as an addition -contributions.

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

Deductions - Benefits 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

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.

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E18-5 Multiple-Choice Questions on Financial Reporting Issues for Government- wide and Fund-Based Financial Statements

1. c

2. c the net assets of internal service funds are included in governmental activities

3. d

4. d

5. a $150,000 = $500,000 – $350,000

6. d $37,000 = $25,000 + $20,000 – $8,000

7. c $660,000 = $1,000,000 + $300,000 - $40,000 - $600,000

8. d $1,035,000 = $1,000,000 + $60,000 interest - $20,000 benefits paid - $5,000 deduction for investment revaluation

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E18-6 Capital Projects Fund Entries

a. Entries for capital projects fund during 20X2:

1..1. Receipt of grant, sale of bonds and transfer of premium. January 1, 20X2. Cash 50,000

Revenue – County Grant 50,000 Receipt of grant from county.

January 1, 20X2Cash 156,000 Other Financing Sources – Bond Issue 150,000 Other Financing Sources – Bond Premium 6,000 Sale of $150,000 par bonds at 104.

November 3, 20X2Other Financing Uses – Transfer Out to Debt Service Fund 6,000 Cash 6,000 Transfer premium to debt service fund.

2. Entries to record and pay for construction: April 5, 20X2

ENCUMBRANCES 182,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 182,000

August 8, 20X2BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 182,000 ENCUMBRANCES 182,000

Expenditures—Capital Outlay 189,000 Contract Payable 189,000 Establish contract payable for walkway.

Expenditures—Capital Outlay 5,500 Vouchers Payable 5,500 Establish vouchers payable for added carpeting.

November 3, 20X2Contract Payable 189,000Vouchers Payable 5.500 Cash 194,500 Pay contract payable and vouchers payable.

3. Close nominal accounts:Revenue – County Grant 50,000Other Financing Sources – Bond Issue 150,000Other Financing Sources – Bond Premium 6,000 Fund Balance – Unreserved 206,000

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E18-6 (continued)

Fund Balance – Unreserved 200,500 Expenditures 194,500 Other Financing Uses – Transfer Out to Debt Service Fund 6,000

4. Transfer of ending balance and close transfer account:Other Financing Uses – Transfer Out to Debt Service Fund 5,500 Cash 5,500 Record transfer of remainder to Debt Service.

Fund Balance – Unreserved 5,500 Other Financing Uses – Transfer Out to Debt Service Fund 5,500 Close transfer out against unreserved fund balance.

b.City of Waterman

Capital Projects FundStatement of Revenues, Expenditures,

and Changes in Fund BalanceFor Fiscal Year Ended December 31, 20X2

Revenue: County Grant $ 50,000 Expenditures: Capital Outlay 194,500 Deficiency due to excess of Expenditures over Revenue $(144,500) )Other Financing Sources (Uses): Proceeds of Bond Issue $156,000 Transfer Out to Debt Service Fund--Premium (6,000) Transfer Out to Debt Service Fund--Remainder (5,500 ) Total Other Financing Sources (Uses) 144,500 Net Change in Fund Balance $ -0-Fund Balance, January 1, 20X2 -0- Fund Balance, December 31, 20X2 $ -0-

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E18-7 Debt Service Fund Entries and Statement

a. Entries for debt service fund during 20X2:

1. ESTIMATED REVENUES CONTROL 35,000ESTIMATED OTHER FINANCING SOURCES – TRANSFER IN 5,000 APPROPRIATIONS CONTROL 34,000 BUDGETARY FUND BALANCE 6,000 Record budget.

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

Cash 35,000 Property Taxes Receivable 35,000 Record tax collections.

Property Taxes Receivable — Delinquent 5,000Allowance for Uncollectibles 4,000 Property Taxes Receivable 5,000 Allowance for Uncollectibles – Delinquent 1,000 Revenue – Property Tax 3,000 Revise estimate of uncollectibles and reclassify remaining receivables.

Cash 6,000 Other Financing Sources – Transfer in from Capital Projects Fund 6,000 Receive bond premium.

3. Expenditures 30,000 Matured Bonds Payable ($150,000 x 1/10 due) 15,000 Matured Interest Payable ($150,000 x .10 interest)

15,000

Record matured principal and interest.

Matured Bonds Payable 15,000Matured Interest Payable 15,000 Cash 30,000 Pay matured principal and interest.

Expenditures 1,700 Vouchers Payable 1,700 Record other expenditures.

Vouchers Payable 1,200 Cash 1,200 Pay approved vouchers.

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E18-7 (continued)

4. Cash 5,500 Other Financing Sources – Transfer In From Capital Projects Fund 5,500 Record transfer of unspent funds in capital projects fund to debt service fund.

5. APPROPRIATIONS CONTROL 34,000BUDGETARY FUND BALANCE 6,000 ESTIMATED REVENUES CONTROL 35,000 ESTIMATED OTHER FINANCING SOURCES – TRANSFER IN 5,000 Close budgetary accounts.

Revenue – Property Tax 39,000Other Financing Sources – Transfer in from Capital Projects Fund ($6,000 + $5,500) 11,500 Fund Balance – Reserved for Debt Service 18,800 Expenditures 31,700 Close nominal accounts..

b. City of WatermanDebt Service Fund

Balance SheetDecember 31, 20X2

Assets: Cash $15,300 Property Tax Receivables (net) 4,000 Total Assets $19,300Liabilities: Vouchers Payable $ 500Fund Balance: Reserved for Debt Service 18,800 Total Liabilities and Fund Balance $19,300

c. City of WatermanDebt Service Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For Fiscal Year Ended December 31, 20X2Revenue: Property Taxes $39,000 Expenditures: Principal Retirement $15,000 Interest 15,000 Miscellaneous 1,700 Total Expenditures 31,700 Excess of Revenue over Expenditures $ 7,300 Other Financing Sources (Uses): Transfers In From Capital Projects Fund 11,500 Net Change in Fund Balance $18,800 Fund Balance, January 1, 20X2 -0- Fund Balance, December 31, 20X2 $18,800

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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 12,400Operating Expenses 328,000Interest 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 12,400Vouchers Payable 325,000Interest Payable 30,000 Cash 367,400 Record payment of approved vouchers, interest, and payment to central stores.

5. Revenue 6,300 Allowance for Uncollectibles 6,300 Reduce revenue for uncollectible accounts.

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.

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E18-8 (continued)

Closing entries:

Revenue 413,700 Operating Expenses 328,000 Interest Expense 30,000 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 – Unrestricted 8,500 Close profit and loss summary.

Net Assets – Unrestricted 43,000 Net Assets – Invested in Capital Assets, Net of Related Debt 43,000 Record increase in net assets-invested: $43,000 = (ending balance of $563,000 net capital assets less $500,000 related debt) minus $20,000 beginning balance in net assets- Invested in capital assets net of related debt

b. AugustaMUD Enterprise Fund

Statement of Net AssetsDecember 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

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E18-8 (continued)

c. AugustaMUD Enterprise Fund

Statement of Revenue, Expenses, andChanges in Fund Net Assets

For Fiscal Year Ended December 31, 20X1

Revenue: Revenue from Services $413,700 Expenses: Operating $328,000 Depreciation 32,000 Supplies 15,200 375,200 Operating Income $ 38,500Nonoperating Expense: Less: Interest on Capital-Related Debt 30,000 Change in Net Assets $ 8,500Net Assets, January 1 130,000 Net Assets, December 31 $138,500

[Note that interest expense on capital-related debt is a non-operating expense.]

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E18-8 (continued)

d.Augusta

MUD Enterprise FundStatement of Cash Flows

For 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 ) Net Cash Provided by Operating Activities $ 94,600

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: Interest on Capital-Related Debt $(30,000) Extension of Service Lines (75,000 ) Net Cash Used for Capital and Related Financing Activities (105,000)

Cash Flows from Investing Activities -0-

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

Reconciliation of Operating Income to Net CashProvided by Operating Activities:

Operating Income $ 38,500 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities:Depreciation $ 32,000 Change in Assets and Liabilities: Decrease in Inventory and Supplies 2,800 Decrease in net Accounts Receivable 18,300 Increase in Vouchers Payable 3,000 Total Adjustments 56,100

Net Cash Provided by Operating Activities $ 94,600

[Note that interest paid on capital-related debt is reported in cash flows from capital and related financing activities and not in the operating activities.]

18-21


E18-9 Interfund Transfers and Transactions

General Fund

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

b. June 30, 20X8, Closing entry: Fund Balance – Unreserved 12,000 Other Financing Uses – 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 Uses – Transfer Out to Debt Service Fund 2,400 Cash 2,400

b. June 30, 20X8, Closing entry: Fund Balance – Unreserved 2,400 Other Financing Uses – 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: Fund Balance – Unreserved 825 Expenditures 825

18-22


E18-9 (continued)Other Fund

1. Building Maintenance Internal Service Fund

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

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 Sources – Transfer In from General Fund 2,400

b. June 30, 20X8, Closing entry: Other Financing Sources – 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 - Unrestricted 825

18-23


E18-10 Internal Service Fund Entries and Statements

a. Entries for 20X2, including closing entries:

1. Inventory of Supplies 96,000Furniture 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 204,000Operating 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 – Unrestricted 27,000 Close profit and loss summary.

Net Assets – Invested in Capital Assets, Net of Related Debt 18,300 Net Assets - Unrestricted 18,300 Reclassify net assets as of end of period: $18,300 = (ending balance of $191,700 net capital assets less $0 related debt ) less $210,000 beginning balance in net assets invested.

18-24


E18-10 (continued)

b. BellevuePrinting Shop Fund

Statement of Net AssetsDecember 31, 20X2

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

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. BellevuePrinting Shop Fund

Statement of Revenue, Expenses, andChanges 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 23,000 265,000 Income $ 27,000Net Assets, January 1 248,000 Net Assets, December 31 $275,000

18-25


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

18-26


E18-11 Multiple-Choice Questions on Government-wide Financial Statements

1. c ($1,450,000 - $120,000)

2. a [($1,450,000 - $120,000) - $780,000]

3. b

4. c For the amount of the bond issue proceeds. Note that no repayments of debt were made during the year.

5. c The interest adjustment is from the modified accrual basis ($30,000) to the accrual basis of measurement ($25,000).

6. d

7. c

8. b

9. c

10. b

18-27


SOLUTIONS TO PROBLEMS

P18-12 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 Uses – 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.

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

18-28


P18-13 Entries for Funds [AICPA Adapted]

Fund Journal Entries

1. General ESTIMATED REVENUES CONTROL 400,000Fund APPROPRIATIONS CONTROL 394,000

BUDGETARY FUND BALANCE – UNRESERVED 6,000

2. General Taxes Receivable – Current 390,000Fund Revenue – Taxes 382,200

Allowance for Uncollectibles – Current 7,800

3. Private- Investments 50,000Purpose Contributions 50,000Trust Fund

Cash 5,500 Additions – Interest 5,500

4. General Other Financing Uses – Transfer Out to Internal Service Fund 5,000 Cash 5,000

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

5. Capital Cash 72,000Projects Other Financing Sources – Bond Issue 72,000

Due from General Fund 3,000 Other Financing Sources – Transfer In from General Fund 3,000

Debt Special Assessments Receivable 24,000Service Revenue – Special Assessments 24,000Fund

General Other Financing Uses – Transfer Out to Capital Projects Fund 3,000 Due to Capital Projects Fund 3,000

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

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

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

18-29


P18-13 (continued)

Fund Journal Entries

7. Capital ENCUMBRANCES 75,000Projects BUDGETARY FUND BALANCE – RESERVEDFund FOR ENCUMBRANCES 75,000

BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 75,000 ENCUMBRANCES 75,000

Expenditures 75,000 Contracts Payable 75,000

Contracts Payable 75,000 Cash 75,000

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

9. General Cash 393,000Fund 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

10. Capital Cash 500,000Projects Other Financing Sources – Bond Issue 500,000Fund

11. General BUDGETARY FUND BALANCE – RESERVEDFund FOR ENCUMBRANCES 15,000

ENCUMBRANCES 15,000

Expenditures 15,000 Cash 15,000

18-30


P18-14 Entries to Adjust Account Balances [AICPA Adapted]

a. General Fund

Adjusting entries:

1. Allowance for Uncollectibles – Delinquent 2,200 Fund Balance – Unreserved 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. Fund Balance – Unreserved 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.

18-31


P18-14 (continued)

Closing entries:

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

38,000

BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 2,100 ENCUMBRANCES 2,100

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

Revenue 306,000Fund Balance – Unreserved 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 Sources – Bond Issue 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.

18-32


P18-15 Capital Projects Fund Entries and Statements

a. Journal entries:

1. CPF Cash 5,080,000 Other Financing Sources – Bond Issue 5,000,000 Other Financing Sources – Bond Premium 80,000

Other Financing Uses – Transfer Out to Debt Service Fund 80,000 Cash 80,000

DSF Cash 80,000 Other Financing Sources – 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 Sources – Bond Issue 5,000,000Other Financing Sources – Bond Premium 80,000 Expenditures 2,045,000 Other Financing Uses – Transfer Out to Debt Service Fund 80,000 Fund Balance – Unreserved 2,955,000

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

18-33


P18-15 (continued)

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

b. West CityCapital Projects Fund

Balance SheetJune 30, 20X3

AssetsCash $ 3,155,000 Total Assets $ 3,155,000

Liabilities and Fund BalanceContracts 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 CityCapital 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

18-34


P18-16 Recording Entries in Various Funds [AICPA Adapted]

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

Cash 800,000 Other Financing Sources – Bond Issue 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.

18-35


P18-16 (continued)

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

Other Financing Uses – 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 Sources – 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 300,000Matured 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.

Fund Balance – Unreserved 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.

18-36


P18-17 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

18-37


P18-18 Questions on Fund Transactions [AICPA Adapted]

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

2. $17,000 (Stated in item #4.)

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 was expended.)

6. $104,500 (Stated in item #3.)

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.)

18-38


P18-19 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

18-39


P18-20 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

18-40


P18-21 Question on Fund Transactions [AICPA Adapted]

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

18-41


P18-22 Major Fund Tests

Step 1: 10 percent criterion tests

Denominators for 10 percent tests are the total of each of the four items for that fund type (for governmental and then for enterprise)

10 percent criterion tests:

Governmental fund type: Assets Liabilities Revenues ExpendituresPercent of: $2,112,400 $951,300 $5,790,000 $5,659,800

General fund – is always a major fundSpecial Revenue 1.28%(a) 2.00% 5.65% 5.80%Capital Project – Library 21.30%* 3.99% 7.94% 7.39%Capital Project – Arena 1.33% 1.68% 0.71% 0.99%Debt Service 1.94% 0.00% 5.72% 5.12%Permanent 11.65%* 0.00% 0.19% 0.32%

Enterprise fund type: Assets Liabilities Revenues Expenses Percent of: $3,996,000 $2,900,700 $618,000 $543,000

Enterprise – Electric 66.07%* 62.08%* 46.76%* 45.12%* Enterprise – Water 33.93%* 37.92%* 53.24%* 54.88%*

(a) 1.28% = $27,000 / $2,112,400* Meets the 10 percent criterion test

18-42


P18-22 (continued)

Step 2: 5 percent criterion tests

The 5 percent criterion test is applied only to those funds that met the 10 percent criterion test.

(For each of the four 5 percent tests, the denominator is the combined amount of that item from the governmental funds plus the enterprise funds.)

Computation of denominators for 5 percent governmental and enterprise fund types:

Assets Liabilities Revenue

sExpenditures/

ExpensesGovernmental fund types $2,112,400 $ 951,300 $5,790,000 $5,659,800Enterprise fund types 3,996,000 2,900,700 618,000 543,000 Combined $6,108,400 $3,852,000 $6,408,000 $6,202,800

5 percent criterion tests:

Assets Liabilities Revenues Expenditures/

Expenses

Percent of combined amount of: $6,108,400 $3,852,000 $6,408,000 $6,202,800

Governmental fund type: General fund – is always a major fund Capital Project – Library 7.37%(a)** 0.99% 7.18%** 6.74%** Permanent 4.03% 0.00% 0.17% 0.29%

Enterprise type funds: Enterprise – Electric 43.22%** 46.75%** 4.51% 3.95% Enterprise – Water 22.20%** 28.56%** 5.13%** 4.80%

(a) 7.37% = $450,000 / $6,108,400** Meets the 5 percent criterion test

To be a major fund, an individual fund must meet both the 10 percent and the 5 percent major fund criteria in at least one financial statement item. Each major fund is presented in a separate column on the fund-based financial statements presented as part of the comprehensive annual financial report for the governmental entity.

(1) General fund – is always a major fund(2) Capital Projects – Library fund – assets (both 10% and 5% criterion tests)(3) Enterprise – Electric – assets and liabilities (both 10% and 5% criterion tests)(4) Enterprise – Water – assets, liabilities, revenues (both 10% and 5% criterion tests)

The other governmental funds must be aggregated and reported in a single column in the governmental funds balance sheet and statement of revenues, expenditures, and changes in fund balance.

18-43


P18-23 Reconciliation Schedules

a. Reconciliation of the Balance Sheet of the Governmental Funds to the Statement of Net Assets:

City of SycamoreReconciliation of the Balance Sheet of Governmental Funds

to the Statement of Net Assets

Fund balances reported in the governmental funds $ 888,400 Amounts reported for the governmental activities in the statement of net assets are different because:Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. The internal service fund reported $18,000 in capital assets. Thus, the amount of the adjustment Is for the capital assets not reported in just the governmental funds, ($4,311,000 = $4,329,000 - $18,000) 4,311,000 Internal service funds are used by management to charge costs of certain activities. The assets and liabilities of the internal service fund and are Included in governmental activities In the statement of net assets. 37,000 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the governmental funds. (460,000)Interest in the governmental funds is recognized under the modified accrual basis, but under the accrual basis for the government-wide financial statements. Net assets are adjusted for interest ($5,000 = $6,000 - $1,000). (5,000 )Net assets of governmental activities $4,771,400

18-44


P18-23 (continued)

b. Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities:

City of SycamoreReconciliation of the Statement of Revenues, Expenditures, and Changes in Fund

Balances of Governmental Funds to the Statement of Activities

Net change in fund balances – governmental funds $509,400 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is capitalized and depreciated over their estimated useful lives. This is the amount by which capital outlays in the governmental funds ($287,000) exceeded depreciation of the governmental assets ($187,000) 100,000 Bond proceeds provide current financial resources for the governmental funds. However, the issuance of debt increases long-term liabilities in the statement of net assets. Bond proceeds of $460,000 are not reduced because there is no repayment of principal during the year. (460,000)Revenues and expenses in the statement of activities are recorded on the accrual basis. Interest in the governmental funds is recorded on the modified accrual basis. Accrual interest revenue exceeded modified accrual interest revenue recognized in the governmental funds by $1,000. Accrual interest expense exceeded modified accrual interest expense by $6,000 ($46,000 - $40,000). The net interest adjustment is $5,000. (5,000)Internal service funds are used by management to charge the costs of certain services. The net revenue (expense) of the internal service funds is reported with governmental activities. 9,000 Change in net assets of governmental activities $153,400

18-45


P18-24 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 entity 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 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

18-46


P18-25 Determining Whether a Special Revenue Fund Is a Major Fund

Test 1: 10% criterion: Are the assets, liabilities, revenues, or expenditures of the special revenue fund at least 10% of their respective totals for all governmental funds?

Totals for Amount Reported byItems Tested Governmental Funds Special Revenue Fund

1. Assets $50,000,000 $4,100,000 ( 8.2%) (10% test failed)

2. Liabilities 22,000,000 3,900,000 (17.7%)(10% test met)

3. Revenues 70,000,000 6,700,000 ( 9.6%)(10% test failed)

4. Expenditures 60,000,000 6,500,000 (10.8%)(10% test met)

Test 2: 5% criterion: Two items met the 10% criterion test--liabilities and expenditures. The 5% criterion test is met if at least one of the items that met the 10% criterion first test is at least 5% of the respective amounts for all governmental and enterprise funds.

Totals for Amount reportedGovernmental and by Special

Items Tested Enterprise Funds Revenue Fund 2. Liabilities $37,000,000 $3,900,000 (10.5%)

(5% test met)4. Expenditures/expenses 82,000,000 6,500,000 ( 7.9%)

(5% test met)

Conclusion:

The special revenue fund should be reported as a major fund on the financial statements of the governmental funds for 20X2 because both its expenditures and liabilities met the 10% and the 5% tests.

18-47


P18-26 Preparation of a Statement of Net Assets for a Governmental Entity

Gibson CityStatement of Net Assets

December 31, 20X2

Governmental Business-type Activities Activities Total

AssetsCash and cash equivalents $ 68,000 $ 28,000 $ 96,000Taxes receivable (net) 52,000 52,000Accounts receivable (net) 12,000 12,000Internal balances (5,000) 5,000Inventories 10,000 7,000 17,000Investments 25,000 15,000 40,000Capital assets: Land 100,000 50,000 150,000 Infrastructure 60,000 60,000 Other depreciable assets (net) 75,000 45,000 120,000 Total assets $385,000 $162,000 $547,000

LiabilitiesVouchers payable $ 32,000 $ 4,000 $ 36,000Accrued interest payable 1,500 2,000 3,500Revenue bonds payable 80,000 80,000General obligation bonds payable 60,000 60,000 Total liabilities $ 93,500 $ 86,000 $179,500

Net assetsInvested in capital assets, net of related debt $175,000* $ 15,000** $190,000Restricted 55,000 5,000 60,000Unrestricted 61,500 *** 56,000 *** 117,500 Total net assets $291,500 $ 76,000 $367,500

Computation notes:* $235,000 of capital assets (net) minus $60,000 of general obligation bonds equals

$175,000.** $95,000 of capital assets minus $80,000 of revenue bonds equals $15,000.*** The unrestricted net assets amount is plugged in to make the total net assets equal

assets minus liabilities.

The internal balances amount of $5,000 is the amount that the governmental activities owe to business-type activities.

18-48

Economy & Finance

solusi manual advanced acc zy Chap018