To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units Multiple Choice The highest level of priority of pronouncements that a government entity should look to for accounting and reporting guidance is a GASB Technical Bulletins b GASB Concepts Statements c AICPA Industry Accounting Guides d GASB Statements Which of the following funds would account for operations that are financed and operated in a manner similar to private business enterprises? a Debt Service Fund b Enterprise Fund c Internal Service Fund d Special Revenue Fund All of the following are Governmental (Expendable) Fund Entities except the a Capital Projects Fund b Debt Service Fund c Internal Service Fund d Special Revenue Fund The activities of a municipal airport should be accounted for in the a General Fund b Internal Service Fund c Special Revenue Fund d Enterprise Fund Fixed assets and noncurrent liabilities are accounted for in the records of a governmental funds b expendable funds c proprietary funds d both governmental and expendable funds The liability for general obligation long-term debt is reported in the a Debt Service Fund b Capital Projects Fund c Enterprise Fund d none of these The activities of a central computer facility should be accounted for in the a General Fund b Internal Service Fund c Enterprise Fund d Capital Projects Fund http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-2 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Internal Service Fund billings to government departments for services rendered is an example of interfund a reimbursements b transfers c services provided and used d loans A nonrecurring contribution from the General Fund to the Enterprise Fund is an example of an interfund a reimbursement b transfer c services provided and used d loan 10 For state and local government units, the full accrual basis of accounting should be used for what type of fund? a Special revenue b General c Debt service d Internal service 11 Encumbrances would not appear in which fund? a General b Enterprise c Capital projects d Special revenue 12 Which type of fund can be either expendable or nonexpendable? a Debt service b Enterprise c Trust d Special revenues 13 Which of the following funds frequently does not have a fund balance? a General fund b Agency fund c Special revenue fund d Capital projects fund 14 A city should record depreciation as an expense in its a general fund and enterprise fund b internal service fund and general fund c enterprise fund and internal service fund d enterprise fund and capital projects fund http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-3 15 Part of the general obligation bond proceeds from a new issuance was used to pay for the cost of a new city hall as soon as construction was completed The remainder of the proceeds was transferred to repay the debt Entries are needed to record these transactions in the a general fund and capital projects fund b general fund and debt-service fund c trust fund and debt-service fund d debt-service fund and capital projects fund 16 One of the differences between accounting for a governmental unit and a commercial unit is that a governmental unit should a not record depreciation expense in any of its funds b always establish and maintain complete self-balancing accounts for each fund c use only the cash basis of accounting d use only the modified accrual basis of accounting 17 When a truck is received by a governmental unit, it should be recorded in the General Fund as a(n) a appropriation b encumbrance c expenditure d fixed asset 18 Which of the following should be accrued as revenues by the general fund of a local government? a Sales tax held by the state which will be remitted to the local government b Parking meter revenues c Sales tax collected by merchants d Income taxes currently due 19 Which of the following funds of a governmental unit recognizes revenues and expenditures under the same basis of accounting as the general fund? a Debt service b Enterprise c Internal service d Nonexpendable trust 20 Repayments from the funds responsible for a particular expenditure to the funds that initially paid for them are interfund a loans b services provided and used c transfers d reimbursements 21 It is proper to recognize revenues or expenditures resulting from which of the following classifications of interfund activity? a Interfund loans and interfund transfers b Interfund services provided/used and interfund reimbursements c Interfund reimbursements and interfund loans d Interfund services provided/used and interfund transfers http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-4 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 22 Revenues of a special revenue fund of a governmental unit should be recognized in the period in which the a revenues become available and measurable b revenues become available and appropriated c revenues are billable d cash is received 23 What is the underlying reason a governmental unit uses separate funds to account for its transactions? a Governmental units are so large that it would be unduly cumbersome to account for all transactions as a single unit b Because of the diverse nature of the services offered and legal provisions regarding activities of a governmental unit, it is necessary to segregate activities by functional nature c Generally accepted accounting principles require that nonbusiness entities report on a funds basis d Many activities carried on by governmental units are shortlived and their inclusion in a general set of accounts could cause undue probability of error and omission 24 Which of the following is not a budgetary account? a Appropriations b Estimated Revenues c Encumbrances d Reserve for Encumbrances 25 An interfund transfer should be reported in a governmental fund operating statement as a(n): a due from (to) other funds b other financing source (use) c revenue or expenditure d none of the above http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-5 Problems 18-1 During 2010, the City of Lebo started a street paving project The project is being financed by the proceeds from the issue of five-year, 6% special assessment bonds payable at a face value of $3,000,000 The bonds were issued July 1, 2010 at their par value One-fifth of the principal plus interest is payable on June 30 of each year beginning June 30, 2011 Property owners are assessed to provide the funds to pay the principal and interest on the debt The following transactions occurred during 2010 and 2011: The bonds for the paving of the streets were issued The street paving was completed at a cost of $3,000,000 Property owners were assessed and billed for the first installment of principal and interest on the special assessment debt Assessments for the first installment of principal and interest on the special assessment debt were collected The June 30, 2011, payment of principal and interest was made Required: Prepare all journal entries for the preceding transactions that are necessary for the City of Lebo assuming: A The City of Lebo has not obligated itself in any manner to the holders of the special assessment bonds B The City of Lebo has made a commitment to the holders of the special assessment bonds to assure the full payment of principal and interest on the due dates 18-2 The following activities and transactions are typical of those which may affect the various funds used by a municipal government Required: Prepare journal entries to record each transaction and identify the fund in which each entry is recorded The Zola City Council passed a resolution approving a general operating budget of $6,800,000 for the fiscal year Total revenues are estimated at $5,800,000 The Zola City Council passed an ordinance providing a property tax levy of $3.50 per $100 of assessed valuation for the fiscal year Total property valuation in Zola City is $320,000,000 Property is assessed at 30% of current property valuation Property tax bills are mailed to property owners An estimated 5% will be uncollectible Kansas City sold a general obligation term bond issue for $1,000,000 at 104 to a major brokerage firm The stated interest rate is 10% Construction of a new Municipal Courts Building will be financed by the bond issue proceeds The premium on bond sale in (3) above is transferred to the Debt Service Fund At the end of fiscal year, the Zola City Council approves the write-off of $55,000 of uncollected taxes because of inability to locate the property owners http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-6 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition The Kansas City Municipal Courts Building (3 above) is completed Contracts and expenses total $1,190,000, and all have been paid and recorded in the Capital Projects Fund Prepare entries to close this project and record the completion of the project in all other funds and/or account groups affected Any balance in the Capital Projects Fund is to be applied to payment of interest and principal of the bond issue On March 1, Webb City issued 10% serial bonds at par to finance streetlights in an area recently incorporated in the city limits The face amount of the bonds is $900,000; interest is payable annually, and bonds are to be retired in equal amounts over years from collections from assessments against property affected In case of default by the property owners, the bond principal will be paid by the city a Record the issuance of the bonds on March of the current year b Record the payment to bondholders on March of the next year The street lighting project in (7) above was completed on September 30 at a total cost of $840,000 Record summary entries for expenditure transactions from March - September 30, and on completion of the project 18-3 Prepare entries, in general journal form, to record the following transactions in the proper fund(s) and/or account group(s) Designate the fund or account group in which each entry is recorded Bond proceeds of $2,000,000 were received to be used in constructing a new City Jail An equal amount is contributed from general revenues Serial bonds in the amount of $300,000 matured Interest of $75,000 was paid on these and other serial bonds outstanding Insurance proceeds amounting to $19,000 were received as a result of the accidental destruction of a garbage truck costing $33,000 Accumulated depreciation on the truck was $21,000 The City Parks Endowment Fund transferred $160,000 in expendable funds to the City Parks Special Revenue Fund Proceeds of $21,000 were received from the sale of equipment which had been purchased from general revenues at a cost of $100,000 Accumulated depreciation on the equipment was $75,000 The City Power Company (an enterprise fund) issued a bill for $400,000 for electricity provided to municipal government buildings The City Power Company transferred excess funds of $90,000 to the General Fund A central data processing center was established by a contribution of $400,000 from the General Fund, a long-term loan of $130,000 from the City Parks Special Revenue Fund, and general obligation bond proceeds of $180,000 The Data Processing Fund billed the General Fund $20,000 and the City Parks Special Revenue Fund $8,500 for data processing services http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-7 10 The City Power Company received $7,000 as customer deposits during the year The monies are to be held in trust until customers request that their services be discontinued and final bills are collected 11 In order to retire general obligation term bonds when they become due, it is determined that the Debt Service Fund will require annual contributions of $40,000 and earnings in the current year of $3,000 18-4 The general fund trial balance for Shawnee City held the following balances at June 30, 2011, just before closing entries were made: Unreserved Fund Balance Estimated Revenues Revenues Appropriations Expenditures Expenditures-Prior Year Encumbrances Operating Transfers In Reserve for Encumbrances Reserve for Encumbrances – Prior Year $ 2,000 33,000 27,250 28,000 26,200 1,200 3,000 6,000 3,000 1,500 Required: Prepare the necessary closing entries 18-5 The following schedule of capital assets was prepared for Pratt County Government Activities Total Capital Assets Less: Accumulated Depreciation Net Capital Assets Beg Balance $850,000 ( 500,000) $350,000 Additions 250,000 ( 50,000) $200,000 Retirements (185,000) 150,000 Ending Balance $915,000 ( 400,000) ( 35,000) $515,000 All capital asset acquisitions were made in the capital projects fund and paid in cash An asset was sold by the general fund for $40,000 cash Required: Determine how the above information will be reflected on each of the following statements for the year 2011 A The governmental funds’ statement of revenues, expenditures, and changes in fund balances List the governmental fund and then list the dollar amount within the appropriate heading on the statement (such as Revenues, Expenditures, or Other Financing Sources (Uses)) B The government-wide statement of net assets C The government-wide statement of activities http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-8 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 18-6 The following events take place: Interest payments in the amount of $20,000 that are the responsibility of the Debt Service Fund are paid by the General Fund The Internal Service Fund bills the Special Revenue Fund $25,000 for services performed The Special Revenue Fund transfers $10,000 to the Internal Service Fund as a temporary loan The General Fund transfers $150,000 to start an Internal Service Fund Required: Identify the interfund activity as a loan, services provided and used, interfund transfer, or interfund reimbursement and prepare entries in general journal form to record the transactions on the records of the fund involved 18-7 The following transactions take place: On January 1, the city issued 9% general obligation bonds with a face value of $4,000,000 payable in 10 years to finance the construction of city offices Total proceeds were $4,500,000 On December 20, construction was completed and occupancy taken of the city offices The full cost of $3,900,000 was paid to the contractor, and appropriate closing entries were made with regard to the project The General Fund repaid the Special Revenue Fund a loan of $15,000 plus $900 in interest on the loan Required: Prepare entries in general journal form to record these transactions in the proper fund(s) Designate the fund in which each entry is recorded Short Answer There are eleven categories of government fund entities that fall under three subheadings Describe the subheadings of government fund entities GASB Statement No 34 specifies how governments report capital assets and long-term obligations Describe where capital assets and long-term obligations are reported in government financial statements Short Answer Questions from the Textbook Eleven funds are recommended to account for the various activities and resources of a governmental unit Identify these funds by title and type and briefly state (in two sentences or less) the basic purpose of each fund Why are governments required to prepare financial statements on a government-wide basis using full accrual accounting? What is the difference between a governmental fund and a proprietary fund? Are fiduciary funds governmental funds or proprietary funds? Explain http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-9 A disbursement by the general fund to another fund may be recorded as a receivable, an expenditure, or a fund transfer Explain the circum-stances that would result in each of these different treatments In what funds would you expect bonds payable to be included? In what funds might property and other non financial resources be recorded? Why are budgeted revenues and expenditures formally recorded in the records of the general fund but not in the records of a capital projects fund? Are all major capital facilities acquisitions ac-counted for in a capital projects fund? Explain 10 What exception to the normal expenditure recognition criteria is associated with debt ser-vice funds and what is the justification for this exception? 11 Identify and describe four types of interfund activities 12 The following funds and account groups are recommended for use in accounting for state and municipal governmental financial operations: A General Fund B Special Revenue Fund C Debt Service Fund D Capital Projects Fund E Agency Fund F Enterprise Fund G Internal Service Fund H Trust Fund I Government-wide Statement of Activities J Government-wide Statement of Net Assets Identify, by the letters given above, the funds and account groups in which each of the ac-count titles below might properly appear (1) Bonds Payable (2) Reserve for Encumbrances (3) Equipment (4) Appropriations (5) Estimated Revenue (6) Property Taxes Receivable (7) Construction Work in Progress (8) Accumulated Depreciation (9) Depreciation Expense (10)Required Earnings 13 Describe some of the major reconciling items between a government fund and the governmentwide financial statements Business Ethics Question from the Textbook GASB 45requires that the expected future costs of retiree health costs be recognized in the current period Prior to this, governments used a pay-as-you-go plan in which only the current year’s actual payments http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-10 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition affected the financial statements Suppose you are working for a government prior to the issuance of GASB 45 As part of the collective bar-gaining agreement, the government offers employees increased health benefits Prior to the issuance of GASB 45, what would be the impact on the government’s financial statements? Under GASB 45, what are the financial statement implications? Why might the current governmental leaders agree to offer such a benefit?4.What are the ethical issues involved in this decision? http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-11 ANSWER KEY Multiple Choice d b c d c d b 10 11 12 13 14 c b d b c b c 15 16 17 18 19 20 21 d b c a a d b 22 23 24 25 a b d b Problems 18-1 A Capital Projects Fund Cash Contribution from Property Owners Capital Projects Fund Expenditures Cash 3,000,000 3,000,000 3,000,000 3,000,000 No Entry Necessary Agency Fund Cash [(3,000,000/5) + (3,000,000 × 06)] Amount Held for Debt Service Amount Held for Debt Service Cash B Capital Projects Fund Cash Term Bond Payable Capital Projects Fund Expenditures Cash Debt Service Fund Special Assessment Receivable Special Assessment Revenue [(3,000,000/5) + (3,000,000 × 06)] 780,000 780,000 780,000 780,000 3,000,000 3,000,000 3,000,000 3,000,000 780,000 http://downloadslide.blogspot.com 780,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-12 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Debt Service Fund Cash Special Assessment Receivable Expenditures – Principal Expenditures – Interest Cash 18-2 General Fund: Estimated Revenue Unreserved Fund Balance Appropriations General Fund: Property Tax Receivable Allowance for Uncollectible Taxes Revenue Capital Projects Fund: Cash Term Bond Payable Premium on Bond Payable Capital Projects Fund: Transfer to Debt Service Fund Cash Debt Service Fund: Cash Transfer from Capital Projects Fund General Fund: Allowance for Uncollectible Taxes Property Tax Receivable Capital Assets: Buildings Cash 780,000 780,000 600,000 180,000 780,000 5,800,000 1,000,000 6,800,000 3,360,000 168,000 3,192,000 1,040,000 1,000,000 40,000 40,000 40,000 40,000 40,000 55,000 55,000 1,190,000 1,190,000 Capital Projects Fund: Transfer to Debt Service Fund Cash 10,000 Debt Service Fund: Cash Transfer from Capital Projects Fund 10,000 10,000 http://downloadslide.blogspot.com 10,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-13 Capital Projects Fund: Cash Term Bond Payable 900,000 Debt Service Fund: Expenditures – Principal Expenditures – Interest Cash 150,000 90,000 Capital Projects Fund: Expenditures Vouchers Payable/Cash Fund Balance Expenditures 18-3 900,000 240,000 840,000 840,000 840,000 840,000 Capital Projects Fund: Cash Term Bond Payable Transfer from General Fund General Fund: Transfer to Capital Projects Fund Cash Debt Service Fund: Expenditures Cash 4,000,000 2,000,000 2,000,000 2,000,000 2,000,000 375,000 375,000 General Fund: Cash Revenue 19,000 19,000 Capital Assets Cash Accumulated Depreciation Gain on Sale Vehicles 19,000 21,000 7,000 33,000 Trust Fund: Transfer to Special Revenue Fund Cash 160,000 Special Revenue Fund: Cash Transfer from Trust Fund 160,000 160,000 http://downloadslide.blogspot.com 160,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-14 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition General Fund: Cash Revenue 21,000 21,000 Capital Assets: Cash Accumulated Depreciation Loss on Sale Machinery and Equipment Enterprise Fund: Due from General Fund Revenue General Fund: Expenditures Due to Enterprise Fund Enterprise Fund: Transfer to General Fund Cash General Fund: Cash Transfer from Enterprise Fund 21,000 75,000 4,000 100,000 400,000 400,000 400,000 400,000 90,000 90,000 90,000 90,000 Internal Service Fund: Cash 710,000 Contribution from General Fund Due to City Parks Fund Contributions from General Obligation Bonds General Fund: Transfer to Internal Service Fund Cash 400,000 Special Revenue Fund: Due from Internal Service Fund Cash 130,000 400,000 130,000 180,000 400,000 http://downloadslide.blogspot.com 130,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-15 Internal Service Fund: Due from General Fund Due from Special Revenue Fund Revenue 20,000 8,500 28,500 General Fund: Expenditures Due to Internal Service Fund 20,000 Special Revenue Fund: Expenditures Due to Internal Service Fund 8,500 10 Agency Fund: Cash Customer Deposit Agency Fund Balance 11 Debt Service Fund: Required Additions Required Earnings Fund Balance 20,000 8,500 7,000 7,000 40,000 3,000 43,000 18-4 Appropriations Unreserved Fund Balance Estimated Revenues 28,000 5,000 Revenues Operating Transfers In Expenditures Encumbrances Unreserved Fund Balance 27,250 6,000 Reserve for Encumbrances – Prior Year Expenditures – Prior Year 1,500 33,000 26,200 3,000 4,050 http://downloadslide.blogspot.com 1,500 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-16 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 18-5 A Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance For the Year Ended December 31, 2011 General Fund Capital Projects Fund Debt Service Fund Total Governmental Funds Revenues Expenditures Expenditure (250,000) (250,000) Other Financing Sources (Uses) Special Items Revenue from asset sale 40,000 40,000 B Government-wide Statement of Activities For the Year Ended December 31, 2011 Depreciation expense Gain on sale (50,000) 5,000 C Government-wide Statement of Net Assets December 31, 2011 Capital Assets Accumulated Depreciation Net Capital Assets 18-6 915,000 (400,000) $515,000 Interfund Reimbursement General Fund Due From Debt Service Fund Expenditures 20,000 Debt Service Fund Expenditures Due to General Fund 20,000 20,000 http://downloadslide.blogspot.com 20,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-17 18-7 Interfund service provided and used Internal Service Fund Due From Special Revenue Fund Revenue 25,000 Special Revenue Fund Expenditures Due to Internal Service Fund 25,000 25,000 25,000 Interfund loan Special Revenue Fund Due From Internal Service Fund Cash 10,000 Internal Service Fund Cash Due to Special Revenue Fund 10,000 10,000 10,000 Interfund Transfer General Fund Transfer to Internal Service Fund Cash 150,000 Internal Service Fund Cash Contributions From General Fund 150,000 Capital Projects Fund Cash Term Bond Payable Premium on Bond Payable Transfer to Debt Service Fund Cash Debt Service Fund Cash Transfer From Capital Projects Fund 150,000 150,000 4,500,000 4,000,000 500,000 500,000 500,000 500,000 http://downloadslide.blogspot.com 500,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-18 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Capital Projects Fund Expenditures Cash Bond Issue Proceeds Expenditures Transfer to Debt Service Fund Unreserved Fund Balance 3,900,000 4,500,000 3,900,000 500,000 100,000 Transfer to Debt Service Fund Cash 100,000 Unreserved Fund Balance Transfer to Debt Service Fund 100,000 Debt Service Fund Cash Transfer from Capital Projects Fund Capital Assets Buildings Cash 3,900,000 100,000 100,000 100,000 100,000 3,900,000 3,900,000 General Fund Due to Special Revenue Fund Expenditures Cash Special Revenue Fund Cash Due From General Fund Revenue 15,000 900 15,900 15,900 15,000 900 Short Answer Governmental funds report on current period resources and focus on inflows, outflows, and unexpended financial resources They are designed to determine compliance with legal provisions specifying how revenues are raised and resources spent Proprietary funds are used to account for the business-type activities of the government The reporting focused on the determination of operating income, changes in net assets, financial position, and cash flows Fiduciary funds account for assets held by the government for others and these funds cannot be used to support the government’s own programs The reporting focuses on net assets and changes in net assets Capital assets and long-term obligations are not reported for governmental activities Instead, these items are reported on the government-wide Statement of Net Assets and for proprietary funds Schedules of capital assets and a schedule of long-term obligations are required to be disclosed http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-19 Short Answer Questions from the Textbook Solutions Fund Entities Governmental Funds (1) General Fund - to account for all unrestricted resources except those required to be accounted for in another fund (2) Special Revenue Funds - to account for the proceeds of specific revenue sources (other than expendable trusts, or for major capital projects) that are legally restricted to expenditures for specified purposes (3) Capital Projects Funds - to account for financial resources segregated for the acquisition of major capital facilities (other than those financed by Enterprise Funds) (4) Debt Service Funds - to account for the accumulation of resources for, and the payment of, interest and principal on general obligation long-term debt (5) Permanent Funds – to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the government’s programs – that is, for the benefit of the government or its citizenry Proprietary Funds (6) Enterprise Funds – to account for the provision of goods or services to the general public on a continuing basis where all or most of the costs involved are financed by user charges, or where periodic determination of revenue earned, expenses incurred, and /or net income is appropriate for management control, accountability, or other purposes (7) Internal Service Funds - to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost – reimbursement basis Fiduciary Funds (8) Pension (and Other Employee Benefit) Trust Funds – used to report resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other postemployment benefit plans, or other employee benefit plans (9) Investment Trust Funds – used to report the external portion of investment pools reported by the sponsoring government (10) Private-Purpose Trust Funds – used to report escheat property and to report all other trust agreements under which principal and income benefit individuals, private organizations, or other governments Agency Funds – used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities) Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments (11) Government-wide statements are now required to help users assess the benefits and costs of various programs in a manner comparable to the appraisal of profit seeking businesses For example, the revenues generated by a program can be compared to the expenses incurred by that program The new requirements http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-20 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition also enable a reconciliation to be made between the fund statements and these new government-wide statements By providing this information, the government-wide statements should contribute to meeting the operational accountability aspects of the overall objective stated in the conceptual framework: fulfilling government’s duty to be publicly accountable and enabling users to assess that accountability A governmental fund is an expendable fund entity The accounting and reporting emphasis for a governmental fund is on the inflow, outflow, and unexpected balance of net financial resources and on the compliance with detailed legal provisions that specify the types of revenue to be raised and the purposes for which the financial resources may be used The accounting and reporting emphasis of a proprietary fund is similar to that of a commercial enterprise Thus, both current and fixed assets and current and noncurrent liabilities are accounted for in the records of proprietary fund entities In addition, revenue, expenses (including depreciation) and net income are determined and reported for proprietary fund entities Fiduciary funds are classified as governmental funds or as proprietary funds depending upon whether or not their resources must be maintained intact If the resources of a fiduciary fund may be expected to carry out its designated activities it is classified as a governmental (expendable) fund entity If the principal of the fiduciary fund must be maintained intact it is classified as a proprietary (nonexpendable) fund entity A disbursement to another fund is treated as a receivable on the records of the fund that makes the disbursement when the disbursement constitutes an advance or loan to another fund A disbursement to another fund is treated as an expenditure on the records of the fund that makes the disbursement when the disbursement constitutes a quasi-external transaction or a reimbursement Quasiexternal transactions are interfund transactions that would be treated as revenue, expense or expenditures if they were consummated with an organization external to the governmental unit Reimbursements are transactions which involve the transfer of resources from one fund to another in order to reimburse the recipient fund for expenditures made by it that are properly expenditures of the reimbursing fund All interfund transactions other than quasi-external transactions, reimbursements, and loans or advances are interfund transfers and are recorded as a transfer to other funds on the records of the fund that makes the disbursements Bonds payable may be included in the records of an Enterprise Fund, the government-wide statement of net assets and under some circumstances in the records of an internal Service Fund Property and other nonfinancial resources may be included in the records of an Enterprise Fund, an Internal Service Fund, a nonexpendable Trust Fund and the government-wied statement of net assets Estimated revenues and appropriations are formally recorded in the records of the General Fund to assist in the control and administration of general fund expenditures In particular, the formal recording of appropriations is intended to assist administrators in complying with specific legal restrictions on the amount of various classifications of expenditures Since the resources of a Capital Projects Fund can be expended for only the single authorized project for which the fund was created, the fund balance itself serves an adequate measure of and control over unexpended appropriation authority Thus, there is no necessity to formally record the budgeted revenue and appropriation for the capital project Not all major capital facilities acquisitions are accounted for in Capital Projects Funds Construction or http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 18 Introduction to Accounting for State and Local Governmental Units 18-21 acquisition of capital facilities financed by Enterprise Funds are accounted for in the records of those funds In addition, there may be instances in which the resources of the General Fund or a Special Revenue Fund are appropriated for the acquisition of a major capital facility So long as such acquisitions not involve the issuance of general obligation long-term debt securities, they may be accounted for in the fund which appropriates the resources rather than in a separate Capital Projects Fund 10 Unpaid interest on bonds payable incurred since the last payment date is not accrued as an expenditure and liability of the Debt Service Fund at year end This exception to expenditure accrual is justified because financial resources that are appropriated in other funds or from general tax levies for transfer to or receipt by Debt Service Funds are usually appropriated in the period in which the interest on the debt must be paid To accrue the Debt Service Fund expenditure and liability in one year, but record the transfer or collection of the financial resources appropriated for this purpose in a later year, would be confusing and potentially misleading 11 Interfund activity includes the following four items Interfund loans – Interfund loans should be reported as interfund receivables in the lender fund and as an interfund payable in the borrower fund Interfund services provided and used – (previously known as quasi-external transactions) sales and purchases of goods and services between funds for a price approximating their external exchange value Interfund services provided and used should be reported as revenues in seller funds and expenses or expenditures in the purchaser funds Unpaid amounts should be reported as interfund receivables and payables in the fund balance sheet or the statement of net assets Interfund transfers – (formerly known as either residual equity transfers or operating transfers) flows of assets without an equivalent flow of assets in return and without a requirement for repayment In government funds, transfers should be reported as ‘other financing uses’ in the funds and as ‘other financing sources’ in the funds receiving the transfer In proprietary funds, transfers should be reported after non-operating revenues and expenses Interfund reimbursements – repayments from the funds responsible for the particular expenditure or expense to the funds that initially paid for them Reimbursements should not be displayed in the financial statements http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18-22 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 12 10 13 Bonds Payable: F, J, and in some circumstances G Reserve for Encumbrances; A, B, D, and H Equipment: F, G, and J Appropriations: A, B, and D Estimated Revenue; A and B Property Taxes Receivable; A, B, C, D, H, and J Construction Work in Progress: F, G, and J Accumulated Depreciation: F, G, H, and J Depreciation Expense: F, G, H, and J Required Earnings: C On the Statement of Net Assets, the primary reconciling items include capital assets and long-term liabilities Capital assets used in governmental activities are not financial resources and are not reported in the funds Long-term liabilities are not due and payable in the current period and are not reported in the governmental funds In reconciling the net assets, the primary differences are capital expenditures, sales of assets, bond proceeds, and interest expense Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense over the life of the asset In the statement of activities, the gain or loss from the sale is reported, while in the governmental funds, the proceeds from the sale are reported as revenues Bond proceeds provide current financial resources to government funds, but issuing debt increases long-term liabilities on the statement of assets In government funds, the interest paid is deducted, while in the statement of activities, interest expense is recognized according to the accrual method Business Ethics Business ethics solutions are merely suggestions of points to address The objective is to raise the students' awareness of the topics, and to invite discussion In most cases, there is clear room for disagreement or conflicting viewpoints The current periods financial statements would only reflect the amounts actually paid in the current period (current financial resources) Under GASB 45, the liability for future amounts to be paid would have to be reported on a present value basis on the government-wide statement of net assets Since the actual outlay associated with an increased benefit does not have to be paid in the current period, the decision defers the economic consequences until a future period One issue to consider is whether the government is concerned about future fiscal responsibility If the debt does not have to be recorded on the books, it might give an unrealistic view of the financial responsibility for future payments that the government has offered Also, because in many cases, the benefits are not guaranteed, there is a likelihood that the benefits might be canceled in the future if the government can not afford them http://downloadslide.blogspot.com ... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18- 8 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 18- 6 The... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18- 16 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 18- 5 A... ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 18- 18 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition