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Retired general government bonds payable upon maturity. The face value was
$2,000,000. Interest of $100,000 was also due and paid. All resources had been
accumulated in a separate fund prior to the retirement date.
Sold land for $300,000, which had been used many years ago as a public park. The land
had been purchased for $140,000. The proceeds of the sale are unrestricted.
The wages of general government employees were paid in the amount of $25,000 during
the month.
Incurred construction costs on a major general government construction project,
$6,000,000; $5,400,000 was paid.
Issued a $800,000, six-month note (6% interest) to provide temporary financing for the
construction of a handicap accessible ramp a city hall.
The six-month note matures and was paid with interest.
Depreciation expense of $80,000 for general capital assets.
General Fund resources of $3,000,000 were paid to a newly established Capital Projects
Fund. The resources will not be repaid to the General Fund.
2.
3.
4.
5.
6.
7.
8.
Governmental Funds
Entry
Fund
FA
RL
FB
1.
2.
3.
4.
5.
6.
7.
8.
8.
GCA
GLTL
NA
Part 2Indicate how each transaction reported in the governmental funds above would be
reported in the operating statements of the various funds that are affected.
Analyze the effects of the following transactions, including year-end interest accruals, on
the accounting equations of the various funds and nonfund accounts of a state or local
government. Unless otherwise indicated, the items are for unrelated entities.
Indicate how each transaction would be reported in the operating statement for each fund
affected. Indicate both the statement and the fund as well as the reporting classification.
Salaries paid to a city's general government employees totaled $3,000,000 for the year.
Accrued salaries at the end of the year were $150,000. There were no accrued salaries at
the beginning of the year.
A government electric utility purchased transmission equipment during the year at a cost
of $5,000,000. One million dollars was paid in cash and the government borrowed the
balance on a two-year, 8% note payable.
The equipment purchase in transaction 2 has a 20-year estimated useful life and no
residual value. The purchase occurred at the beginning of the year.
Benton County issued $8,000,000 of ten-year, 6% bonds at par on July 1, 20X8. The
bonds were issued to finance construction of a high school gymnasium/office building
complex. Interest on the bonds is paid semi-annually.
Benton County paid $3,200,000 during the year to the contractor for the project in
transaction 4.
Benton paid $240,000 from its General Fund to the fund to be used to service the bonds
to provide for the first annual interest payment which will be due in the next fiscal year.
Interest on the Benton County bonds was paid when due.
Albemarle County repaid a $500,000 bond plus interest of $30,000 at the due date, July
1, 20X8. The bond was issued for finance construction of a police station.
Franklin County borrowed $300,000 on a 6-month, 9% note payable dated November 1,
20X8. The note was issued to provide financing for general fund operations and is
considered a fund liability. The Countys fiscal year ends on December 31.
The General Fund loaned $3 million to a fund established to account for the government's
central data processing department. The fund charges users of data processing services a
fee that is calculated to recoup the full cost of providing the data processing services.
The loan is to be repaid in 4 years.
Example: The city paid utilities totaling $60,000 for the current month from its General Fund.
Example Solution:
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-60,000
-60,000
Smith County issued $10 million of general obligation, 10%, 10-year bonds at 105 on
October 1, 20X8. Bond interest is payable semiannually on March 31 and September 30.
The bonds were issued to finance construction of a new county office building.
The county board of supervisors voted to use the premium on the bonds to pay principal
and interest charges on the debt when it matures. Resources were transferred to the
appropriate fund.
The county paid $2 million to Roger Construction Company during 20X8 for work
completed during the year.
Reflect any interest accrual required or permitted at year end.
The county purchased a police vehicle for $22,000 and paid cash.
The county owned and operated electric utility billed residents and businesses $2,000,000
for electricity sales.
The county owned and operated electric utility billed other departments and agencies of
the county $300,000 for electricity sales.
In 20X9 the county paid $2,000,000 from its general fund to the fund from which the
bonds are to be repaid. The purpose of shifting the resources was to provide for the
principal and interest payments to be made during the fiscal year.
The county paid the first interest payment on the bonds when due, March 31, 20X9.
The county paid the second interest payment on the bonds when due, September 30,
20X9, and also repaid $1 million of bond principal on that date.
Example: Salaries paid to a county's general government employees totaled $3,000,000 for the
year. Accrued salaries at the end of the year were $150,000. There were no accrued
salaries at the beginning of the year.
Example Solution:
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-3,000,000
+150,000
-3,150,000
3.
4.
5.
6.
Example: Kibler paid utilities totaling $60,000 for the current month from its General Fund.
Example Solution:
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-60,000
-60,000
b.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Analyze the effects of the following transactions on the accounting equations of the
various funds and nonfund accounts of a state or local government. Include any
adjustments required at the governments December 31 year-end. Unless otherwise
indicated, the items are for unrelated entities.
Indicate how each transaction would be reported in the operating statement for each fund
affected. Indicate the statement and the fund, as well as the reporting classification.
A government issued $10 million of bonds to finance construction of a plant expansion
for its Water and Sewer Enterprise Fund's water treatment plant. The 20-year bonds bear
interest of 10%, payable semiannually each March 31 and September 30. The bonds
were issued at par on April 1, 20X1. The September payment was made as scheduled.
A government issued $5 million of general obligation bonds to finance construction of an
addition to its courthouse. The 10-year bonds pay interest of 10%, payable semiannually
each March 31 and September 30. The bonds were issued at par on April 1, 20X1. The
September payment was made as scheduled from the appropriate fund.
A government purchased a truck at a cost of $45,000 for a general government
department. The truck was paid for from unrestricted resources.
A government paid $200,000 of its general revenues from its unrestricted fund to the fund
to be used to service its outstanding general government bonds.
A government paid general government bond principal ($500,000) and interest
($1,000,000) when it was due. Resources for the payment were available in the
appropriate fund.
A government paid principal ($50,000) and interest ($3,000) on a 6-month note that had
been issued to provide for a temporary shortfall in General Fund cash.
A government was billed $2,000,000 by a contractor for work performed on a major
general government capital project during the year. The government paid the contractor
all but 10% of the amount billed. The project is not complete at year end.
Salaries for general government employees that were incurred but not paid as of year end
were $50,000.
A government completed a major general government capital project during the year.
The $500,000 of net assets remaining in the construction fund after payment of all project
liabilities was paid over to the fund that is to be used to pay the principal and interest on
the construction bonds.
The long-term liability for general government claims and judgments increased by
$200,000 during the year.
Example: The city paid utilities totaling $60,000 for the current month from its General Fund.
Example Solution:
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-60,000
-60,000
The county adopted the General Fund budget for the year. Estimated revenues were
$250,000, appropriations enacted totaled $240,000.
The county levied property taxes of $250,000 for the fiscal year. The county typically
collects 99% of its levy. This amount is expected to be collected during the fiscal year or
shortly thereafter.
The county placed orders for supplies for General Fund departments. The estimated cost
of these items was $130,000.
The county collects $245,000 of property taxes.
Some of the supplies ordered were received. Invoices totaling $115,000 were received for
supplies ordered at an estimated cost of $113,000. The invoices were approved for
payment, but not paid.
Vouchers totaling $115,000 were paid.
Salaries totaling $125,000 were paid.
Accounts are closed at year end.
10
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
The county adopted the General Fund budget for the year. Estimated revenues were
$14,000,000, appropriations enacted totaled $13,700,000.
The county levied property taxes of $10,000,000 for the fiscal year. The county typically
collects 98.5% of its levy. Ninety percent of the levy is expected to be collected during
the fiscal year; another 5% of the levy is expected to be collected in the first two months
of the next fiscal year.
Other charges for services billed for inspection services, parking privileges, and similar
items totaled $500,000. All but $3,000 is expected to be collected, but $50,000 probably
will not be collected until the later half of the next fiscal year.
The county placed orders for materials and supplies for General Fund departments. The
estimated cost of these items was $350,000. The county uses the purchases method to
account for materials and supplies.
The county ordered equipment to be used by General Fund departments. The estimated
cost of the equipment was $1,200,000.
The county received half of the materials and supplies ordered and received the
equipment. The actual costs were: for materials and supplies, $175,000; for equipment
$1,205,000.
Payroll was approved for payment (but not yet paid), $7,000,000.
The county collected $9,000,000 of property taxes during the year. The balance of the
taxes receivable is past due.
The county paid vouchers payable totaling $8,150,000.
Interest and penalties of 10% of the unpaid balances were assessed on delinquent taxes;
15% of the interest and penalties assessed are expected to prove uncollectible. The
remainder should be collected when the associated taxes receivable are collected.
Tax liens were formalized on properties with delinquent taxes receivable of $3,000 and
interest and penalties receivable of $300. The fair value of the properties is $6,000.
General Fund cash was used to purchase investments costing $700,000.
Billings for electricity used by General Fund departments were received from the Utility
Enterprise Fund, $542,000.
The Utility Enterprise Fund was paid $500,000 for electricity.
The Capital Projects Fund paid the General Fund $21,000 for expenditures originally
recorded in the General Fund that should be charged to the capital project.
The General Fund paid $680,000 to the fund to be used to service the county's general
government, general obligation bonds.
The General Fund paid $6 million to a newly established enterprise fund. Half of this
amount must be repaid to the General Fund at the end of three years, the other half is not
required to be repaid.
The county borrowed $100,000 on a 6-month note payable to cover a General Fund cash
shortfall. The note was issued one month before year end and bears interest a 12% per
year. The note is not considered long-term debt.
11
19.
20.
21.
22.
23.
The county General Fund entered into a capital lease of equipment. The capitalizable
cost of the equipment was determined to be $90,000. The county made a down payment
of $10,000 at the inception of the lease agreement.
The county received a restricted grant for a literacy program. The amount of the grant
was $300,000, which was received in cash. All eligibility requirements for the grant are
met except for incurring qualifying expenditures.
Qualifying expenditures of $120,000 were incurred and paid for the literacy program.
Cash interest of $6,000 was received on investments during the year. The fair value of
the investments at year end was $698,000.
Materials and supplies on hand at the beginning of the year totaled $77,000. Materials
and supplies on hand at year end totaled $63,000.
12
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
The government adopted its General Fund budget. Budgeted revenues were $6,500,000 and
budgeted expenditures were $6,400,000.
Property taxes of $4,000,000 were levied; 1% of the taxes are expected to be uncollectible.
$3,000,000 is expected to be collected from taxpayers by the end of the fiscal year. Another
$500,000 is expected to be collected during the first two months of the next fiscal year.
Three million two hundred thousand dollar of taxes receivable were collected before the due
date. The remaining taxes are past due. (The government has not changed its estimate of the
total taxes to be collected this year and the first 2 months of the next year.)
License and permit revenues collected in cash totaled $300,000.
The government ordered vehicles for general government departments with an estimated cost
of $700,000.
The government paid salaries, $3,600,000. Additional salaries were earned by employees but
not paid by year end--$300,000.
The vehicles ordered in 5 were received. The actual cost was $690,000.
The government paid $500,000 of general revenues over to the fund through which its
general government bonds are serviced to provide for future principal and interest payments.
The government borrowed $90,000 two months before year end on a 6%, 6-month note to
provide additional cash for the General Fund. The note is a fund liability.
General Fund departments were billed $110,000 for water and sewer services provided by the
governments own water and sewer department. One hundred thousand dollars was paid.
Three million dollars of General Fund cash was paid to the Airport Enterprise Fund. This
loan is required to be repaid in 3 years.
Government computers were sold at auction for $13,000. The proceeds are unrestricted. The
original cost of the computers, which were used by general government departments, was
$80,000. They had been used two years longer than originally expected.
13
14
4.
15
$13,000,000
4,000,000
1,222,000
300,000
70,000
108,000
500,000
635,000
1,100,000
100,000
22,000
1,700,000
4,200,000
2,100,000
3,000,000
270,000
2,500,000
6,000,000
7,000
311,000
102,000
3,000,000
3,500,000
1,300,000
1,700,000
1,080,000
1,112,000
615,000
$3,017,000
None of Cricket Hill's investments qualify for use of the amortized cost approach.
16
17
2.
3.
4.
5.
6.
7.
The town levied property taxes for the fiscal year, $14,000,000. Uncollectible taxes are
expected to equal 1% of the total levy; $10,000,000 of the taxes are expected to be
collected within the discount period. A 4% discount is granted to taxpayers who pay by
the end of the discount period, which is the due date for taxes. Another $2,000,000 of
taxes are expected to be collected after the due date but before year end. The remaining
taxes receivable in excess of the uncollectible amount should be collected at a uniform
rate during the first six months of the next fiscal year.
Taxes collected during the discount period totaled $9,800,000. The remaining taxes
become past due.
Taxes receivable of $2,200,000 are collected during the remainder of the year. The
town's expectations regarding collection of the remaining balance have not changed.
The town formalized tax liens against a property with unpaid taxes of $15,000. The
expected salable value of the property is $14,000.
The town formalized tax liens against a second property with unpaid taxes of $35,000
and an estimated salable value of $38,000.
The town sold the first property for $14,200. The balance owed was written off as
uncollectible.
The town decided to keep the second property for use as a town museum. The property
owner approved this arrangement.
18
Record the inception of the lease, including the down payment in the General Fund of
Perfater Falls. The lease was signed on March 1, 20X1.
Record any adjusting entries required at December 31, 20X1, the end of Perfater Falls
fiscal year.
Record the February 28, 20X2, payment of $750,000 to the lessor per the lease
agreement.
19
5.
6.
7.
The General Fund budget was adopted. Estimated revenues were $14,000,000.
Appropriations for the year were $13,200,000. The first month's allotment was
$1,500,000.
The government uses the purchases method to account for materials. Materials with an
estimated cost of $50,000 were ordered.
The government purchased computers for cash, $13,000.
The government paid claims and judgments during the year for general government
departments. The amount paid totaled $600,000; $200,000 was associated with claims
that had been outstanding against the government at the beginning of the year. The
government had deemed the liability probable but had expected it to be another year
before the judgment was made against them by the court and payment was required. No
new judgments were outstanding at the end of the current year.
The government paid $400,000 to general government employees for vacation and sick
leave that became due and payable during the year. The government's unpaid liabilities
for accrued vacation and sick leave grew from $75,000 to $100,000 during the year.
Materials ordered in 2 above were received with an invoice of $51,000.
At the end of the year, $12,000 of materials were still on hand. No materials were on
hand at the beginning of the year.
Prepare general ledger entries assuming the cash was received for the grant and the
government met all eligibility requirements when the cash was received.
Prepare general ledger entries assuming the cash was received for the grant and the
government met all eligibility requirements when the qualifying expenditures are made.
Prepare general ledger entries assuming the grant is a reimbursement type grant and the
government met all eligibility requirements when the qualifying expenditures are made.
20
21
22
23
2.
3.
4.
5.
6.
7.
8.
9.
The township authorized a bond issue of $11 million for the construction of a pedestrian
walkway as part of a downtown revitalization project. An additional $1 million of
general revenues is to be used for the project. The authorization was recorded in the
appropriate fund.
One million dollars of general revenues were paid to the construction fund from the
General Fund.
The bonds were issued at 101. The premium was transferred to the fund from which the
debt is to be serviced.
The township entered into a contract with Copfer Construction Company for construction
of the walkway at an estimated cost of $10,350,000.
An engineering design firm was paid $174,000 for design work on the project.
A bill for $4,200,000 was received from Copfer Construction Company for work
completed on the walkway to date. All but a 5% retainage was paid.
The accounts were closed at year end.
The walkway project was completed in 20X5. Copfer Construction billed the township
the remaining $6,150,000 due on the project. The township approved the project and
paid Copfer in full.
The unused resources of the construction fund were set aside for debt service on the
bonds. Accordingly, those resources were paid to the appropriate fund.
Prepare the journal entries required in the Capital Projects Fund to account for the above
transactions.
PROBLEM 32 (General government refundings) Chapter 8
The City of Billsville has $8 million par value of general government, general obligation bonds
payable outstanding. The city has decided to call those bonds at their call date. Record the
following transactions.
SITUATION A
1.
2.
SITUATION B
1.
2.
3.
For each situation, prepare the journal entries required to record the above transactions.
24
25
Received a transfer from the General Fund to provide for the April 1 interest payment,
$400,000.
Paid the April 1 interest payment when due, $400,000.
Received a transfer of the remaining assets of a terminated Capital Projects Fund,
$560,000.
Received a second transfer from the General Fund, $850,000.
Received interest on investments of the fund, $100,000.
Paid the September 1 interest payment, $400,000 and principal payment of $500,000.
The fair value of the Debt Service Fund investments decreased during the year by
$36,000.
26
8.
Land was donated for use as a park. The donor had acquired the land for $23,000 about
20 years earlier. Its estimated fair value when donated to the county was $55,000.
Computer equipment was ordered for General Fund departments. The estimated cost was
$48,000.
The computer equipment was purchased by the General Fund for $27,000.
The county sold a police vehicle that had cost $35,000. Accumulated depreciation on the
vehicle was $30,000. The county sold the vehicle at auction for $2,000.
The county disposed of old office equipment that had a cost of $40,000 and accumulated
depreciation of $39,000. The items were discarded at the landfill.
During the year, the county spent $1,200,000 from the Capital Projects Fund on
construction of a new library. The building will not be completed until next year.
Accumulated depreciation on existing general capital assets increased by $3,000,000 for
the year.
27
Issued $40 million of general obligation bonds at par to provide financing for a general
government capital project.
Principal ($100,000) and interest ($10,000) matured, but was not paid, on a long-term
note that had been issued to provide general government financing.
The government leased equipment under a capital lease agreement. The capitalizable
cost was $1,000,000. The county made an initial down payment of $100,000. The
implicit rate of interest on the lease is 8%.
The government in #3 made its first periodic semiannual lease payment of $175,000
when it was due.
The government's liability for general government claims and judgments at the beginning
of the fiscal year was $900,000. The general-government-related claims and judgments
liabilities at year end total $3,400,000. None of the amounts are considered current.
28
10.
11.
12.
13.
The government adopted its General Fund budget. Estimated revenues were
$13,000,000. Appropriations were $12,700,000.
The government levied general property taxes, $8,000,000; 2% is expected to prove
uncollectible; 10% is expected to be collected in the next fiscal year at a rate of $80,000
per month (during the first eight months).
The government issued a 9-month, 10%, $300,000 note to borrow resources to provide
working capital for the General Fund. The borrowing occurred three months before the
end of the fiscal year and is considered a fund liability.
The government ordered materials and supplies for general government purposes with an
estimated cost of $500,000. A police car with an estimated cost of $42,000 was ordered
also.
The materials, supplies, and police car were received and vouchered. The actual cost of
the materials and supplies was $498,500. The actual cost of the police car was $43,000.
The government paid $605,000 from the General Fund to the fund used to service its
general government bonds.
The government invested $265,000 of General Fund resources in the bonds of another
government. The face value of the bonds was $280,000. The remaining term of the
bonds is three years.
The fair value of the bonds at year end was $273,000.
The government received (collected) a restricted operating grant of $983,000 for a
general government department. The department is financed primarily from General
Fund resources. Eligibility requirements are met when qualifying expenditures are
incurred.
Expenditures for the grant purposes totaling $630,000 were incurred and paid.
The government entered a capital lease for equipment with a capitalizable cost of
$700,000. A $150,000 initial payment was made.
The government issued bonds with a par value of $13,000,000 for a premium of
$470,000. The bonds were issued at year end to finance construction of a major public
park.
The government issued bonds at par, $8,000,000, to finance an in substance defeasance of
a previously outstanding, general government bond issue. The par value of the old issue
is $8,750,000. The government paid $9,000,000 to an irrevocable trust to defease in
substance the old $8,750,000 bond issue; $1,000,000 had been accumulated in previous
years to use for servicing the bonds.
29
7.
The government purchased new computer equipment for the police department at a cost
of $43,000.
The government paid $605,000 from the General Fund to the fund used to service its
general government bonds.
The government paid $400,000 of principal and $300,000 of interest on general
government bonds.
The government entered a capital lease for equipment with a capitalizable cost of
$700,000. A $150,000 initial payment was made.
The government issued bonds of $13,000,000 at par. The bonds are to be used to finance
construction of a major public park.
The government issued bonds at par, $12,000,000, to finance an in substance defeasance
of a previously outstanding, general government bond issue. The carrying value of the
old issue is $14,000,000. The government paid $13,000,000 to an irrevocable trust to
defease in substance the old $14,000,000 bond issue; $1,000,000 had been accumulated
in previous years to use for servicing the bonds.
The government sold (general government) a vehicle that had cost $25,000.
Accumulated depreciation on the vehicle was $23,000. The government sold the vehicle
at auction for $4,000.
30
31
5.
6.
7.
$400,000
190,000
4,000
80,000
85,000
30,000
50,000
11,000
24,000
800
2,800
120
$34,000
32
3.
On January 2, issued refunding bonds at par, $3,000,000. The bonds bear interest at 8%
payable annually and mature in five years. (Ignore bond issue costs.)
On January 2, paid the $3,000,000 into an irrevocable trust in order to defease in
substance the previously outstanding bonds payable of the Enterprise Fund. These old
bonds have a par value of $3,200,000 and an unamortized premium of $100,000. The old
bonds are scheduled to mature in six more years.
The annual interest payment on the new bonds was made on December 31 when due.
9.
Received a grant (in cash) to be used to finance half of the cost of expanding the town's
water treatment plant, $10 million. All eligibility requirements have been met.
Received a transfer from the General Fund to cover part of the cost of expanding the
treatment plant, $5 million.
Issued bonds at mid-year at par ($5,000,000) to provide part of the financing for the
treatment plant expansion. The bonds bear interest at 6%, payable semiannually.
Signed a contract for construction of the plant, $20 million.
Received a progress billing from the contractor, $8 million.
Paid the contractor.
Make any necessary adjusting entries.
In the second fiscal year, the government received a grant for its Enterprise Fund that is
to be used to educate users on water conservation measures and to monitor use of water
by a study group. The grant of $40,000 was received in cash. All eligibility reuirements
have been met.
Expenses incurred and paid during the year under this second grant total $30,000.
Part B.
How would these grants be reported in the statement of revenues, expenses, and changes in net
assets of the Enterprise Fund?
33
34
$3,300,000
105,000
12,000
8,000
450,000
1,200,000
1,000,000
1,300,000
400,000
1,100,000
250,000
1,000,000
200,000
1,800,000
Taxes levied for 20X6 were $12 million for the county, $5 million for Weber's Way, and
$3 million for DeCoske Corner.
During the year tax collections for the county totaled $9 million; $4 million was collected
for Weber's Way and $2,200,000 was collected for DeCoske Corner.
One percent of the taxes receivable were written off as uncollectible during the year.
All cash collected was remitted to the appropriate fund or entity.
35
Employer contributions became due from the General Fund, $400,000 and an Enterprise
Fund, $123,000. Equal employee contributions have been withheld from employee
paychecks and also are due to the pension trust fund.
Ninety percent of the amounts due were collected from the other funds.
Investments of $540,000 were purchased.
Interest received on investments of the fund during the year totaled, $380,000.
An employee resigned prior to retirement and withdrew $17,000 from the pension plan.
Retirement benefits of $92,000 were paid during the year. Additional current benefit
payments of $4,000 were accrued but not paid by year end.
The present value of future benefits earned by active employees during the period is
estimated to be $700,000.
The fair value of the pension plan investments increased by $83,000 during the year.
36
$13,000,000
4,000,000
1,222,000
300,000
70,000
108,000
500,000
635,000
1,100,000
Prepare a schedule computing the amounts to be reported in each of the three minimum program
revenues classifications by Wise County.
37
$13,000,000
4,000,000
1,200,000
300,000
70,000
108,000
1,100,000
100,000
1,700,000
4,200,000
2,100,000
3,000,000
270,000
2,500,000
1,000,000
7,000
$3,017,000
38
$13,000,000
1,200,000
900,000
1,700,000
10,800,000
4,100,000
5,700,000
3,200,000
3,000,000
1,700,000
500,000
Assets
$1,300,000
500,000
200,000
900,000
700,000
10,800,000
8,000,000
1,000,000
6,500,000
39
$3,500,000
200,000
200,000
120,000
1,000,000
100,000
1,100,000
1,100,000
250,000
1,500,000
23,000
Additional information:
1. Land sold had a book value of $25,000.
2. Deferred property taxes were $10,000 at the beginning of the year. Deferred property
taxes at the end of the year were $12,000.
3. All of the compensated absence liabilities relate to the education function.
PROBLEM 63 (Statement of Net Assets Reconciliation) Chapter 14
Prepare the reconciliation of total fund balance to net assets for governmental activities for the
City of Floyd, given the following information.
All governmental funds fund balances
Deferred revenue related to property taxes
Accrued interest on long-term liabilities
General capital assets
Accumulated depreciation on capital assets
General long-term liabilities:
Bonds payable for capital assets
Liability for compensated absences
Internal service fund serving governmental activities
Net assets
Capital assets net of accumulated depreciation
Liability, capital related
$13,000,000
2,000,000
1,200,000
10,800,000
4,100,000
5,700,000
3,200,000
3,000,000
1,700,000
500,000
40
$1,300,000
200,000
12,000
5,080,000
3,000,000
4,100,000
3,500,000
40,000
30,000
520,000
List the potential fund financial statements that would be included in the basic financial
statements. Indicate the fund types reported in each of the statements.
Distinguish among fund financial statements and combining financial statements that
might be included in a government's CAFR. What is the relationship between them?
When is each required?
List the minimum GAAP requirements for general purpose external financial reporting.
Distinguish between managements discussion and analysis, notes to the financial
statements, other required supplementary information, and narrative explanations.
41
2.
3.
The first entity is the city school district. The district has a separately elected board and
is legally separate from the city. The city can establish its own budget except that its
property tax levy must be approved by the city council. The city does not guarantee the
debt of the schools or have any other authority over the school district.
The second entity is the municipal gas utility. The city appoints the seven members of
the utility governing board and can remove them at will. The city must approve the
budget and the rate structure of the utility. The utility cannot issue bonded debt without
the city council's prior approval. The city is entitled to, and regularly receives, the
operating surpluses of the utility.
The third entity is the City Library Commission. According to the commission's charter,
the commission board consists of the city mayor, the city finance director, and the
superintendent of the city schools, and two other members of city council besides the
mayor. City council consists of the mayor and four other council members. The library
commission budget must be approved by the city council, but there are no other formal
constraints placed on the library commission in carrying out its mission.
42
43
44
$800,000
540,000
100,000
300,000
250,000
1,200,000
45,000
75,000
23,000
77,000
1,300
12,000
5,000
330,000
379,000
500,000
150,000
250,000
22,000
320,000
1,100,000
58,000
All expenses of the Maestro and the Classical Music Appreciation Programs are payable from
donor restricted resources.
45
46
Tuition and fees charged for the fall 20X0 semester totaled $2,800,000. Of this, $98,000
was waived as a result of scholarship allowances, and another $15,000 is expected to be
uncollectible.
For the winter 20X1 semester Mathias College collected a general student fee of $18,000.
The full amount of this fee is restricted for the purchase of computer equipment and
software needed to establish computer labs at the college.
The college received a reimbursement grant restricted to research on composite materials,
$300,000.
Salaries paid to researchers in the Composite Materials Lab of $40,000 qualified under
the research grant received.
The college purchased equipment for use in its building and grounds maintenance
department at a cost of $40,000. Unrestricted resources were used for this purpose.
The college paid $30,000 interest and $15,000 principal on one of its mortgages.
Tuition and fees assessed total $4,500,000 70% is collected, scholarships allowances
are granted for $120,000, and $45,000 is expected to prove uncollectible.
Revenues collected from sales and services of the university bookstore, an auxiliary
enterprise, were $275,000.
Salaries and wages paid, $1,500,000; $62,000 of this was for employees of the university
bookstore.
Tuition remissions were granted in the amount of $35,000 for employees.
Mortgage payments totaled $520,000; $290,000 of this was for interest.
Restricted contributions for a specific academic program were received, $250,000.
Expenditures for the restricted program were incurred and paid, $230,000.
Equipment was purchased from unrestricted resources, $34,000.
47
$4,000,000
80,000
,3,800,000
500,000
280,000
140,000
370,000
0,200,000
2,000,000
180,000
3,100,000
600,000
220,000
190,000
180,000
15,000
200,000
3,827,000
Beaver State College reports as a special purpose government engaged only in business-type
activities.
Required: Prepare a statement of revenues, expenses, and changes in net assets for Beaver State
College for 20X3.
48
At the beginning of the year, the college receives cash of $200,000 with a stipulation that
the donor be paid $25,000 a year for 10 years. The present value of the payment to the
donor is $175,000.
Investments in the amount of $195,000 are purchased.
Payments of $25,000 are made to the donor at year end.
Investment income of $13,000 is received during the year.
The present value of the annuity payable to the donor at year end was $162,000.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The hospital provided patient services during the year that had standard charges of
$12,500,000. Contractual adjustments awarded to patients under contracts with insurance
companies and under government programs totaled $2,000,000. Uncollectible accounts
are expected to be approximately $800,000.
Nursing and other professional salaries paid during the year totaled $2,300,000.
Depreciation for the year was $500,000 for the building and $900,000 for equipment.
Medical supplies costing $2,600,000 were purchased during the year. The inventory of
supplies increased from $200,000 at the beginning of the year to $300,000 at year end.
The hospital received a $4,000,000 to be used for the purchase of specialized diagnostic
equipment.
The hospital received a $500,000 gift to be used for providing specialized coronary care
services to patients.
The hospital purchased $2,000,000 of diagnostic equipment with the donation received
for that purpose.
The hospital incurred $400,000 of operating expenses for the care of coronary patients
consistent with the purposes of that donation.
The hospital issued $5,000,000 of 20-year, 8% bonds at par at mid-year to finance a new
addition for the hospital.
The hospital estimates that malpractice claims against the hospital of $400,000 ultimately
will result in liabilities of $100,000 that will have to be paidbut probably will not have
to be paid during the next fiscal year.
49
Identify the financial statements that must be presented for a government hospital.
How are the financial statements for a government hospital different from the financial
statements for a not-for-profit hospital?
$18,000,000
350,000
75,000
500,000
500,000
500,000
710,000
1,100,000
8,000,000
890,000
1,100,000
440,000
300,000
1,400,000
2,740,000
870,000
444,000
1,300,000
22,000,000
9,000,000
3,200,000
15,000,000
50
Received a warrant from Treasury for its appropriation for the fiscal year, $300 million.
The OMB apportioned $80 million to the agency.
The agency head allotted $79 million to specific purposes.
Preliminary requests were made within the agency for the purchase of $8 million in
supplies.
Purchase orders were approved and placed for the $8 million of supplies requested.
Salaries of $40 million were paid to agency employees.
Equipment with an estimated cost of $17 million was ordered.
The equipment was received along with an invoice for its $17 million cost.
51
A government received and expended federal financial assistance under several programs
during 20X4 as follows:
Program A......................................................
Program B......................................................
Program C......................................................
Program D......................................................
Program E......................................................
Program F.......................................................
Program G......................................................
Total............................................................
A.
B.
C.
$ 100,000
200,000
250,000
475,000
625,000
500,000
600,000
$2,750,000
52
53
PROBLEM 3
Part I
Governmental Funds
Entry
Fund
FA
RL
FB
1.
DSF
($2,100,000)
($2,100,000)
2.
GF
300,000
300,000
3.
GF or SRF
(25,000)
(25,000)
4.
CPF
(5,400,000)
$600,000
5.
GF or CPF
800,000
800,000
6.
GF or CPF
(824,000)
(800,000)
7.
No Entry
8.
GF
(3,000,000)
(3,000,000)
8.
CPF
3,000,000
3,000,000
(6,000,000)
(24,000)
GCA
1.
GLTL
(2,000,000)
NA
2,000,000
2.
(140,000)
(140,000)
4.
6,000,000
6,000,000
7.
(80,000)
(80,000)
54
Problem 3 (continued)
Part II
1.
2.
General Fund
Statement of revenues, expenditures, and changes in fund balance
Other financing sourcesproceeds from sale of land of $300,000
3.
General Fund..........................................................................
Statement of revenues, expenditures, and changes in fund balance
Expenditures of $25,000
4.
5.
6.
7.
8.
General Fund
Statement of revenues, expenditures, and changes in fund balance
Other financing usestransfers out of $3,000,000
Capital Projects Fund
Statement of revenues, expenses, and changes in net assets
Other financing sourcestransfers in of $3,000,000
55
PROBLEM 4
1.
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-3,000,000
+150,000
-3,150,000
Enterprise Fund
Current Assets .......................................................................
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets...............................................................................
-1,000,000
+5,000,000
+4,000,000
Enterprise Fund
Year End--Depreciation
Current Assets .......................................................................
Noncurrent Assets ($5,000,000/20).......................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets...............................................................................
-250,000
-250,000
+8,000,000
+8,000,000
56
Problem 4 (Continued)
5.
-3,200,000
-3,200,000
General Fund
Financial Assets ...................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-240,000
-240,000
+240,000
+240,000
-240,000
-240,000
-530,000
-530,000
57
Problem 4 (Continued)
General Capital Assets and General Long-Term Liabilities accounts
General Capital Assets...........................................................
General Long-Term Liabilities..............................................
-500,000
Net Assets...............................................................................
+500,000
9.
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
+300,000
+300,000
+4,500
-4,500
General Fund
Financial Assets ....................................................................
.................................................................................
Related Liablities...................................................................
Fund Balance.........................................................................
-3,000,000
+3,000,000
+3,000,000
+3,000,000
58
PROBLEM 5
1.
2.
-500,000
-500,000
+500,000
+500,000
-2,000,000
-2,000,000
59
Problem 5 (Continued)
4.
No expenditures are accrued for principal retirement or interest expenditures on the bonds
in this problem.
5.
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-22,000
-22,000
Enterprise Fund
Current Assets ......................................................................
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets...............................................................................
+2,000,000
+2,000,000
Enterprise Fund
Current Assets........................................................................
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets ..............................................................................
+300,000
+300,000
+300,000
-300,000
60
Problem 5 (Continued)
8.
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-2,000,000
-2,000,000
+2,000,000
+2,000,000
-500,000
-500,000
-1,500,000
-1,500,000
61
PROBLEM 6
1.
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-950,000
-950,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-5,000
+35,000
-40,000
+1,400
-1,400
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-2,000,000
-2,000,000
62
Problem 6 (Continued)
3.
+2,000,000
+2,000,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
+300,000
+300,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-37,800
-36,400
-1,400
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
+1,500,000
+1,500,000
63
Problem 6 (Continued)
6.
Enterprise Fund
Current Assets........................................................................
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets...............................................................................
-1,500,000
-1,500,000
64
PROBLEM 7
1.
Enterprise Fund
Current Assets........................................................................ +10,000,000
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................ +10,000,000
Net Assets...............................................................................
No effect on the statement of revenues, expenses, and changes in net assets
September 30 Payment
Enterprise Fund
Current Assets........................................................................
Noncurrent Assets..................................................................
Current Liabilities..................................................................
Long-Term Liabilities............................................................
Net Assets...............................................................................
-500,000
-500,000
+250,000
-250,000
+5,000,000
+5,000,000
65
Problem 7 (Continued)
September 30 Interest Payment
Debt Service Fund
Financial Assets ($5,000,000 x .10 x .5)...............................
Related Liabilities..................................................................
Fund Balance.........................................................................
-250,000
-250,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-45,000
-45,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-200,000
-200,000
+200,000
+200,000
66
Problem 7 (Continued)
5.
-1,500,000
-1,500,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
-53,000
-50,000
-3,000
-1,800,000
+200,000
-2,000,000
General Fund
Financial Assets ....................................................................
Related Liabilities..................................................................
Fund Balance.........................................................................
+50,000
-50,000
67
Problem 7 (Continued)
9.
-500,000
-500,000
+500,000
+500,000
PROBLEM 8
Expenditure Subsidiary Ledger
Public Works
Item
1
2
3
4
5
Cr. (Dr.)
Dr.
Dr.
Cr.
Unencumbered
Encumbrances Expenditures Appropriations
Balance
25,000
25,000
3,000
22,000
1,500
20,500
18,000
2,500
(3,000)
3,100
2,400
68
PROBLEM 9
Name of Government
Name of Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended
Revenues (By Source)
1
Expenditures (By Function or Program)
4, 5, 6, 9, 10, 15, 20
Excess of Revenues over (under) Expenditures
Other Financing Sources (Uses)
3, 12, 17
Net change in Fund Balance
Fund Balance, beginning of fiscal year
Fund Balance, end of year
Not reported:
2This is an encumbrance, not an expenditure. Encumbrances do not change total fund
balance.
7Interest on general long-term debt is recognized as expenditures in the period that it matures.
It is not accrued except in very restrictive circumstances.
8 and 11Short-term borrowings and repayments thereof do not affect the fund balance of a
governmental fund. Fund assets and fund liabilities increase or decrease by equal amounts.
13 and 14Interfund borrowings create interfund payables and receivables. They do not affect
fund balance. Indeed, to allow them to do so, even if long-term, would make manipulation of
fund balances quite easy.
16This transaction does not change the net assets of a fund or its fund balance.
18These taxes do not meet the availability criterion. A liability, deferred revenues, will be
reported in the balance sheet for the taxes collected in advance.
19Capital assets are not assets of governmental funds. The funds are essentially working
capital entities. Depreciation is not a use of working capital and does not affect the fund.
Depreciation of general capital assets is reported only in the government-wide financial
statements.
69
PROBLEM 10 (1)
#
a.
b.
c.
d.
e.
Accounts
Dr.
500,000
2,000,000
3,000,000
3,000,000
320,000
Expenditures..........................................................................
Cash................................................................................
To record reimbursement of SRF for General
Fund expenditures.
22,000
Expenditures..........................................................................
Due to Electric Utility Enterprise Fund..........................
To record electrical charges.
3,000
Cr.
500,000
5,000,000
3,000,000
320,000
22,000
3,000
PROBLEM 10 (2)
a.
b.
c.
d.
e.
70
PROBLEM 11
1.
2.
3.
4.
$8,000,000
Cash .......................................................................................
Taxes ReceivableCurrent .............................................
To record tax collections.
6,800,000
1,200,000
200,000
88,000
Cash .......................................................................................
Taxes ReceivableDelinquent ........................................
To record collections of delinquent taxes.
700,000
$ 200,000
7,800,000
6,800,000
1,200,000
200,000
88,000
700,000
No entry is needed to reduce revenues for the $300,000 of uncollected taxes expected to be
collected in the first 60 days of the next fiscal year. The criteria for revenue recognition in this
fiscal year will still be met if collections are received when anticipated.
71
PROBLEM 12
Estimated Revenues....................................................................
Appropriations.......................................................................
Unreserved Fund Balance......................................................
250,000
Taxes ReceivableCurrent........................................................
Allowance for Uncollectible Current Taxes...........................
Revenues................................................................................
250,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
130,000
4. Cash..............................................................................................
245,000
1.
2.
3.
240,000
10,000
2,500
247,500
130,000
Taxes ReceivableCurrent...................................................
5. Reserve for Encumbrances..........................................................
245,000
113,000
Encumbrances........................................................................
113,000
Expenditures...............................................................................
Vouchers Payable...................................................................
115,000
6. Vouchers Payable.........................................................................
115,000
115,000
Cash........................................................................................
7. Expenditures................................................................................
115,000
125,000
Cash........................................................................................
8. Appropriations.............................................................................
125,000
240,000
10,000
250,000
Revenues.....................................................................................
Expenditures..........................................................................
Unreserved Fund Balance......................................................
247,500
17,000
240,000
7,500
17,000
72
PROBLEM 13
1. Estimated Revenues.....................................................................
14,000,000
Appropriations.......................................................................
Unreserved Fund Balance......................................................
2. Taxes ReceivableCurrent.........................................................
13,700,000
300,000
10,000,000
4.
5.
6.
7.
8.
9.
150,000
350,000
9,500,000
Accounts Receivable..................................................................
Allowance for Uncollectible Accounts..................................
Deferred Revenues.................................................................
Revenues................................................................................
500,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
350,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
1,200,000
1,375,000
Expenditures...............................................................................
Vouchers Payable...................................................................
1,380,000
Expenditures...............................................................................
Vouchers Payable...................................................................
7,000,000
Cash............................................................................................
Taxes ReceivableCurrent...................................................
9,000,000
Taxes ReceivableDelinquent...................................................
Allowance for Uncollectible Current Taxes...............................
Taxes ReceivableCurrent...................................................
Allowance for Uncollectible Delinquent Taxes.....................
1,000,000
150,000
Vouchers Payable........................................................................
Cash........................................................................................
8,150,000
3,000
50,000
447,000
350,000
1,200,000
1,375,000
1,380,000
7,000,000
9,000,000
1,000,000
150,000
8,150,000
73
Problem 13 (Continued)
10. Interest and Penalties Receivable...............................................
100,000
3,300
Taxes ReceivableDelinquent..............................................
Interest and Penalties Receivable...........................................
12. Investments.................................................................................
3,000
300
700,000
Cash........................................................................................
13. Expenditures...............................................................................
700,000
542,000
542,000
500,000
Cash........................................................................................
15. Cash............................................................................................
500,000
21,000
Expenditures..........................................................................
16. Transfer to Debt Service Fund....................................................
21,000
680,000
Cash........................................................................................
680,000
3,000,000
3,000,000
3,000,000
18. Cash............................................................................................
100,000
6,000,000
3,000,000
Notes Payable.........................................................................
100,000
Expenditures...............................................................................
Interest Payable......................................................................
1,000
19. Expenditures...............................................................................
90,000
Cash........................................................................................
Other Financing SourcesIncrease in Capital Lease Liability
1,000
10,000
80,000
74
Problem 13 (Continued)
20. Cash............................................................................................
300,000
Deferred Revenues.................................................................
21. Expenditures...............................................................................
300,000
120,000
Cash........................................................................................
120,000
Deferred Revenues......................................................................
Revenues................................................................................
120,000
22. Cash............................................................................................
6,000
120,000
Revenues................................................................................
6,000
2,000
14,000
2,000
14,000
75
PROBLEM 14
1.
Estimated Revenues....................................................................
Appropriations.......................................................................
Unreserved Fund Balance......................................................
6,500,000
Taxes ReceivableCurrent........................................................
Allowance for Uncollectible Current Taxes...........................
Deferred Revenues.................................................................
Revenues................................................................................
4,000,000
Cash............................................................................................
Taxes Receivable--Current.....................................................
3,200,000
Taxes Receivable--Delinquent....................................................
Allowance for Uncollectible Current Taxes...............................
Taxes Receivable--Current.....................................................
Allowance for Uncollectible Delinquent Taxes.....................
800,000
40,000
Cash............................................................................................
Revenues................................................................................
300,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
700,000
Expenditures...............................................................................
Cash........................................................................................
Salaries Payable.....................................................................
3,900,000
700,000
690,000
500,000
9a. Cash............................................................................................
Notes Payable.........................................................................
90,000
2.
3.
4.
5.
6.
7.
8.
6,400,000
100,000
40,000
460,000
3,500,000
3,200,000
800,000
40,000
300,000
700,000
3,600,000
300,000
700,000
690,000
500,000
90,000
900
900
76
Problem 14 (Continued)
10. Expenditures...............................................................................
Cash........................................................................................
Due to Enterprise Fund..........................................................
110,000
3,000,000
3,000,000
12. Cash............................................................................................
Other Financing Sources--Proceeds of Capital Asset Sales...
13,000
100,000
10,000
3,000,000
3,000,000
13,000
77
PROBLEM 15
1.
Estimated Revenues....................................................................
Unreserved Fund Balance...........................................................
Appropriations.......................................................................
23,000,000
1,000,000
Taxes ReceivableCurrent........................................................
Allowance for Uncollectible Current Taxes...........................
Revenues................................................................................
20,000,000
Cash............................................................................................
Taxes Receivable--Current.....................................................
12,000,000
Taxes Receivable--Delinquent....................................................
Allowance for Uncollectible Current Taxes...............................
Taxes Receivable--Current.....................................................
Allowance for Uncollectible Delinquent Taxes.....................
8,000,000
200,000
Cash............................................................................................
Taxes Receivable--Delinquent...............................................
7,000,000
Cash............................................................................................
Revenues................................................................................
300,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
15,000
Expenditures...............................................................................
Cash........................................................................................
Salaries Payable.....................................................................
10,580,000
3,000,000
3,000,000
9a. Cash............................................................................................
Notes Payable.........................................................................
500,000
2.
3.
4.
5.
6.
7.
8.
24,000,000
200,000
19,800,000
12,000,000
8,000,000
200,000
7,000,000
300,000
15,000
10,000,000
580,000
3,000,000
3,000,000
500,000
15,000
15,000
78
Problem 15 (Continued)
10. Reserve for Encumbrances.........................................................
Expenditures...............................................................................
Encumbrances........................................................................
Vouchers Payable...................................................................
7,500
7,450
11. Investments.................................................................................
Cash........................................................................................
400,000
12. Expenditures...............................................................................
Due to Other Funds................................................................
20,000
7,500
7,450
400,000
20,000
79
PROBLEM 16
1.
2.
3.
4.
Cash .......................................................................................
Tax Anticipation Notes Payable .....................................
To record issuance of short-term note.
1,000,000
1,000,000
30,000
Encumbrances .......................................................................
Reserve for Encumbrances ............................................
To record encumbrance for purchase order.
35,000
35,000
35,000
1,000,000
1,030,000
35,000
35,000
5,000
30,000
Recall that the patrol car should be recorded in the General Capital Assets and General LongTerm Liabilities accounts.
5.
6.
200,000
120,000
320,000
450
450
Principal and interest expenditures on general long-term debt are recognized in the period that
they become legally due and payable.
80
PROBLEM 17
City of Richmond
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended December 31, 20X2
Revenues:
Property taxes.........................................................................
Intergovernmental..................................................................
Licenses and permits..............................................................
Total revenues.................................................................
Expenditures:
General government...............................................................
Public safety...........................................................................
Highways and streets.............................................................
Health and sanitation..............................................................
Debt service ($15,000 + $92,000)........................................
Total expenditures...........................................................
$6,000,000
1,300,000
550,000
$7,850,000
2,300,000
3,000,000
2,500,000
700,000
107,000
8,607,000
( 757,000)
600,000
( 640,000)
222,000
182,000
( 575,000)
2,225,000
$1,650,000
81
PROBLEM 18
City of Cricket Hill
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended December 31, 20X9
Revenues:
Property taxes ($13,000,000 - $1,300,000 + $1,700,000)....
Intergovernmental grants ($4,000,000 + $500,000).............
Licenses and permits..............................................................
Investment income ($108,000 + $1,112,000 - $1,080,000)...
Total revenues.................................................................
Expenditures:
General administration ($1,700,000 + $7,000).....................
Public safety...........................................................................
Highways and streets.............................................................
Health and welfare.................................................................
Total current operating expenditures..............................
Intergovernmental..................................................................
Debt service:
Principal reduction ($102,000 - $30,000).......................
Interest ($100,000 + $22,000 + $30,000)......................
Capital outlay.........................................................................
Total expenditures...........................................................
$13,400,000
4,500,000
70,000
140,000
$18,110,000
1,707,000
4,200,000
2,100,000
3,000,000
11,007,000
500,000
72,000
152,000
224,000
270,000
12,001,000
6,109,000
(1,100,000)
(2,500,000)
635,000)
300,000
(2,665,000)
3,444,000
3,632,000
$ 7,076,000
82
PROBLEM 19
1.
2.
3.
4.
5.
6.
Investments............................................................................
Cash................................................................................
3,000,000
Cash........................................................................................
Revenue--Interest............................................................
200,000
Cash........................................................................................
Investments.....................................................................
Revenue--Gain on sale of investments (or Net Increase
(Decrease) in Investments' Fair Value.....................
304,000
Investments............................................................................
Cash................................................................................
100,000
Interest Receivable.................................................................
Revenue--Interest............................................................
15,000
80,000
3,000,000
200,000
300,000
4,000
100,000
15,000
80,000
215,000
84,000
83
PROBLEM 20
Name of City
General or Special Revenue Fund
General Journal
#
1.
Accounts
Property Taxes ReceivableCurrent ....................................
Allowance for Uncollectible Current
Property Taxes ............................................................
Allowance for Discounts on Taxes ................................
Revenues ........................................................................
To record tax levy.
Dr.
Cr.
1,000,000
50,000
14,000
936,000
Calculations:
(1) Uncollectibles = (.05)($l,000,000)
= $50,000
(2) Discounts
= (.02)(.7)($1,000,000) = $l4,000
2.
3.
4a.
4b.
588,000
14,000
705,600
14,000
400
Cash .......................................................................................
Property Taxes ReceivableCurrent ............................
To record property tax collections after discount
period.
80,000
200,000
600,000
2,000
720,000
80,000
50,000
200,000
50,000
84
Problem 20 (continued)
4c.
5.
6.
5,000
Cash. ......................................................................................
Property Taxes ReceivableDelinquent .......................
Interest and Penalties Receivable ..................................
Taxes Collected in Advance ...........................................
To record collections of current property taxes,
interest and penalties thereon, and (deferred) taxes
for next year.
141,400
1,250
3,750
110,000
1,400
30,000
Revenues ...............................................................................
2,050
Deferred Revenues .........................................................
To record deferral of revenues for delinquent property taxes and related
interest and penalties not expected to be collected until late next year.
2,050
PROBLEM 21
All $5,000,000 of the taxes are legally available for expenditure in 20X1. Therefore, the amount
recognized as revenues in 20X1 depends on the timing of collection, as shown below:
Collected in 20X1...........................................................
Collected in first 60 days of 20X2 ($150,000 x 2).........
Revenues Recognized..............................................
$4,000,000
300,000
$4,300,000
85
PROBLEM 22
1.
Taxes ReceivableCurrent........................................................
Allowance for Uncollectible Current Taxes...........................
Allowance for Discounts on Taxes........................................
Deferred Revenues.................................................................
Revenues................................................................................
3.
4.
5.
6.
7.
14,000,000
140,000
400,000
1,240,000
12,220,000
$ 9,600,000
2,000,000
620,000
$12,220,000
9,408,000
392,000
8,000
Taxes Receivable--Delinquent....................................................
Allowance for Uncollectible Current Taxes...............................
Taxes Receivable--Current.....................................................
Allowance for Uncollectible Delinquent Taxes.....................
4,200,000
140,000
Cash............................................................................................
Taxes Receivable--Delinquent...............................................
2,200,000
15,000
1,000
35,000
Cash............................................................................................
Allowance for Uncollectible Tax Liens......................................
Tax Liens Receivable.............................................................
Allowance for Uncollectible Delinquent Taxes.....................
14,200
1,000
Expenditures...............................................................................
Tax Liens Receivable.............................................................
35,000
9,800,000
8,000
4,200,000
140,000
2,200,000
15,000
1,000
35,000
15,000
200
35,000
86
PROBLEM 23
1.
Expenditures--Capital Outlay.....................................................
Cash........................................................................................
Other Financing Sources--Capital Leases..............................
5,000,000
500,000
4,500,000
2.
No entry required at December 31. The lease payment due next year is in substance debt
service on general long-term debt. Therefore, there is no accrual of interest or principal
expenditures.
3.
450,000
300,000
750,000
87
PROBLEM 24
A. CONSUMPTION METHOD ENTRIES
1.
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
3,150,000
2,950,000
2,920,000
3.
Vouchers Payable........................................................................
Cash........................................................................................
2,300,000
2,870,000
4.
3,150,000
2,950,000
2,920,000
2,300,000
2,870,000
2,920,000
2,920,000
50,000
50,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
3,150,000
2,950,000
2b. Expenditures...............................................................................
Vouchers Payable...................................................................
2,920,000
3.
Vouchers Payable........................................................................
Cash........................................................................................
2,300,000
50,000
50,000
3,150,000
2,950,000
2,920,000
2,300,000
50,000
50,000
88
PROBLEM 25
1.
2.
3.
4.
Estimated Revenues....................................................................
Unallotted Appropriations......................................................
Allotted Appropriations.........................................................
Unreserved Fund Balance......................................................
14,000,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
50,000
Expenditures--Capital Outlay.....................................................
Cash........................................................................................
13,000
600,000
11,700,000
1,500,000
800,000
50,000
13,000
600,000
Note that the $200,000 claim outstanding at the beginning of the year would not have been a
General Fund liability.
5.
400,000
400,000
Note that the increase in the unpaid liability would be reported in as a general long-term
liability.
6.
7.
50,000
Expenditures...............................................................................
Vouchers Payable...................................................................
51,000
12,000
50,000
51,000
12,000
89
PROBLEM 26
1.
2.
3.
Cash............................................................................................
Grant Revenues......................................................................
4,000,000
Expenditures...............................................................................
Cash........................................................................................
2,500,000
Cash............................................................................................
Deferred Grant Revenues.......................................................
4,000,000
Expenditures...............................................................................
Cash........................................................................................
2,500,000
2,500,000
Expenditures...............................................................................
Cash........................................................................................
2,500,000
2,500,000
4,000,000
2,500,000
4,000,000
2,500,000
2,500,000
2,500,000
2,500,000
PROBLEM 27
The revenue recognition criteria for governmental fund revenues require revenues to be
recognized when they become both measurable and available. Available means both legally
available for expenditure in the period and (expected to be) collected during the period or soon
enough thereafter to be able to be used to pay the period's current liabilities. For property taxes,
this cutoff period after year end must not exceed 60 days. Most professionals apply the same
cutoff period to other revenue sources as well.
The criteria clearly apply to property taxes and to charges to services. Many argue that they
apply to grants as well. However, a separate statement was issued dealing with grant
recognition. For restricted grants, qualifying expenditures must have been incurred to justify
revenue recognition. Some experts argue that the collection part of the availability criterion does
not apply to grants because NCGA 2 does not specifically require its application.
For investments accounted for at fair value, the collected within 60 days after year end criterion
clearly does not apply because the fair value changes are recognized as revenue or revenue
reductions without regard to cash collection. Some argue that when the fair value of an
investment changes there is a constructive cash flow. This view is subject to considerable
skepticism.
90
PROBLEM 28
1.
2.
3.
4a.
Cash................................................................................
Other Financing SourcesBonds...........................
Other Financing SourcesTransfer from
General Fund......................................................
Deferred Capital Grant Revenues............................
To record receipt of resources from bond
issuance, transfer in, and grant.
13,000,000
ExpendituresCapital Outlay........................................
Cash.........................................................................
To record purchase of land.
900,000
Encumbrances.................................................................
Reserve for Encumbrances......................................
To record construction contract.
11,000,000
7,000,000
7,000,000
8,000,000
2,500,000
2,500,000
900,000
11,000,000
7,000,000
6,650,000
350,000
2,500,000
2,500,000
91
PROBLEM 29
1.
2.
3a.
3b.
4.
Cash................................................................................
Other Financing SourcesBANs...........................
To record issuance of BANs.
2,000,000
Encumbrances.................................................................
Reserve for Encumbrances......................................
To record construction contract.
5,000,000
1,600,000
ExpendituresCapital Outlay........................................
Cash.........................................................................
Contracts PayableRetained Percentage...............
To record contract costs incurred.
1,600,000
January 1, Year 2
Encumbrances.................................................................
Unreserved Fund Balance........................................
To re-establish encumbrances in an offsetting
relationship with the reserve.
6a.
5,000,000
1,600,000
1,500,000
100,000
No adjusting entry needed for interest because the BANs are general long-term liabilities.
Therefore, no interest expenditures should be accrued.
Closing Entries:
Other Financing SourcesBANs...................................
Unreserved Fund Balance...............................................
Expenditures............................................................
Encumbrances..........................................................
To close the accounts.
5.
2,000,000
2,000,000
3,000,000
1,600,000
3,400,000
3,400,000
3,400,000
Cash................................................................................
ExpendituresBond Issue Costs...................................
Other Financing SourcesBonds...........................
To record issuance of bonds.
4,950,000
50,000
Cash................................................................................
Other Financing SourcesTransfer from
General Fund......................................................
To record General Fund transfer.
150,000
5,000,000
150,000
92
Problem 29 (continued)
6b.
7a.
7b.
8.
9.
2,000,000
150,000
3,400,000
ExpendituresCapital Outlay........................................
Contracts PayableRetained Percentage.......................
Cash.........................................................................
To record billings and payment.
3,250,000
100,000
2,150,000
3,400,000
3,350,000
100,000
100,000
5,000,000
150,000
400,000
50,000
150,000
3,250,000
100,000
2,000,000
93
PROBLEM 30
A. BOND ANTICIPATION NOTES TREATED AS SHORT-TERM DEBT
1.
2.
3.
4.
5.
6.
7.
Cash............................................................................................
BANs Payable........................................................................
5,000,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
9,000,000
4,000,000
4,000,000
75,000
1,000,000
1,000,000
Cash............................................................................................
Other Financing Sources--Bond Proceeds.............................
9,000,000
BANs Payable.............................................................................
Interest Payable...........................................................................
Expenditures--Interest.................................................................
Cash........................................................................................
5,000,000
75,000
75,000
5,000,000
9,000,000
4,000,000
200,000
3,800,000
75,000
1,000,000
50,000
950,000
9,000,000
5,150,000
Cash............................................................................................
Other Financing Sources--BAN Proceeds.............................
5,000,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
9,000,000
4,000,000
4,000,000
5,000,000
9,000,000
4,000,000
200,000
3,800,000
94
PROBLEM 30 (continued)
4.
5.
1,000,000
1,000,000
Cash............................................................................................
Other Financing Sources--Bond Proceeds.............................
9,000,000
5,000,000
150,000
6.
7.
1,000,000
50,000
950,000
9,000,000
5,150,000
95
PROBLEM 31
1.
2.
3.
4.
5.
6.
7.
11,000,000
1,000,000
Cash............................................................................................
Transfers from General Fund.................................................
1,000,000
Cash............................................................................................
Other Financing Sources--Bond Proceeds.............................
Other Financing Sources--Bond Premium.............................
11,110,000
110,000
Encumbrances.............................................................................
Reserve for Encumbrances....................................................
10,350,000
Expenditures--Building Design..................................................
Cash........................................................................................
174,000
4,200,000
4,200,000
11,110,000
1,000,000
12,000,000
12,000,000
1,000,000
11,000,000
110,000
110,000
10,350,000
174,000
4,200,000
210,000
3,990,000
11,000,000
1,000,000
4,374,000
6,150,000
110,000
1,476,000
96
Problem 31 (continued)
8. Beginning of 20X5:
Encumbrances.............................................................................
Unreserved Fund Balance...........................................................
Appropriations ($12,000,000 - 4,374,000)............................
6,150,000
1,476,000
7,626,000
9.
6,150,000
6,150,000
210,000
1,476,000
6,150,000
6,360,000
1,476,000
PROBLEM 32
SITUATION A
1.
2.
Cash............................................................................................
Other Financing Sources--Refunding Bonds.........................
8,160.000
8,160,000
8,160,000
8,160,000
SITUATION B
1.
2.
3.
Cash............................................................................................
Other Financing Sources--Refunding Bonds.........................
4,000.000
Cash............................................................................................
Other Financing Sources--Transfers In..................................
4,160,000
4,000,000
4,160,000
4,000,000
4,160,000
8,160,000
97
PROBLEM 33
1.
2.
ExpendituresPrincipal Retirement..............................
ExpendituresInterest...................................................
Cash.........................................................................
To record payment of long-term note and
interest.
500,000
38,000
ExpendituresBond Principal.......................................
ExpendituresInterest...................................................
Defaulted Bonds Payable........................................
Defaulted Interest Payable.......................................
To record default on bond payment.
800,000
40,000
538,000
800,000
40,000
PROBLEM 34
SITUATION A
1.
2.
3.
Cash............................................................................................
Other Financing Sources--Refunding Bond Proceeds...........
6,000,000
Cash............................................................................................
Other Financing Sources--Transfers In..................................
2,500,000
6,000,000
2,500,000
6,000,000
2,500,000
8,500,000
SITUATION B
1.
2.
3.
Cash............................................................................................
Other Financing Sources--Refunding Bond Proceeds...........
6,000,000
Cash............................................................................................
Other Financing Sources--Transfers In..................................
2,500,000
8,500,000
6,000,000
2,500,000
8,500,000
98
PROBLEM 35
(a)
1.
ExpendituresInterest...................................................
Cash.........................................................................
300,000
To record payment of interest on courthouse
bonds.
300,000
2.
Cash................................................................................
Other Financing SourcesRefunding Bonds.........
Other Financing SourcesTransfer
From General Fund.............................................
1,500,000
To record bond issue and transfer.
6,500,000
5,000,000
3.
(a)
5,000,000
1,500,000
The entries for 1 and 2 would not change except that it would not be necessary
to indicate that the other financing source was from refunding bonds. The third
transaction should be recorded as follows:
Investments with Trustee................................................
Cash.........................................................................
6,500,000
To record payment to bond escrow agent to
cover future debt service payments.
6,500,000
PROBLEM 36
1.
2.
Notes Payable.................................................................
Net AssetsInvested in Capital Assets...................
To record maturity of note. (Defaulted notes
payable and defaulted interest payable should
be recorded in the Debt Service Fund.
100,000
Net AssetsUnrestricted................................................
Liability for Claims and Judgments........................
To record increase in long-term liability for
2,490,000
100,000
2,490,000
99
PROBLEM 37
1.
2.
General Fund
Other Financing UsesTransfer to Debt
Service Fund.......................................................
Cash.........................................................................
To record transfer to Debt Service Fund.
Debt Service Fund
Cash................................................................................
.........Other Financing SourcesRefunding Bonds
To record transfer from General Fund.
3.
3,000,000
3,000,000
3,000,000
3,000,000
1,850,000
1,850,000
1,850,000
1,850,000
3,000,000
1,850,000
4,850,000
5,000,000
5,000,000
100
PROBLEM 38
1.
2.
3.
4.
5.
6.
7.
8.
Cash............................................................................................
Transfer from General Fund..................................................
400,000
Expenditures--Interest.................................................................
Cash........................................................................................
400,000
Cash............................................................................................
Transfer from Capital Projects Fund......................................
560,000
Cash............................................................................................
Transfer from General Fund..................................................
850,000
Cash............................................................................................
Revenues--Interest.................................................................
100,000
Expenditures--Interest.................................................................
Expenditures--Principal..............................................................
Cash........................................................................................
400,000
500,000
36,000
400,000
400,000
560,000
850,000
100,000
900,000
36,000
800,000
500,000
36,000
574,000
101
PROBLEM 39
1.
2.
3.
4.
5.
6.
7.
950,000
50,000
Interest Receivable......................................................................
Revenue--Interest...................................................................
60,000
Cash............................................................................................
Assessments Receivable -- Current.......................................
Interest Receivable.................................................................
106,000
2,000
2,000
Expenditures--Interest.................................................................
Expenditures--Principal..............................................................
Cash........................................................................................
40,000
50,000
Investments.................................................................................
Cash........................................................................................
10,000
Investments.................................................................................
Revenues--Net Increase in Fair Value of Investments...........
600
Revenue -- Assessments.............................................................
Revenues--Net Increase in Fair Value of Investments................
Revenues--Interest......................................................................
Expenditures--Interest............................................................
Expenditures--Principal.........................................................
Unreserved Fund Balance......................................................
50,000
600
60,000
950,000
50,000
60,000
48,000
58,000
2,000
2,000
90,000
10,000
600
40,000
50,000
20,600
102
PROBLEM 40
1.
Land............................................................................................
Net Assets--Invested in Capital Assets..................................
55,000
55,000
2.
3.
Equipment...................................................................................
Net Assets--Invested in Capital Assets .................................
27,000
5,000
30,000
1,000
39,000
Construction in Progress.............................................................
Net Assets Invested in Capital Assets.................................
1,200,000
3,000,000
4.
5.
6.
7.
27,000
35,000
40,000
1,200,000
3,000,000
PROBLEM 41
1.
2.
3.
4.
5.
40,000,000
Notes Payable--Long-Term........................................................
Net Assets--Invested in Capital Assets .................................
100,000
1,000,000
139,000
2,500,000
40,000,000
100,000
100,000
900,000
139,000
2,500,000
103
PROBLEM 42
1.
2.
3a.
3b.
4.
5.
8,000,000
160,000
640,000
7,200,000
300,000
300,000
7,500
7,500
542,000
GF
Reserve for Encumbrances....................................................
Encumbrances.................................................................
542,000
7.
12,700,000
300,000
GF
Encumbrances........................................................................
Reserve for Encumbrances.............................................
Expenditures..........................................................................
Vouchers Payable............................................................
6.
13,000,000
542,000
542,000
541,500
541,500
43,000
43,000
GF
Transfer to DSF......................................................................
Cash................................................................................
605,000
605,000
GF
Investments............................................................................
Cash................................................................................
265,000
605,000
605,000
265,000
104
Problem 42 (Continued)
8.
9.
10.
GF
Investments............................................................................
Net Increase (Decrease) in Fair Value of Investments....
8,000
GF (or SRF)
Cash........................................................................................
Deferred Revenues..........................................................
983,000
GF (or SRF)
Expenditures..........................................................................
Cash................................................................................
630,000
Deferred Revenues.................................................................
Revenues.........................................................................
11.
GF
Expenditures--Capital Outlay................................................
Cash................................................................................
Other Financing Sources--Increase in Capital Leases....
8,000
983,000
630,000
630,000
630,000
700,000
150,000
550,000
CPF
Cash........................................................................................
Other Financing Sources--Refunding Bonds..................
Other Financing Sources--Bond Premium......................
13,470,000
13,000,000
470,000
DSF
Cash........................................................................................
Other Financing Sources--Refunding Bonds..................
8,000,000
8,000,000
1,000,000
550,000
150,000
13,000,000
470,000
8,000,000
9,000,000
105
Problem 42 (Continued)
General Capital Assets and General Long-Term Liabilities accounts
Bonds Payable (Old)..............................................................
8,750,000
Bonds Payable (new)......................................................
Net Assets--Invested in Capital Assets...........................
8,000,000
750,000
106
PROBLEM 43
1.
GF
Expenditures..........................................................................
Cash or Vouchers Payable...............................................
General Capital Assets and General Long-Term Liabilities
(GCA-GLTL) accounts
Equipment..............................................................................
Net Assets--Invested in Capital Assets...........................
2.
3.
4.
43,000
43,000
43,000
GF
Transfer to DSF......................................................................
Cash................................................................................
605,000
605,000
300,000
400,000
GCA-GLTL accounts
Bonds Payable........................................................................
Net Assets--Invested in Capital Assets...........................
400,000
GF
Expenditures--Capital Outlay................................................
Cash................................................................................
Other Financing Sources--Increase in Capital Leases....
GCA-GLTL accounts
Equipment Under Capital Lease.........................................
Capital Lease Liabilities.................................................
Net Assets--Invested in Capital Assets...........................
5.
43,000
605,000
605,000
700,000
400,000
700,000
150,000
550,000
700,000
550,000
150,000
CPF
Cash........................................................................................
Other Financing Sources--Refunding Bond Proceeds....
13,000,000
GCA-GLTL accounts
Net Assets--Invested in Capital Assets..................................
Bonds Payable................................................................
13,000,000
13,000,000
13,000,000
107
Problem 43 (Continued)
6.
DSF
Cash........................................................................................
Other Financing Sources--Refunding Bonds..................
12,000,000
12,000,000
1,000,000
GCA-GLTL accounts
Bonds Payable (Old)..............................................................
Net Assets--Invested in Capital Assets...........................
Bonds Payable (new)......................................................
7.
GF
Cash........................................................................................
Other Financing Sources Proceeds from the Sale of
Capital Assets..........................................................
GCA-GLTL accounts
Net Assets--Invested in Capital Assets..................................
Accumulated Depreciation.....................................................
Vehicles...........................................................................
12,000,000
13,000,000
14,000,000
2,000,000
12,000,000
4,000
4,000
2,000
23,000
25,000
108
PROBLEM 44
1.
2.
3.
4.
5.
6.
Cash............................................................................................
Revenues--Donations.............................................................
550,000
Investments.................................................................................
Cash........................................................................................
540,000
Cash............................................................................................
Revenues--Interest.................................................................
38,000
35,000
Investments.................................................................................
Revenues--Net Increase (Decrease) in Fair Value
of Investments.................................................................
43,000
Revenues--Donations..................................................................
Revenues--Interest......................................................................
Revenues--Net Increase (Decrease) in Fair Value
of Investments.................................................................
Transfer to the General Fund.................................................
Fund Balance--Nonexpendable..............................................
Fund Balance--Expendable....................................................
550,000
35,000
550,000
540,000
38,000
35,000
43,000
43,000
35,000
550,000
43,000
109
PROBLEM 45
(a)
1.
2.
3.
4.
5.
(b)
Accounts Receivable.......................................................
Sales.........................................................................
To record sales on account.
5,000,000
750,000
Cash................................................................................
Accounts Receivable................................................
Due from Other Funds.............................................
To record collections of receivables.
4,750,000
20,000
Sales................................................................................
Allowance for Uncollectible Accounts.....................
To record the provision for bad debts.
100,000
5,000,000
750,000
4,000,000
750,000
20,000
100,000
PROBLEM 46
All except items 4, 5, 6, and 10 should be reported as cash flows from capital and related
financing activities.
110
PROBLEM 47
1.
2.
3.
4.
5.
6.
7.
Buildings.....................................................................................
Cash........................................................................................
Mortgage Note Payable..........................................................
450,000
58,000
124,000
387,000
40,000
3,000
100,000
350,000
58,000
120,000
4,000
430,000
60,000
60,000
10,500
11,250
10,500
11,250
26,555
10,500
10,500
47,555
111
PROBLEM 48
City of Isler
Central Service Bureau
Statement of Cash Flows
For the Year Ended December 31, 20X8
Cash flows from operating activities:
Cash collections from user departments.....................................
Cash paid to employees..............................................................
Cash paid to suppliers.................................................................
$400,000
(190,000)
( 80,000)
$130,000
2,800
30,000
( 50,000)
( 3,000)
( 8,000)
( 61,000)
800
( 24,000)
( 23,200)
32,800
78,600
34,000
$112,600
112
PROBLEM 49
1.
2.
3.
Cash............................................................................................
Refunding Bonds Payable......................................................
3,000,000
Bonds Payable............................................................................
Premium on Bonds Payable........................................................
Cash........................................................................................
Deferred Interest Expense Adjustment..................................
3,200,000
100,000
240,000
60,000
3,000,000
3,000,000
300,000
240,000
60,000
113
PROBLEM 50
Part A
1.
2.
3.
Cash............................................................................................
Capital Contributions.............................................................
10,000,000
Cash............................................................................................
Transfer from General Fund..................................................
5,000,000
Cash............................................................................................
Bonds Payable........................................................................
5,000,000
10,000,000
5,000,000
5,000,000
4.
No entry required.
5.
Construction in Progress.............................................................
Contracts Payable...................................................................
8,000,000
Contracts Payable.......................................................................
Cash........................................................................................
8,000,000
150,000
Cash............................................................................................
Operating Grant Revenues.....................................................
40,000
Expenses.....................................................................................
Cash........................................................................................
30,000
6.
7.
8.
9.
8,000,000
8,000,000
150,000
40,000
30,000
Part B
The capital grant would be reported as a separate line item after income before other revenue,
expenses, and transfers. The operating grant is reported as part of nonoperating revenues.
114
PROBLEM 51
Cash Flows from Operating Activities:
11. Cash paid to employees.........................................................
11. Cash paid to suppliers............................................................
Cash Flows from Noncapital Financing Activities:
2. Cash paid for transfer out.......................................................
10. Cash received from operating grants.....................................
55,000
30,000
300,000
500,000
18,000,000
1,080,000
5,000,000
1,500,000
34,000
1,000,000
23,000
90,000
900,000
300,000
2,800,000
18,000
59,000
115
PROBLEM 52
City of Rice
Water Utility Enterprise Fund
Statement of Revenues, Expenses, and Changes in Net Assets
For the Year Ended December 31, 20X3
Operating revenues:
Charges for services....................................................................
Operating expenses:
Salaries........................................................................................
Contractual services....................................................................
Supplies.......................................................................................
Depreciation................................................................................
$3,300,000
$1,000,000
1,300,000
400,000
1,100,000
3,800,000
( 300,000)
117,000
(250,000)
8,000
( 125,000)
( 425,000)
450,000
1,200,000
1,225,000
3,000,000
$4,225,000
116
PROBLEM 53
1.
2.
3.
4.
12,000,000
240,000
11,760,000
20,000,000
15,200,000
120,000
200,000
20,000,000
15,200,000
120,000
200,000
9,062,000
9,000,000
62,000
15,200,000
15,200,000
117
PROBLEM 54
1.
2.
3.
4.
1,000,000
2,000,000
3,000,000
300,000
300,000
300,000
300,000
300,000
300,000
65,000
65,000
Note that many would consider it preferable to use a single Private-Purpose Trust Fund and to
distinguish between the nonexpendable and expendable portions of the net assets of that single
fund instead of using two separate funds.
118
PROBLEM 55
1.
2.
3.
4.
5.
6.
800,000
246,000
Cash............................................................................................
Due from General Fund.........................................................
Due from Enterprise Fund.....................................................
941,400
Investments.................................................................................
Cash........................................................................................
540,000
Cash............................................................................................
Additions -- Interest Income..................................................
380,000
17,000
96,000
523,000
523,000
720,000
221,400
540,000
380,000
17,000
92,000
4,000
7.
No entry. This information affects the required supplementary information schedules, not
the accounts or financial statements.
8.
Investments.................................................................................
Additions -- Net Increase Fair Value of Investments.............
83,000
83,000
119
PROBLEM 56
The financial statements for a defined benefit government pension plan include a statement of
net assets (essentially a balance sheet with Net Assets Held in Trust for Pension Benefits serving
as the balancing item). The assets of the fund are mostly investments, which must be reported at
fair value. Only short-term, currently payable liabilities are reported here. No actuarial based
information is presented in the statement.
The other required financial statement is the statement of changes in net assets. The statement
reports additions to net assets held in trust, deductions from net assets held in trust, and the net
increase or decrease for the year. No actuarial based information is reported in this statement.
Two schedules are required to be included in required supplementary information. The schedule
of funding progress reports the market-related value of plan assets, the actuarial accrued liability
for benefits, and the actuarial excess or deficiency among other information. This is the primary
mechanism for reporting on the actuarial status of the plan, therefore. The schedule of employer
contributions reports the required employer contributions to the plan and the extent to which this
is the amount actually funded for a year. These two schedules report data for six years.
PROBLEM 57
1.
2.
3.
4.
5.
6.
Cash............................................................................................
Additions -- Donations...........................................................
150,000
Investments.................................................................................
Cash........................................................................................
140,000
Cash............................................................................................
Additions -- Interest...............................................................
3,000
Deductions -- Scholarships.........................................................
Cash........................................................................................
3,000
Investments.................................................................................
Additions -- Revenues--Net Increase in Fair Value of Investments
Additions -- Donations...............................................................
Additions--Interest......................................................................
Additions--Net Increase in Fair Value of Investments................
Deductions -- Scholarships....................................................
Net Assets Held in Trust -- Nonexpendable...........................
150,000
140,000
3,000
3,000
13,000
13,000
150,000
3,000
13,000
3,000
163,000
120
$ 70,000
500,000
$570,000
$4,000,000
1,100,000
$5,100,000
$1,222,000
121
PROBLEM 59
City of Cricket Hill
Statement of Activities
For the Year Ended December 31, 20X9
Functions/Programs
Expenses
Governmental activities:
General administration
Public safety
Highways and streets
Health and welfare
Interest on long-term debt
Total governmental activities
1,700,000
4,200,000
2,100,000
3,000,000
100,000
11,100,000
Program Revenues
Operating
Charges for
Grants and
Capital Grants &
Services
Contributions
Contributions
1,200,000
300,000
270,000
270,000
General revenues:
Property taxes, levied for general purposes
Grants and contributions not restricted to specific programs
Interest and investment earnings
Loss on sale of capital assets
Transfers
Total general revenues, special items, and transfers
Change in net assets
Net assets--beginning
Net assets--ending
1,200,000
300,000
Governmental
Activities
$ (1,700,000)
(3,000,000)
(1,800,000)
(2,730,000)
(100,000)
(9,330,000)
13,000,000
4,000,000
178,000
(18,000)
(2,500,000)
14,660,000
5,330,000
3,017,000
$ 8,347,000
122
PROBLEM 60
NET ASSETS:
Invested in capital assets, net of related debt
Restricted for:
Special projects
Debt service
Unrestricted
Total net assets
3,100,000
1,200,000
1,700,000
7,800,000
13,800,000
1,200,000
1,700,000
900,000
(900,000)
123
PROBLEM 61
Assets
$1,300,000
500,000
200,000
900,000
700,000
5,400,000
$ 540,000
Assets
$8,000,000
1,000,000
9,000,000
$ 900,000
Assets
$ 5,400,000
9,000,000
14,400,000
$ 720,000
The threshold for determining that a governmental fund other than the General Fund is a major
fund is $720,000 (the larger of $720,000 and $540,000). The threshold for determining that an
Enterprise Fund is a major fund is $900,000 (the larger of $900,000 and $720,000). Therefore,
the major funds are those shown in the chart below.
Major Funds
General
Water and Sewer Enterprise Fund
Swimming Pool Enterprise Fund
Assets
$1,300,000
4,000,000
1,000,000
124
PROBLEM 62
1.
2.
3.
4.
5.
6.
7.
8.
Equipment...................................................................................
Expenditures -- Capital Outlay Equipment............................
3,500,000
Bonds Payable............................................................................
Expenditures -- Bond Principal Retirement...........................
200,000
120,000
1,000,000
100,000
1,100,000
Deferred revenue........................................................................
Revenue -- Taxes....................................................................
Net Assets (Beginning)..........................................................
12,000
23,000
3,500,000
200,000
25,000
95,000
1,000,000
100,000
1,100,000
2,000
10,000
23,000
125
PROBLEM 63
City of Floyd
Reconciliation of the Balance Sheet of Governmental Funds
to the Statement of Net Assets
Fund balances--total governmental funds
$ 13,000,000
6,700,000
2,000,000
(10,100,000)
3,000,000
$ 14,600,000
126
127
PROBLEM 64
City of Riner
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balance to the Statement of Activities
Net change in fund balances--total governmental funds
Amounts reported for governmental activities in the Statement of Activities are
different because
Governmental funds report capital outlays as expenditures while governmental
activities report depreciation expense to allocate those expenditures over the life
of the assets.
Add Capital acquisitions
Subtract Depreciation
$ 1,300,000
5,080,000
(4,100,000)
980,000
In the Statement of Activities, only the gain (loss) on capital assets is reported.
In the governmental funds, the proceeds from the sale increase financial
resources. Thus, the change in net assets differs from the change in fund
balance by the book value of the capital asset.
(25,000)
200,000
3,000,000
(3,500,000)
(500,000)
Some expenses reported in the Statement of Activities do not require the use of
current financial resources and therefore are not reported as expenditures in
governmental funds (such as compensated absences).
(30,000)
(12,000)
Internal service funds are used by management to charge the costs of certain
services to individual funds. The net revenue (expense) of the internal service
funds is reported with governmental activities.
Change in Net Assets of Governmental Activities
520,00
0
$
2,433,000
128
PROBLEM 65
A. Potential fund financial statements included in the basic financial statements are as follows:
a. Governmental Funds (General Fund, Special Revenue Funds, Debt Service Funds,
Capital Projects Funds, Permanent Funds)
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balances
Statement of Revenues, Expenditures, and Changes in Fund Balances--Budget and
Actual (General Fund and for each major Special Revenue Fund with legally adopted
annual budgets)
b. Proprietary Funds (Internal Service Funds and Enterprise Funds)
Balance Sheet (Statement of Net Assets)
Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Cash Flows
c. Fiduciary Funds (Agency Funds, Private-Purpose Trust Funds, Investment Trust Funds
and Pension Trust Funds)
Statement of Fiduciary Net Assets
Statement of Changes in Fiduciary Net Assets
B. The fund financial statements for governmental funds report separate columns for each major
fund and a single column for nonmajor funds. The fund financial statements for proprietary
funds report separate columns for each major enterprise fund, a single column for nonmajor
enterprise funds, and a single column for internal service funds. The fund financial
statements for fiduciary funds report separate columns for each fund type. The combining
financial statements must report data for each fund that did not appear as a major fund in the
fund financial statements. In addition, the combining financial statements must present total
columns that articulate with the fund financial statements (nonmajor funds for governmental
and enterprise funds; fund type for internal service and fiduciary funds). Fund financial
statements are required as part of basic financial statements. Combining statements are not
required in the basic financial statements. They are required in the comprehensive annual
financial report.
129
PROBLEM 66
A. The minimum requirements for general purpose external financial reports are as follows:
130
PROBLEM 67
1.
The school district is a component unit of the city. The school district is fiscally dependent
on the city because the city council has substantive approval authority over the district's tax
rate.
The school district should be discretely presented. Because of its public service nature, it
does not meet the criteria for blending which require that a component unit either serve
solely or benefit solely the primary government itself (as opposed to the primary
government's constituency). The third criterion--which is the only one most component
units could reasonably meet--is that a voting majority of the primary government board (the
city council) must serve on and constitute a voting majority of the governing board of the
component unit. Since the school district board members are popularly elected, this
criterion is not met for the school district.
2.
The municipal gas utility clearly is a component unit of the city. It meets, in a fairly extreme
manner, every criterion for inclusion. It is enough to realize that the utility is fiscally
dependent upon the city because of the city's budget approval authority--or, for that matter,
its authority over the rate structure or over issuance of bonded indebtedness.
The gas utility should be discretely presented. As with the school district, the only pertinent
criterion for blending is the substantively the same governing body criterion. Even though
the utility board is appointed by the council and can be removed at will, this criterion is not
met. No council member serves ex officio as a board member of the utility.
3.
The library commission is a component unit of the city because the city has substantive
approval authority over the commission's budget. This means that the commission is
fiscally dependent on the city.
The library commission is to be blended in the city financial report. A majority of city
council (three of five) serves as commission board members and comprise a voting majority
(three of five) of the component unit board.
131
PROBLEM 68
A. Discretely presented component units are presented in the government-wide financial
statements separately from the primary government. They are not included in the fund
financial statements. Governments must report certain information about each major
discretely presented component unit. Governments may meet this requirement by reporting
each of the five component units in separate columns of the government-wide financial
statements. More likely, the government will meet this requirement by either disclosing
condensed financial statements for each of the five component units in the notes to the
financial statements or by providing a combining component unit financial statement.
B. Blending means that a component unit is being reported in substantially the same manner it
would be if the component unit were actually a part of the primary government legal entity.
Each fund of a component unit is reported as an additional fund of the same fund type of the
primary government. The major exception is that the General Fund of a component unit is
reported as a primary government Special Revenue Fund.
Blending is required for component units that serve or benefit only the primary government.
Blending also is required for a component unit with substantively the same governing body
as the primary government. Substantively the same governing body means that a voting
majority of the primary government board must serve on and constitute a voting majority of
the governing board of the component unit. If none of these criteria are met, the government
is not permitted to blend the component unit's data.
PROBLEM 69 (CAFR Sections)
Indicate in which section of the CAFR the following items would appear: (I) Introductory, (F)
Financial, or (S) Statistical
_S_ Computation of legal debt limit
_I_ Organizational chart
_F_ Narrative explanation
_I_ Letter of transmittal
_S_ Principal taxpayers
_F_ Auditors report
_I_ GFOA Certificate of Achievement
_F_ Managements discussion and analysis
_F_ Combining financial statements
_F_ Other required supplementary information
132
PROBLEM 70
1. Cash..............................................................................................
Unrestricted SupportContributions....................................
300,000
300,000
2. Cash..............................................................................................
1,245,000
Temporarily Restricted SupportContributionsEducation
Temporarily Restricted SupportContributionsBuilding.
Permanently Restricted SupportContributionsEndowment
43,000
202,000
1,000,000
3. Pledges Receivable......................................................................
28,000,000
Allowance for Uncollectible Pledges.....................................
Temporarily Restricted SupportTime Restriction (Implied)
Temporarily Restricted SupportContributionsBuilding
Permanently Restricted SupportContributionsEndowment
2,800,000
2,700,000
4,500,000
18,000,000
4.
5.
6.
7.
8.
Cash........................................................................................
ExpensesDirect Costs of Special Event.............................
Temporarily Restricted SupportSpecial Events..........
550,000
850,000
ExpensesEducation............................................................
Cash................................................................................
14,000
14,000
ExpensesEducation............................................................
Cash................................................................................
25,000
25,000
Construction in Progress........................................................
Cash................................................................................
92,000
92,000
Construction in Progress........................................................
Cash................................................................................
110,000
110,000
1,400,000
14,000
14,000
25,000
25,000
92,000
92,000
110,000
110,000
133
Problem 70 (Continued)
9.
10.
Cash........................................................................................
Temporarily Restricted RevenueInvestment Income..
13,000
Cash........................................................................................
Unrestricted Revenue Investment Income...................
25,000
25,000
13,000
25,000
25,000
PROBLEM 71
1.
2a.
2b.
Pledges Receivable.................................................................
Cash........................................................................................
Temporarily Restricted SupportContributions.............
To record contributions for rehabilitation programs.
300,000
100,000
ExpensesAlcohol Rehabilitation.........................................
Cash................................................................................
220,000
400,000
220,000
220,000
220,000
134
PROBLEM 72
a.
b.
c.
This collection is not reflected in the statement of activities. There are two restrictions in
this case when the pledges are made--a time restriction (implied) and a use restriction.
Collection removes the time restriction, but the use restriction remains. Hence, the
assets are not yet released from restrictions.
d.
Pledges restricted to fixed asset construction are reported as contributions in the changes
in temporarily restricted net assets section of the statement of activities, either at present
value or at net realizable value. When construction costs are incurred for the restricted
purpose, an organization must adopt one of two polices. Under the first approach, when
construction costs are incurred, net assets released from restrictions is reported as an
increase in the changes in unrestricted net assets and as a decrease in the changes in
temporarily restricted net assets sections. Under the second approach, when construction
costs are incurred, there is no change in net assets. As the assets are used up
(depreciated), depreciation expense is reported in unrestricted net assets and net assets
released from restrictions is reported as an increase in the changes in unrestricted net
assets and as a decrease in the changes in temporarily restricted net assets sections.
The depreciation expense and the net assets released from restrictions are not necessarily
equal in amount. For instance, while they may be recognized over the same period,
residual value would not be taken into account in computing the net assets released from
restrictions--even if the same time period is appropriate.
e.
135
PROBLEM 73
Weinstein Musical Society
Statement of Activity
For the Year Ended December 31, 20X4
Changes in Unrestricted Net Assets
Revenues and gains
Contributions ....................................................................................
Ticket sales ....................................................................................
Investment income............................................................................
Membership dues..............................................................................
Total Revenue and Gains........................................................
Net assets released from restrictions ($300,000 + $412,000 + $35,000)
Increase in Unrestricted Net Assets.........................................
Expenses:
Program Services:
Maestro Program ($77,000 + $5,000 + $330,000).............................
Classical Music Appreciation Program ($23,000 + $12,000)............
Professional Program ($379,000 + $500,000)...................................
Total Program Services...........................................................
Supporting Services:
Management and General ($45,000 + $1,300 + $22,000)..................
Fund raising ....................................................................................
Total Supporting Services.......................................................
Total Expenses........................................................................
Net Increase in Unrestricted Net Assets..................................
$ 800,000
150,000
58,000
100,000
1,108,000
747,000
$1,855,000
$412,000
35,000
879,000
1,326,000
68,300
75,000
143,300
1,469,300
385,700
1,990,000
(747,000)
1,243,000
1,628,700
1,420,000
$3,048,700
136
Problem 74
1. Investments..................................................................................
250,000
Permanently Restricted SupportContributionsEndowment
2.
3.
4.
5.
6.
7.
8.
Pledges Receivable................................................................
100,000
Allowance for Uncollectible Pledges.............................
Temporarily Restricted SupportTime Restriction (Implied)
Cash........................................................................................
Temporarily Restricted SupportEquipment................
200,000
Equipment..............................................................................
Cash................................................................................
80,000
80,000
ExpensesDepreciation........................................................
Accumulated Depreciation.............................................
10,000
Cash........................................................................................
Temporarily Restricted SupportEquipment................
200,000
Equipment..............................................................................
Cash................................................................................
80,000
ExpensesDepreciation........................................................
Accumulated Depreciation.............................................
10,000
10,000
250,000
5,000
95,000
200,000
80,000
80,000
10,000
200,000
80,000
10,000
10,000
137
PROBLEM 75
1.
2.
3.
4.
5.
6.
Accounts Receivable..............................................................
Scholarship Allowances.........................................................
RevenuesTuition and Fees..........................................
Allowance for Uncollectible Accounts...........................
2,702,000
98,000
18,000
300,000
40,000
Deferred RevenueGrants......................................................
RevenuesGrants............................................................
40,000
Equipment..............................................................................
Cash................................................................................
40,000
30,000
15,000
2,785,000
15,000
18,000
300,000
40,000
40,000
40,000
45,000
138
PROBLEM 76
1.
2.
3.
4.
5.
6.
7.
8.
Accounts Receivable..............................................................
Cash........................................................................................
Scholarship Allowances.........................................................
Revenues--Educational and General...............................
Allowance for Uncollectible Accounts...........................
1,230,000
3,150,000
120,000
Cash........................................................................................
Revenues--Auxiliary Enterprises....................................
275,000
1,438,000
62,000
35,000
Mortgage Payable..................................................................
ExpensesEducational and General.....................................
Cash................................................................................
230,000
290,000
250,000
230,000
Equipment..............................................................................
Cash................................................................................
34,000
4,455,000
45,000
275,000
1,500,000
35,000
520,000
250,000
230,000
34,000
139
PROBLEM 77
Beaver State College
Statement of Revenues, Expenses, and Changes in Net Assets
For the Year Ended December 31, 20X3
REVENUES
Operating revenues:
Tuition and fees (net of scholarship allowances of $200,000
and uncollectible accounts of $80,000).................................
Auxiliary enterprise sales...........................................................
Total operating income..........................................................
$3,720,000
500,000
$4,220,000
EXPENSES
Operating expenses:
Educational and General:
Instruction...................................................................................
Research .................................................................................
Student services..........................................................................
Institutional support....................................................................
Operation of plant.......................................................................
Total educational and general................................................
Auxiliary enterprise (280,000 + 140,000)..................................
Total operating expenses........................................................
$3,100,000
600,000
220,000
190,000
180,000
$4,290,000
420,000
$4,710,000
( 490,000)
800,000
380,000
370,000
(10,000)
1,540,000
1,050,000
Capital gifts........................................................................................
2,000,000
3,050,000
3,827,000
$6,877,000
140
PROBLEM 78
1.
2.
3.
4.
5.
Cash ....................................................................................
Annuities Payable...........................................................
RevenuesAnnuity Gifts...............................................
200,000
Investments............................................................................
Cash................................................................................
195,000
Annuities Payable..................................................................
Cash................................................................................
25,000
Cash........................................................................................
Annuities Payable...........................................................
13,000
Annuities Payable..................................................................
RevenueChange in Value of Annuity Payable............
1,000
175,000
25,000
195,000
25,000
13,000
1,000
141
PROBLEM 79
1. Accounts Receivable..............................................................
Patient Service Charges..................................................
12,500,000
2,000,000
800,000
2. Expenses--Nursing Services..................................................
Cash................................................................................
2,300,000
3. Expenses--Depreciation--Building........................................
Expenses--Depreciation--Equipment.....................................
Accumulated Depreciation--Building.............................
Accumulated Depreciation--Equipment.........................
500,000
900,000
2,600,000
Expenses--Medical Supplies..................................................
Medical Supplies Inventory............................................
2,500,000
4,000,000
500,000
7. Equipment..............................................................................
CashRestricted for Plant Replacement
and Expansion.........................................................
2,000,000
8. Expenses--Nursing Services..................................................
CashRestricted for a Specific Program.......................
400,000
9. Cash........................................................................................
Bonds Payable................................................................
5,000,000
12,500,000
2,000,000
800,000
2,300,000
500,000
900,000
2,600,000
2,500,000
4,000,000
500,000
2,000,000
400,000
5,000,000
200,000
200,000
100,000
100,000
142
Problem 80
1.
2.
Although there are many similarities among the financial statements for a government
hospital and a not-for-profit hospital, the key differences are:
Net assets for not-for-profit hospitals are classified as unrestricted, temporarily
restricted, and permanently restricted. Net assets for government hospitals are
classified as unrestricted, restricted, and invested in capital assets, net of related debt.
Not-for-profit hospitals report a statement of operations and a statement of changes in
net assets. Government hospitals report a statement of revenues, expenses, and
changes in net assets.
Not-for-profit hospitals report changes in all three categories of net assets.
Government hospitals report only changes in total net assets.
Not-for-profit hospitals report assets released from restrictions. Government hospitals
do not report assets released from restrictions.
Not-for-profit hospitals follow FASB cash flow statement guidance. Government
hospitals follow GASB cash flow statement guidance.
Government hospitals defer revenue recognition on reimbursement grants until
qualifying costs are incurred. Nongovernment, not-for-profit hospitals do not.
143
PROBLEM 81
$15,690,000
440,000
16,130,000
Expenses:
Nursing services............................................................................
Other professional services............................................................
General services............................................................................
Fiscal services...............................................................................
Administrative...............................................................................
Depreciation ($1,400,000 + $2,740,000).......................................
Total expenses.......................................................................
8,000,000
890,000
1,100,000
300,000
440,000
4,140,000
14,870,000
Operating income..........................................................................
1,260,000
500,000
1,300,000
870,000
350,000
75,000
3,095,000
4,355,000
State appropriations--capital..........................................................
500,000
4,855,000
27,200,000
$ 32,055,000
** Calculations: Patient service charges ($18,000,000) less charity service ($500,000) less contractual
adjustments ($1,100,000) less uncollectible accounts ($710,000).
144
PROBLEM 82
1.
2.
3.
4.
5.
6.
7.
8.
300,000,000
Appropriations Realized........................................................
Unapportioned Authority................................................
300,000,000
Unapportioned Authority.......................................................
Apportionments..............................................................
80,000,000
Apportionments......................................................................
Allotments-Realized Resources......................................
79,000,000
Allotments-Realized Resources.............................................
Commitments..................................................................
8,000,000
Commitments.........................................................................
Undelivered Order--Unpaid............................................
8,000,000
Allotments-Realized Resources.............................................
Expended Appropriations--Paid......................................
40,000,000
Expenses--Salaries.................................................................
Fund Balances with Treasury..........................................
40,000,000
Unexpended Appropriations..................................................
Appropriations Used.......................................................
40,000,000
Allotments-Realized Resources.............................................
Undelivered Orders--Unpaid..........................................
17,000,000
Undelivered Orders--Unpaid.................................................
Expended Appropriations--Unpaid.................................
17,000,000
Equipment..............................................................................
Accounts Payable............................................................
17,000,000
Unexpended Appropriations..................................................
Appropriations Used.......................................................
17,000,000
300,000,000
300,000,000
80,000,000
79,000,000
8,000,000
8,000,000
40,000,000
40,000,000
40,000,000
17,000,000
17,000,000
17,000,000
17,000,000
145
PROBLEM 83
1.
The concept underlying a single audit is that one audit should meet multiple objectives,
including:
Formulating an opinion on the fairness of presentation of an entity's financial
statements
Determining whether the entity has complied with laws and regulations with
which noncompliance may have a material effect on the financial statements of
the entity
Studying and evaluating internal controls of the entity to determine the nature,
extent, and timing of the auditing procedures necessary to express an opinion on
the entity's financial statements
Determining whether the supplementary schedule of federal awards is fairly
presented in relation to the financial statements as a whole
Determining whether the entity has established internal control systems to provide
reasonable assurance that federal monies are managed in compliance with
applicable laws and regulations
Determining whether the entity has complied with the laws and regulations that
may have a material effect on each major federal assistance program
2.
A major federal program is essentially a federal program which has been selected using
guidance established in OMB Circular A-133 for the most intensive level of audit
coverage. The factors that the selections are based on are a combination of size of the
program (in terms of amount of federal expenditures in the audit period) and risk. There
is an overall guideline requiring that programs responsible for at least 50% (or 25% for
low-risk auditees) of federal expenditures be designated as major programs in a single
audit.
Auditors must perform more work and take more responsibility for internal controls and
compliance for major programs than for other programs.
3.
A low-risk auditee is an entity that has had single audits performed for each of the
preceding two years, received unqualified opinions on the financial statements and on the
schedule of expenditures of federal awards, had no material weaknesses in internal
controls per government auditing standards guidance, and had no audit findings on Type
A programs regarding material weaknesses in internal controls over the federal program,
noncompliance with the provisions of laws, regulations, contracts, or grant agreements
that have a material effect on the Type A programs, or known or likely questioned costs
that exceed 5% of the total federal awards expended for Type A programs during the year.
146
PROBLEM 84
Identifying major programs requires a multiple step process.
First, the auditor identifies the larger federal programs, which are called Type A programs. For
most governments, these are programs with federal awards expended during the audit period of
the larger of $300,000 or 3% of the total federal awards expended.
Next, the auditor must identify low-risk Type A programs. These essentially are Type A
programs that have been audited as a major program in at least one of the last two years, with no
audit findings that must be reported in the most recent period.
Type A programs are major programs unless the auditor excludes them because they are low-risk.
All other programs are Type B programs. If no Type A programs are excluded from major
programs because they are low-risk and the total federal expenditures of the Type A programs are
at least 50% (25% for low-risk auditees) of the total federal award expenditures, no Type B
programs need be treated as major.
If no Type A programs are excluded but the total federal expenditures of the Type A programs
does not meet the 50% or 25% criterion, as appropriate, enough Type B programs must be
identified as major to meet the 50% or 25% criterion.
If one or more Type A programs are identified as low-risk programs and not treated as major
programs, an equal number of Type B programs must be treated as major programs--even if not
necessary to meet the 50% or 25% criterion. (If more than an equal number of Type B programs
must be treated as major programs to meet the 50% or 25% criterion, an entity must keep adding
programs to those identified as major until the criterion is met.)
Type B programs are selected for treatment as major programs based upon assessment of risks of
noncompliance occurring that could be material for the federal program.
147
PROBLEM 85
A.
Yes. Federal award expenditures exceed the threshold of $500,000 and more than one
federal program is involved.
B.
C.
Programs D and F must be treated as major. Programs B and C are the most likely to be
picked up to replace E and G which can be treated as low-risk Type A and not deemed
major programs. Assuming the government is not a low-risk auditee, the 50% coverage
rule applies; 50% of the total expenditures of federal awards for this government equals
$1,375,000 ($2,750,000 x .5). The sum of expenditures for Programs B, C, D, and
F is $1,425,000. The 50% coverage rule is met.
If the government were a low-risk auditee, only Programs D and F would be major
programs since their total federal expenditures would exceed the 25% threshold
($687,500) for a low-risk auditee.
148