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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-1
CHAPTER 17
GOVERNMENTAL ENTITIES: INTROD...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-2
Q17-2 (continued)
d. Debt service fund: ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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Q17-6 GASB 33 states that taxpayer-asses...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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Q17-11 The expenditure for inventories i...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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SOLUTIONS TO CASES
C17-1 Budget Theory
a...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-2 Municipal versus Financial Account...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-2 (continued)
b. Inventories are oft...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-3 (continued)
d. Under GASB 33, this...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-4 Summarizing the Requirements of GA...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-5 (continued)
a. The budgetary comp...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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C17-6 Examining Deposit and Investment ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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SOLUTIONS TO EXERCISES
E17-1 Multiple-C...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-3 Multiple-Choice Questions on Budg...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-4 Multiple-Choice Questions on the ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-5 Encumbrances at Year-End
a. Outst...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-5 (continued)
b. Outstanding encumb...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-5 (continued)
(Note: In entry (4), ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-6 (continued)
(3) Entry at end of 2...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-7 Accounting for Prepayments and Ca...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-8 Computation of Revenues Reported ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-8 (continued)
(8) The revenue from ...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-9 (continued)
(5) The $12,000 of bi...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-10 Closing Entries and Balance Shee...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-10 (continued)
b. General fund bala...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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E17-12 Matching Questions Involving Int...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-13 (continued)
(6) BUDGETARY FUND B...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-14 General Fund Entries [AICPA Adap...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-14 (continued)
3. Expenditures 142,...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-15 General Fund Entries and Stateme...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-15 (continued)
3. ENCUMBRANCES 1,80...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-15 (continued)
c. Closing entries:
...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-15 (continued)
e. Pine Ridge
Genera...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-16 Matching Governmental Terms with...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-17 Identification of Governmental A...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-18 Questions on General Fund Entrie...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-19 Questions on Fund Items [AICPA A...
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
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P17-20 Identifying Types of Revenue Tra...
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Solution Manual Advanced Financial Accounting by Baker 9th Edition Chapter 16

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Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,

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Solution Manual Advanced Financial Accounting by Baker 9th Edition Chapter 16

  1. 1. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-1 CHAPTER 17 GOVERNMENTAL ENTITIES: INTRODUCTION AND GENERAL FUND ACCOUNTING ANSWERS TO QUESTIONS Q17-1 A fund is an independent fiscal and accounting entity with a self-balancing set of accounts recording cash and/or other resources together with all related liabilities, obligations, reserves, and equities which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. A fund may receive resources from a variety of sources, including collection of taxes on property, income, or commercial sales; receipt of grants, fines, or licenses; and collection of service charges. Q17-2 The eleven funds generally used by local and state governments are: Governmental a. General fund b. Special revenue fund c. Capital projects fund d. Debt service fund e. Permanent fund Proprietary f. Internal service fund g. Enterprise fund Fiduciary h. Pension trust fund i. Investment trust fund j. Private-purpose trust fund k. Agency funds The purpose of each fund is individually discussed below: a. General fund: All financial resources except those required to be accounted for in another fund are accounted for in the general fund. b. Special revenue fund: The proceeds of specific revenue sources that are legally restricted for specified purposes are accounted for in the special revenue fund. c. Capital projects fund: Financial resources to be used for the acquisition or construction of major capital projects that will benefit a large population are accounted for in the capital projects fund.
  2. 2. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-2 Q17-2 (continued) d. Debt service fund: The accumulation of resources for and the payment of, general long-term debt principal and interest are accounted for in the debt service fund. e. Permanent fund: Accounts for resources for which the principal must be maintained, but for which the earnings may be used in support of governmental programs. f. Internal service fund: The financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, are accounted for in internal service funds. g. Enterprise fund: Operations of governmental units that charge for services provided to the general public are accounted for in the enterprise funds. h. Pension trust fund: Resources held by a governmental unit in a trustee capacity for the members and beneficiaries of pension plans, postemployment plans, or other employee benefit plans. i. Investment trust funds: Accounts for the external portion of investment pools of governing units. j. Private-purpose trust fund: Accounts for trust arrangements under which both principal and interest may be used to benefit specific individuals, private organizations, or other governmental units. Note that these resources have specific purposes as stated by the donor or grantor, and are not available for general governmental programs. k. Agency funds: Assets held by a governmental unit in an agency capacity for employees or other individuals are accounted for in agency funds. Q17-3 The modified accrual basis includes some aspects of accrual accounting and some aspects of cash-basis accounting. Under the modified accrual basis, the emphasis is on reporting how well the government performed by focusing on when the revenue and expenditures are recognized in the accounts and reported in the financial statements. The emphasis is not on how much was earned or on the amount of expenses. Q17-4 The modified accrual basis is used for funds for which expendability is the concern because the governing entity is interested in the determination of the resources still remaining to be expended to carry out the objectives of the fund. Q17-5 Property taxes are recognized as revenue in the general fund when the taxes are levied, provided they apply to and are collectible within the current fiscal period, or within a short period (< 60 days) after the end of the fiscal period.
  3. 3. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-3 Q17-6 GASB 33 states that taxpayer-assessed income and sales taxes should be accrued in the general fund when they become both measurable and available to finance expenditures of the fiscal period. Sales taxes held by other governmental units should be recognized if the taxes are both measurable and available for expenditure. Measurability in this case is based on an estimate of the sales taxes to be received, and availability is based on the ability of the governing entity that will receive the future distribution to obtain current resources through credit by using future sales tax receipts as collateral for the loan. Q17-7 Budgetary accounting is the entering of the budgeted revenue, appropriations, and net increase or decrease in fund balance into the formal accounting records as a formal accounting control mechanism. Expected revenue is accounted for as estimated revenue, an anticipatory asset account. The governmental unit anticipates receiving resources from the revenue sources listed in the budget. Anticipated expenditures are accounted for as appropriations, an anticipatory liability account. The governmental unit anticipates incurring liabilities for the budgeted amount. Both the expected revenue and the appropriations accounts are closed at the end of the fiscal period. Q17-8 All expenditures are not encumbered. Payroll costs and other costs for goods received from within the governmental entity are not encumbered because these are normal and recurring costs. Q17-9 Some governmental units do not report small amounts of inventories of supplies in their balance sheets because the amount of inventory is not material. Q17-10 Under the lapsing method the Reserve for Encumbrances account is shown as a reservation of the fund balance on the fiscal year-end balance sheet. The encumbrance account is a nominal account that is closed at the end of the fiscal period. The net effect is to close out the remaining encumbrances against the fund balance-unreserved. Alternatively, the GASB does allow for just footnote disclosure of the lapsing open orders at year-end that are expected to be honored in the next fiscal period. Under the nonlapsing method the expenditure authority from prior periods is carried over as nonlapsing encumbrances. The budget for the next fiscal period does not include these carryovers and is more realistic for situations in which orders placed with outside vendors cannot easily be canceled. The encumbrances account and the budgetary reserve for encumbrances account are still closed at the end of the first period. When accounting for the actual expenditure in the subsequent year, the lapsing method requires the new governing board to decide if it will honor the outstanding encumbrances from the previous year by including them in the current budgeted appropriations. If the governing board accepts the obligation to honor their outstanding purchase orders from the prior year, the recording of the current year’s budget establishes the expenditure authority for the prior year-end’s open encumbrance. In the event the new governing board decides not to honor the outstanding encumbrances, the reserve for outstanding encumbrances is closed to the unreserved fund balance and the order for the goods is cancelled with the external vendor. When accounting for the actual expenditure in the subsequent year, the nonlapsing method separates expenditures made from spending authority carried over from prior periods. This is done in a reclassification entry made on the first day of the next fiscal period, which dates the reserve for encumbrances. When the goods are received in the second year, the expenditures account is also dated to note that it refers to expenditure authority of the prior year.
  4. 4. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-4 Q17-11 The expenditure for inventories is recognized in the period the supplies are acquired under the purchase method. Under the consumption method, the expenditure for inventories is recognized for only the amount of inventory used in the period. Q17-12 Interfund services provided and used are interfund activities that would be treated as revenues or expenditures if they were made with parties external to the governmental entity. An example would be if the general fund purchased supplies from the internal service Interfund transfers out or in are transfers of resources between funds. An example would be a transfer of resources from the general fund (an interfund transfer out) to the capital projects fund (a transfer in) to assist in the construction costs of a new municipal building. Q17-13 An interfund transfer is reported as "Other Financing Sources or Uses" in the general fund's statement of revenues, expenditures, and changes in fund balance. Q17-14 The loan of $2,000 from the general fund to the enterprise fund is reported on the financial statements of the general fund on the balance sheet as a receivable. The loan is not shown on the fund's statement of revenues, expenditures, and changes in fund balance. Q17-15 Governmental accounting places many controls over expenditures, and much of the financial reporting focuses on the various aspects of an expenditure. An expenditure can be made for a function of the governmental entity or an activity within a function. Expenditures for an activity can be classified by object, which is the type of expenditure. The extensive detail required to account for and cross reference an expenditure to ensure it is properly classified at all levels requires a very comprehensive accounting system.
  5. 5. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-5 SOLUTIONS TO CASES C17-1 Budget Theory a. A governmental accounting system must make it possible to: 1. Present fairly and with full disclosure, in conformity with generally accepted accounting principles, the financial position and results of financial operations of the funds and account groups of the governmental unit. 2. Determine and demonstrate compliance with finance-related legal and contractual provisions. Because the legislative body enacts the budget into law, the budget is recorded in the accounts of a governmental unit. This enables a governmental unit to show legal compliance with the budget by providing an accounting system that measures actual expenditures and obligations against amounts appropriated and actual revenue against estimated revenue. Appropriations enacted into law constitute maximum expenditure authorizations during the fiscal year, and they cannot legally be exceeded unless subsequently amended by the legislative body. b. As the new fiscal year begins, the budget, already enacted in law by the legislative body, is recorded. Budgetary accounts are set up to record the estimated revenue and appropriations in the fund accounts by debiting estimated revenue and crediting appropriations. If there is a difference between estimated revenue and appropriations, the excess or deficit is credited or debited, respectively, to fund balance. In addition, subsidiary ledger accounts are maintained for estimated revenue by source and for appropriation/expenditure items. At the end of the fiscal year, the estimated revenue and the appropriations accounts are among other budgetary accounts closed out to the budgetary fund balance.
  6. 6. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-6 C17-2 Municipal versus Financial Accounting a. The most significant difference in purpose between municipal accounting and commercial accounting is that commercial enterprises are operated for profit, which places much emphasis on the proper determination of periodic earnings. Governmental units are primarily concerned with providing services to their citizens at minimum cost and reporting on the stewardship of public officials with respect to public funds, which places much emphasis on budgetary controls. However, some municipal units perform commercial services that are generally secondary to their tax-financed primary services. Another difference in accounting purpose is that municipal accounting operations are controlled by legal provisions in constitutions, charters, and regulations having the force and effect of law. Because of these legal provisions and the diversity of its governmental operations, a municipality cannot use a single, unified set of accounts for recording and summarizing all financial transactions. If there is a conflict between legal provisions and generally accepted accounting principles applicable to governmental units, legal provisions should take precedence to the extent that the accounting system must enable the ready disclosure of compliance. However, for financial reporting purposes, generally accepted accounting principles must take precedence. Commercial enterprises usually are not controlled by charters that are restrictive; therefore, their accounting systems are designed differently. Legislative action may limit the use of certain tax revenue for expenditure on particular programs, the methods of tax collection, or the rates of tax assessment. Such provisions must be reflected in the accounting system and be appropriately disclosed in the municipality's financial statements as a report on the stewardship of public officials with respect to public funds. In governmental accounting all required accounts are organized on the basis of funds, each of which is independent of the other. Each fund must be so accounted for that the identity of its resources, obligations, revenue, expenditures, and fund balance is continually maintained. These purposes are accomplished by providing a complete self-balancing set of accounts for each fund. The basis of accounting for the reporting on governmental units is often different from that used by commercial enterprises. For example, the accrual basis of accounting is recommended for all funds except the governmental funds. The governmental funds should be accounted for by the modified accrual basis. The modified accrual basis is recommended for the governmental funds because some of their revenue sources are difficult to measure in advance and frequently become available only a short time before cash receipt. Generally, fair presentation of financial position and results of operations in conformity with generally accepted accounting principles requires that the financial statements of governmental funds (those that use the modified accrual basis) include a balance sheet and a statement of revenues, expenditures, and changes in fund balance. In contrast, however, a commercial enterprise would usually prepare a statement of financial position, an earnings statement, a statement of retained earnings, and a statement of cash flows. The statement of revenues and expenditures of the general fund and certain special revenue funds should include a comparison with a formal budget in order to conform to generally accepted accounting principles; there is no such requirement for a commercial enterprise.
  7. 7. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-7 C17-2 (continued) b. Inventories are often ignored in governmental accounting because of an emphasis on budgeting revenue against outlays without looking behind the outlays to determine the extent to which they represent actual usage or consumption. Put another way, there is an emphasis on the cash or fiscal aspects rather than the operational aspects. This is easy to understand when one considers that general-fund expenditures for firemen's salaries and for the purchase of a new fire truck are accounted for in the same way. However, inventories are not wholly ignored in governmental accounting. In those funds in which accounting parallels commercial accounting practice, such as enterprise funds, inventories are taken into consideration. Similarly, in an internal service fund concerned with rendering service involving the consumption of supplies or the delivery of stores to other funds and activities, the inventories of supplies or stores are taken into consideration in computing billings to departments serviced. Larger amounts of inventories can and should be taken into consideration when preparing budgets. A fund, such as a general fund, having departments that possess large inventories at year-end obviously can make smaller appropriations for the coming year than it would if those departments had zero inventories. C17-3 Revenue Issues The following presentation describes the proper accounting and financial reporting for each item. Note that there are two decision points: (1) when a receivable or other asset should be recognized, and (2) when a revenue should be recognized. a. GASB 33 states that an asset (receivable or cash) should be recognized for imposed nonexchange revenue when the government has an enforceable claim to the resources, or the resources are received, whichever comes first. The property taxes receivable would be debited at the time an enforceable claim arises. In most governments, this is the levy date (sometimes termed the lien date); in some others, it is the assessment date or other date fixed by law. It depends on the enabling legislation permitting the government to impose property taxes. Property tax revenue would be credited when the resources become available for use for current expenditures. Resources received or recognized as receivables before becoming available for use should have a credit to deferred revenues. Recording of both the asset debit and the revenue or deferred revenue credit must be in compliance with the requirements established by GASB 33. The estimated uncollectible should be recorded as a reduction of the revenue, and a contra account for the Allowance for uncollectibles should be recorded. b. For property taxes received in advance of when they can be used for current expenditures, a debit is made to cash and a deferred revenue account, for example, property taxes received in advance, should be credited until the taxes are available for use at which time the deferral should be transferred to revenue. c. GASB 33 requires that this derived tax revenue should be recognized as a receivable when the underlying exchange transaction occurs or resources are received, whichever is first. The revenue is recognized when the underlying exchange has occurred and the resources are available. In the rare cases in which derived tax revenues are received before the underlying exchange transaction has occurred, the credit should be to deferred revenues. Estimates of collections expected in the near future should be made and the receivable recognized in accordance with the above guidelines.
  8. 8. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-8 C17-3 (continued) d. Under GASB 33, this is an example of a voluntary nonexchange transaction unless the payment is the result of a government-mandated program. The asset will be recorded (receivable or cash) when all eligibility requirements are met or resources are received, whichever is first. Eligibility requirements are those established by the provider and may state requirements for specific allowable costs or specify a time requirement. Revenue will be recorded when all the eligibility requirements are met. On the modified accrual basis, revenues would be recorded when all eligibility requirements are met and the resources are available. e. Interest earned on investments is recognized as a receivable in the period in which it is accrued but not yet received. But interest is not recognized as revenue until it is considered available to liquidate liabilities of the current period. Thus, interest may be accrued to a receivable with a credit to a deferred revenue in the period prior to the actual collection of the interest. In addition, the city should make an adjusting journal entry at each balance sheet date to recognize any adjustments required for changes in the fair value of the investments. Investment earnings are reported in the revenues section of the operating statement. f. GASB 33 specifies that this voluntary nonexchange transaction, with its time restriction and eligibility requirements, should be recorded as an asset when the applicable eligibility requirements are met or the resources are received, whichever is first. Under the modified accrual basis of accounting, revenues should be recognized when all applicable eligibility requirements are met and the resources are available. Prior to that, the community may recognize a credit for deferred revenues if the resources have been received.
  9. 9. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-9 C17-4 Summarizing the Requirements of GASB 34 The following presents a listing of the major points in GASB 34, “Basic Financial Statements– and Management’s Discussion and Analysis–for State and Local Governments.” a. The management’s discussion and analysis (MD&A) is required supplementary information (RSI) but must precede the basic financial statements. GASB 34 requires the MD&A to be an objective and easily readable analysis of the government’s financial condition and activities with comparisons to the prior year. Not only is management to provide an analysis of the overall financial condition of the governmental entity, but also to discuss significant changes in the funds. Also, management should discuss significant budget variances and describe capital asset and long-term debt activities during the year. Finally, management is to look forward and describe currently known facts or conditions that may have a significant effect on the government’s future financial condition. b. (1) The fund financial statements present the operating results and activities in the individual funds. The fund statements reflect the fund-based accountability of the governmental entity as it raises financial resources from the public and expends those resources in meeting the objectives for which each fund is established. The governmental funds use a current financial resources measurement focus and the modified accrual basis of accounting. Proprietary fund financial statements and fiduciary fund statements use the economic resources measurement focus and the accrual basis of accounting. (2) The government-wide financial statements present the financial position and the fiscal year performance for the governmental entity as a whole. All capital assets, including infrastructure assets are included along with a measure of depreciation. Long-term debt of the governmental entity is also included in the government-wide financial statements. The government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting. Thus, even though the fund-based financial statements are the foundation for the government-wide financial statements, a reconciliation schedule must be provided for the governmental funds to go from the modified accrual basis, to the accrual basis in the government-wide financial statements. The government-wide financial statements report program expenses reduced by program resources. And net assets on the government-wide statement of net assets are reported for three categories: invested in capital assets net of related debt, restricted, and unrestricted. C17-5 Examining the General Fund Disclosures in a Comprehensive Annual Financial Report (CAFR) (Note to the instructor: Most local governments now produce a comprehensive annual financial report. You might select the local city or county in which the university is located or a large city close to the university town. Printed copies of the CAFR may be obtained directly from that government unit and you could place these copies on reserve in your university or college library for use by your students. Alternatively, many governments now provide their CAFRs online. A Google web search using “CAFR” and the name of your city, county or state will show if your selection provides an online copy of its CAFR. Or, you may do a Google search using “CAFR” and then select one of the government units that provide an online copy of its CAFR and then provide that link to your students or insert that link into your online syllabus.)
  10. 10. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-10 C17-5 (continued) a. The budgetary comparison schedules for the general fund are reported as other required supplementary information. This schedule for the general fund should be used to answer questions a and b. These schedules disclose the amounts budgeted for each item of revenue, appropriations for the various functions of government, and for estimated transfers in from other funds and estimated transfers out to other funds in the government. b. See the response to question a. c. The notes to the basic financial statements should disclose the encumbrance policy— whether the government has a policy in which the outstanding encumbrances lapse at year- end or do not lapse at year-end. d. This question reinforces the student’s understanding of the balance sheet equation for the general fund: Assets = Liabilities + Fund Balance. This question also makes students aware of the two forms of fund balance — reserved and unreserved. e. This question makes students aware that inventories are reported on the balance sheet of the general fund if the amount is material. If reported, the next question is the accounting method for inventories — the purchase or consumption method. The notes should answer the policy question. f. This question makes students aware of the modified accrual method and its application to property taxes. The notes to the financial statements should disclose that revenue from property taxes is reported when measurable and available to finance expenditures of the current period. The notes should also disclose the use of the 60-day rule for property tax revenue as well as the percentage of property taxes that were estimated to be uncollectible. g. This question focuses attention once again on MD&A and the different items that are reported therein. In MD&A, the government’s finance director should explain why revenues in the general fund either increased or decreased during the most recent year. h. This question addresses the issue that budgeted inflows and outflows should be compared with the actual resource inflows and outflows for the year. Was the budget more or less optimistic in predicting resource inflows from revenues? The same question is appropriate for appropriations versus expenditures. This question also should help students understand that the statement of revenues, expenditures, and changes in fund balance reports the change in fund balance that resulted from actual resource inflows and outflows. i. This question makes students aware that taxes may be the primary resource inflow for the general fund, but they are not the only resource inflow. This question also emphasizes that the revenues of the general fund come primarily from nonexchange transactions. j. This question makes students aware of one category of interfund transactions-- interfund loans and advances. The balance sheet of the general fund should report the receivables (“due from” or “advances to” accounts) and payables (“due to” and “advances from” accounts) associated with any interfund borrowings.
  11. 11. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-11 C17-6 Examining Deposit and Investment Risk Disclosures of a Governmental Entity (Note to the Instructor: Students may become frustrated because they may feel that the information presented in the summaries for GASB 40 and GASB 3 are not enough to fully understand the risk disclosures required by these two standards. This case does not require an intensive knowledge, but rather a general knowledge of the required risk disclosures. Then the case provides students with the opportunity to see the standards in a real government annual report, especially if they select a local governmental entity with which they are quite familiar, e.g., their home city or the city in which the university is located.) a. The deposit and investment risks stated in the summary are: (1) custodial credit risk; (2) credit risk, (3) concentration of credit risk, (4) interest rate risk, and (5) foreign currency risk. GASB 3 and GASB 40, which your students probably would not have, define these as follows: Custodial credit risk:: (established in GASB 3 but amended in GASB 40): The risk that in the event of a failure of a depository financial institution or a counterparty to a transaction, a government will not be able to recover deposits, or the value of the investment, or the collateral that is in the possession of an outside party. Credit risk: The risk that an issuer or other counterparty to an investment will not fulfil its obligations. Concentration of credit risk: The risk of loss attributes to the magnitude of a government’s investment in a single issuer. Interest rate risk: The risk that changes in interest rates will adversely affect the fair value of an investment. Foreign currency risk: The risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. b. The summary of GASB 40 stated it well: that the disclosures provide users of the financial statements with information about deposit and investment risks that might affect the ability of a government to provide services and to meet its obligations as they become due. c, d and e. These answers will depend on the selected city and most recent fiscal period. But, the objective of these three questions is to have students look at the deposit and investment footnotes for an actual governmental entity. Students should be able to describe the types of deposit and investment risks faced by the selected local government, its policies to manage those risks, and the additional financial information such as the investments comprising each portfolio, credit ratings of the investments in bonds, discussion of the impacts of changing interest rates, and for some governmental entities, discussion of the effects of changing exchange rates for foreign currencies or investments.
  12. 12. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-12 SOLUTIONS TO EXERCISES E17-1 Multiple-Choice Questions on the General Fund [AICPA Adapted] 1. b 2. a 3. b 4. b 5. c 6. b E17-2 Matching for General Fund Transactions [AICPA Adapted] 1. K 2. C 3. B 4. B 5. K 6. A 7. H 8. I 9. M 10. F 11. B 12. B
  13. 13. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-13 E17-3 Multiple-Choice Questions on Budgets, Expenditures, and Revenue [AICPA Adapted] 1. c 2. d 3. c 4. a 5. b 6. c 7. d 8. b 9. c 10. d
  14. 14. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-14 E17-4 Multiple-Choice Questions on the General Fund 1. b 2. d 3. c The balances in the ENCUMBRANCES CONTROL and the FUND BALANCE- RESERVED FOR ENCUMBRANCES accounts are the same. Therefore, an excess of one account over the other indicates a recording error. 4. c The following entry is made when a purchase order is approved: ENCUMBRANCES CONTROL BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 5. b The 60-day rule for property tax revenues states that property taxes collected within 60 days after the end of a fiscal year (within first 60 days of 2007) may be classified as revenues of the prior fiscal year (2006). The entry to record the tax levy would be: Property Taxes Receivable 700,000 Allowance for Uncollectible Taxes 10,000 Revenue – Property Taxes 600,000 Deferred Revenue (reported as a liability on the general fund balance sheet) 90,000 [Note: The estimated uncollectibles are on the property taxes reported as deferred revenue.] 6. a Upon receipt of the order, Oak would record the following entries: BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 5,000 ENCUMBRANCES CONTROL 5,000 Expenditures Control 4,950 Vouchers Payable 4,950 7. a Johnson would record the following entry: ESTIMATED REVENUES CONTROL 9,000,000 ESTIMATED OTHER FINANCING SOURCE – TRANSFER IN (Internal Service) 1,000,000 ESTIMATED OTHER FINANCING SOURCE – TRANSFER IN (Debt Service) 500,000 APPROPRIATIONS CONTROL XXXXXX BUDGETARY FUND BALANCE – UNRESERVED XXX 8. c 9. a 10. b
  15. 15. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-15 E17-5 Encumbrances at Year-End a. Outstanding encumbrances lapse at year-end. (1) Order equipment—November 3, 20X2: ENCUMBRANCE 21,000 BUDGETARY FUND BALANCE--RESERVED FOR ENCUMBRANCES 21,000 Order equipment and record encumbrance. (2) Year-end entries—December 31, 20X3: BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 21,000 ENCUMBRANCES 21,000 Close remaining budgeted encumbrances. Fund Balance – Unreserved 21,000 Fund Balance – Reserved for Encumbrances 21,000 Reserve actual fund balance for outstanding encumbrances at year-end. (3) City Council accepts outstanding encumbrances—January 1, 20X3: Fund Balance – Reserved for Encumbrances 21,000 Fund Balance – Unreserved 21,000 Reverse prior-year encumbrance reserve. ENCUMBRANCES 21,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 21.000 Establish budgetary control over encumbrances renewed from prior year. (4) Equipment received—January 18, 20X3: BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 21,000 ENCUMBRANCES 21,000 Remove budgetary reserve for goods received. Expenditures 21,800 Vouchers Payable 21,800 Record expenditure for goods received at actual cost of $21,800. (5) Year-end entry—December 31, 20X3: Fund Balance—Unreserved 21,800 Expenditures 21,800 Close 20X3 expenditures account.
  16. 16. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-16 E17-5 (continued) b. Outstanding encumbrances are nonlapsing. (1) Order equipment—November 3, 20X2: ENCUMBRANCE 21,000 BUDGETARY FUND BALANCE--RESERVED FOR ENCUMBRANCES 21,000 Order equipment and record encumbrance. (2) Year-end entries—December 31, 20X2: BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 21,000 ENCUMBRANCES 21,000 Close remaining budgetary encumbrances. Fund Balance – Unreserved 21,000 Fund Balance – Reserved for Encumbrances 21,000 Reserve fund balance for outstanding encumbrances. (3) Date the encumbrances from prior year—January1, 20X3:: Fund Balance – Reserved for Encumbrances 21,000 Fund Balance – Reserved for Encumbrances – 20X2 21,000 Reclassify reserve from 2002, prior year. (4) Equipment received—January 18, 20X3: Expenditures – 20X2 21,000 Expenditures (20X3) 800 Vouchers Payable 21,800 Record actual expenditure for goods received. (5) Closing entries—December 31, 20X3: Fund Balance – Reserved for Encumbrances – 20X2 21,000 Expenditures – 20X2 21,000 Close expenditures account for prior year encumbrances. Fund Balance – Unreserved 800 Expenditures (20X3) 800 Close expenditures for current year.
  17. 17. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-17 E17-5 (continued) (Note: In entry (4), the $800 excess of actual cost over the encumbered amount must be approved as part of 20X3's expenditures. Entry (4) records the City Council’s approval with a debit to Expenditures (20X3) which increases 20X3’s total expenditures. The expenditures for 20X3 are closed in entry (5). If the actual cost was less than the encumbered amount, then the difference should be closed to Fund Balance-Unreserved, although some governmental units have a policy of closing any difference between actual and encumbered amounts for prior year encumbrances to the current year's expenditures.) c. (1) Outstanding encumbrances are nonlapsing; City Council cancels order— January 1, 20X3: Fund Balance—Reserved for Encumbrances 21,000 Fund Balance—Unreserved 21,000 City Council cancels 20X2 order for equipment. E17-6 Accounting for Inventories of Office Supplies a. Consumption method of accounting for inventories: (1) Purchase of supplies: August 8, 20X2 Expenditures 3,600 Vouchers Payable 3,600 Acquire inventory of supplies. (2) Entries at end of 20X2 fiscal year: September 30, 20X2 Inventory of Supplies 2,800 Expenditures 2,800 Recognize ending inventory of supplies. Fund Balance – Unreserved 2,800 Fund Balance – Reserved for Inventories 2,800 Establish fund reserve for ending inventory. Fund Balance – Unreserved 800 Expenditures 800 Close expenditures account.
  18. 18. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-18 E17-6 (continued) (3) Entry at end of 20X3 fiscal year: September 30, 20X3 Expenditures 2,800 Inventory of Supplies 2,800 Record expenditures for inventories consumed. Fund Balance – Reserved for Inventories 2,800 Fund Balance – Unreserved 2,800 Remove fund balance reserve for inventories consumed. Fund Balance – Unreserved 2,800 Expenditures 2,800 Close expenditures account. b. Purchase method of accounting for inventories: (1) Purchase of supplies: August 8, 20X2 Expenditures 3,600 Vouchers Payable 3,600 Acquire inventory of supplies. (2) Entries at end of 20X2 fiscal year: September 30, 20X2 Inventory of Supplies 2,800 Fund Balance – Reserved for Inventories 2,800 Recognize ending inventory of supplies. Fund Balance – Unreserved 3,600 Expenditures 3,600 Close expenditures account. (3) Entries at end of 20X3 fiscal year: September 30, 20X3 Fund Balance – Reserved for Inventories 2,800 Inventory of Supplies 2,800 Remove fund balance reserve for inventories consumed.
  19. 19. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-19 E17-7 Accounting for Prepayments and Capital Assets (a) Acquired three-year insurance policy: September 1, 20X1 Expenditures 5,400 Vouchers Payable 5,400 Record acquisition of three-year insurance policy. (b) New furniture for the city council meeting room: September 17, 20X1 ENCUMBRANCES 15,600 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 15,600 Encumber for purchase orders for new furniture. October 1, 20X1 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 15,600 ENCUMBRANCES 15,600 Reverse reserve for furniture received. Expenditures 15,200 Vouchers Payable 15,200 Receive furniture at actual cost. (c) Acquired supplies – consumption method used: November 4, 20X1 Expenditures 1,800 Vouchers Payable 1,800 Acquire supplies. Closing entries: December 31, 20X1 Inventory of Supplies 1,120 Expenditures 1,120 Recognize ending inventory of supplies. Fund Balance – Unreserved 1,120 Fund Balance – Reserved for Inventories 1,120 Establish fund reserve for ending inventory. Fund Balance – Unreserved 21,280 Expenditures 21,280 Close expenditures account: $ 5,400 Insurance Policy 15,200 Furniture 680 Supplies $21,280 Total
  20. 20. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-20 E17-8 Computation of Revenues Reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund Gilbert City Revenue Reported by the General Fund For the Year Ended June 30, 20X8 Property tax revenue $1,862,000 Interest revenue on advance 1,500 Grant revenue used to acquire computer equipment 235,000 Sales tax revenue 125,000 Liquor license revenue 66,000 Total revenue reported $2,289,500 Notes: (1) The amount reported for property tax revenue, $1,862,000 is computed in the following way: Levy $2,000,000 Less: Property taxes expected to be collected after August 31, 20X8 – the 60 day rule for property tax (100,000) collections – report in balance sheet as deferred revenue at June 30, 20X8, net of $2,000 allowance for uncollectible taxes (2%) The allowance for uncollectible taxes on this period’s revenue [($2,000,000 - $100,000 deferred) X .02] (38,000) Property tax revenue for year ended June 30, 20X8 $1,862,000 (2) The receipt of $50,000 for the repayment of the advance is recorded in the following manner by the general fund: Cash 51,500 Advance to Internal Service Fund 50,000 Interest revenue 1,500 (3) Collection of property taxes during the year ended June 30, 20X8, does not affect the recognition of revenue. The revenue was recognized at the levy date, not the collection date. (4) Revenue recognition related to the State grant is based upon spending the grant to acquire computer equipment. Therefore, revenue from the State grant is $235,000, the amount of the grant expended. The $15,000 remainder of the grant monies received is shown as unearned revenue, a liability. (5) Revenue from the sales tax is the amount collected during the year ended June 30, 20X8, or $125,000. The additional sales taxes of $25,000 will be revenue of the next fiscal year when the taxes are received from the State and are available to pay for expenditures incurred in the next fiscal year. (6) The borrowing of the $800,000 using the property tax levy as collateral represents a liability in the general fund. This amount is not revenue. (7) The $30,000 received from a terminated debt service fund is reported as an other financing source – transfer in, not revenue.
  21. 21. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-21 E17-8 (continued) (8) The revenue from liquor licenses is the amount collected, not the amount expected to be collected. Therefore, revenue of $66,000 is recognized from the sale of liquor licenses for the year ended June 30, 20X8. (9) The $15,000 reimbursement is not reported as revenue in the general fund. Reimbursements are recorded as reductions in expenditures. (10) The collection of the delinquent property taxes is not reported as revenue by the general fund for the year ended June 30, 20X8. The revenue associated with the delinquent property taxes was reported in the preceding fiscal year, because the property taxes were expected to be collected within 60 days of the end of the fiscal year. E17-9 Computation of Expenditures Reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund Benson City Amount Reported for Expenditures by the General Fund For the Year Ended June 30, 20X8 Computer equipment acquisitions in September, 20X7 $ 202,000 Reimbursement to special revenue fund in May, 20X8 15,000 Use of city water during the fiscal year 12,000 Supplies acquisitions 35,000 Salaries and wages of general fund employees 900,000 Interest paid on loan from local bank 15,000 Employer’s pension contribution to pension trust 95,000 Lease payments 10,000 Total amount reported for expenditures $1,284,000 Notes: (1) The $150,000 transfer to the capital projects fund in March, 20X8, is reported as an other financing use – transfer out. Therefore, it should not be included in the amount reported for expenditures for the year ended June 30, 20X8. (2) The amount paid for the computer equipment is the amount reported for expenditures. Therefore, $202,000 is included in expenditures for equipment, not the estimated amount of $200,000 that was recorded for the order (encumbrances). (3) None of the $500,000 transferred to the internal service fund should be reported as expenditures. The $200,000 that must be repaid by the internal service fund should be accounted for as an advance (a receivable in the general fund), while the $300,000 that represented a permanent contribution should be accounted for as an other financing use – transfer out. (4) The $15,000 reimbursement to the special revenue fund should be included in the expenditures of the general fund for the year ended June 30, 20X8.
  22. 22. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-22 E17-9 (continued) (5) The $12,000 of billings from the water department should be accounted for as expenditures by the general fund. Billings for water usage constitute an interfund services provided and used transaction. Note that the amount paid by the general fund, $11,500, is not the correct amount of the expenditures. The correct amount is $12,000. (6) The acquisition of supplies and the payment of salaries and wages by the general fund should be accounted for as expenditures. The entire cost of the supplies purchased should be reported as expenditures because the general fund uses the purchase method of accounting for supplies. (7) The outstanding encumbrances at June 30, 20X8, are not included in expenditures. The outstanding encumbrances will be reported on the general fund balance sheet as a reservation of fund equity. (8) The repayment of the principal of the bank loan is not an expenditure. However, the amount paid for interest, $15,000, should be included in expenditures for the year ended June 30, 20X8. (9) The general fund’s $95,000 contribution to the city’s pension trust should be included in expenditures of the general fund for the year ended June 30, 20X8. The employer’s contribution to a pension trust is an example of an interfund services provided or used transaction. (10) The general fund’s lease payments should be included in the amount reported for expenditures for the year ended June 30, 20X8. (11) For proper reporting on the statement of revenues, expenditures and changes in fund balance, each expenditure should be associated with a governmental function, such as General Governmental or Streets and Highways.
  23. 23. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-23 E17-10 Closing Entries and Balance Sheet a. Closing entries for the general fund: (1) APPROPRIATIONS CONTROL 1,145,000 ESTIMATED OTHER FINANCING USES– TRANSFER OUT 25,000 BUDGETARY FUND BALANCE – UNRESERVED 30,000 ESTIMATED REVENUES CONTROL 1,200,000 Close budgetary accounts. (2) BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 32,000 ENCUMBRANCES 32,000 Close remaining encumbrances by reversing remaining budgetary balance. (3) Fund Balance – Unreserved 32,000 Fund Balance – Reserved for Encumbrances 32,000 Reserve fund balance for encumbrances that lapse, but are expected to be honored in 20X2. (4) Property Tax Revenue 1,130,000 Miscellaneous Revenue 40,000 Expenditures 1,140,000 Fund Balance – Unreserved 30,000 Close operating statement accounts. (5) Fund Balance – Unreserved 25,000 Other Financing Uses – Transfer Out 25,000 Close transfer out.
  24. 24. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-24 E17-10 (continued) b. General fund balance sheet: Lone Wolf General Fund Balance Sheet December 31, 20X1 Assets Cash $ 90,000 Property Taxes Receivable – Delinquent $100,000 Less: Allowance for Uncollectibles – Delinquent (7,200) 92,800 Due from Other Funds 14,600 Total Assets $ 197,400 Liabilities and Fund Balance Vouchers Payable $ 65,000 Due to Other Funds 8,400 Fund Balance: Reserved for Encumbrances $ 32,000 Unreserved 92,000 124,000 Total Liabilities and Fund Balance $ 197,400 E17-11 Statement of Revenues, Expenditures, and Changes in Fund Balance Lone Wolf General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Fiscal Year Ended December 31, 20X1 Revenue: Property Taxes $1,130,000 Miscellaneous 40,000 $1,170,000 Expenditures 1,140,000 Excess of Revenue over Expenditures $ 30,000 Other Financing Sources (Uses): Transfer Out (25,000) Net Change in Fund Balance $ 5,000 Fund Balance, January 1, 20X1 119,000 Fund Balance, December 31, 20X1 $ 124,000
  25. 25. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-25 E17-12 Matching Questions Involving Interfund Transactions and Transfers in the General Fund 1. B 2. C 3. C 4. C 5. C 6. B 7. A 8. D 9. A 10. B SOLUTIONS TO PROBLEMS P17-13 General Fund Entries [AICPA Adapted] (1) ESTIMATED REVENUES CONTROL 2,000,000 APPROPRIATIONS CONTROL 1,940,000 BUDGETARY FUND BALANCE – UNRESERVED 60,000 Record the budget. (2) Taxes Receivable 1,870,000 Allowance for Uncollectible Taxes 10,000 Property Tax Revenue 1,860,000 Record the property tax levy. (3) Allowance for Uncollectible Taxes 8,000 Taxes Receivable 8,000 Write off uncollectible taxes receivable. (4) Cash 1,820,000 Taxes Receivable 1,820,000 Record property tax collections. (5) ENCUMBRANCES 1,070,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 1,070,000 Record purchase commitments.
  26. 26. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-26 P17-13 (continued) (6) BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 1,000,000 ENCUMBRANCES 1,000,000 Reverse for purchase orders received. (7) Expenditures 1,840,000 Vouchers Payable 1,840,000 Record actual expenditures. (8) Vouchers Payable 1,852,000 Cash 1,852,000 Record payment of vouchers during period. (9) APPROPRIATIONS CONTROL 1,940,000 BUDGETARY FUND BALANCE – UNRESERVED 60,000 ESTIMATED REVENUES CONTROL 2,000,000 Close budgetary accounts. (10) BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 70,000 ENCUMBRANCES 70,000 Close remaining encumbrances by reversing remaining budgetary balance. (11) Fund Balance – Unreserved 70,000 Fund Balance – Reserved for Encumbrances 70,000 Reserve fund balance for outstanding purchase commitments. (12) Property Tax Revenue 1,860,000 Expenditures 1,840,000 Fund Balance – Unreserved 20,000 Close operating statement accounts.
  27. 27. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-27 P17-14 General Fund Entries [AICPA Adapted] 1. ESTIMATED REVENUES CONTROL 3,000,000 APPROPRIATIONS CONTROL 2,980,000 BUDGETARY FUND BALANCE – UNRESERVED 20,000 Record the budget. Taxes Receivable 2,870,000 Allowance for Uncollectible Taxes 70,000 Revenue from Taxes 2,800,000 Record tax levy. Cash 2,810,000 Taxes Receivable 2,810,000 Record tax collection. Allowance for Uncollectible Taxes 40,000 Taxes Receivable 40,000 Record write-off of uncollectible taxes: July 1, 20X1, taxes receivable balance $ 150,000 20X2 tax levy 2,870,000 Less: Taxes collected (2,810,000) Taxes receivable final balance (170,000) Taxes written off as uncollectible $ 40,000 Cash 130,000 Miscellaneous Revenue 130,000 Collect miscellaneous revenue. 2. Fund Balance – Reserved for Encumbrances 60,000 Fund Balance – Unreserved 60,000 Reverse prior reserve which has been renewed. ENCUMBRANCES 60,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 60,000 Renew encumbrances from prior period. ENCUMBRANCES 2,700,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 2,700,000 Record encumbrances.
  28. 28. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-28 P17-14 (continued) 3. Expenditures 142,000 Due to Other Funds 142,000 Record liability to other funds for services received. 4. BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 2,700,000 ENCUMBRANCES 2,700,000 Reverse encumbrances for items received. Expenditures 2,700,000 Vouchers Payable 2,700,000 Record expenditures. BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 60,000 ENCUMBRANCES 60,000 Reverse reserve for encumbrances. Expenditures (Prior Period) 58,000 Vouchers Payable 58,000 Actual expenditure for goods received. Due to Other Funds 210,000 Vouchers Payable 210,000 Record approval for payment to other funds. Vouchers Payable 2,640,000 Cash 2,640,000 Record voucher payments. 5. ENCUMBRANCES 91,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 91,000 Record May 10 encumbrance.
  29. 29. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-29 P17-15 General Fund Entries and Statements a. Entries for 20X2 budget and transactions: 1. ESTIMATED REVENUES CONTROL 1,877,000 APPROPRIATIONS CONTROL 1,840,000 ESTIMATED OTHER FINANCIAL USES – TRANSFER OUT 37,000 Record budget. ENCUMBRANCES 21,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 21,000 Renew encumbrances from prior period. Fund Balance – Reserved for Encumbrances 21,000 Fund Balance – Unreserved 21,000 Reverse reserve for renewed encumbrances. Property Tax Receivable – Current 1,600,000 Allowance for Uncollectibles – Current 16,000 Property Tax Revenue 1,584,000 Record property tax levy. 2. Cash 1,590,000 Property Taxes Receivable – Current 1,507,000 Property Taxes Receivable – Delinquent 83,000 Collect property taxes. Allowance for Uncollectibles – Delinquent 9,000 Property Taxes Receivable – Delinquent 7,000 Property Tax Revenue 2,000 Write off remaining delinquent property taxes. Property Taxes Receivable – Delinquent 93,000 Allowance for Uncollectibles – Current 16,000 Property Taxes Receivable – Current 93,000 Allowance for Uncollectibles – Delinquent 16,000 Reclassify remainder of uncollected 20X2 property taxes. Cash 333,000 Sales Tax Revenue 284,000 Miscellaneous Revenue 39,000 Due to Motor Pool Fund 10,000 Other cash receipts.
  30. 30. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-30 P17-15 (continued) 3. ENCUMBRANCES 1,800,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 1,800,000 Record purchase orders. BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 1,773,000 ENCUMBRANCES 1,773,000 Reverse reserve for items received. Expenditures 1,788,000 Vouchers Payable 1,788,000 Actual expenditures for items received. Vouchers Payable 1,793,000 Cash 1,793,000 Vouchers paid. 4. Due from Central Stores Fund 13,000 Other Financing Uses – Transfer Out 37,000 Cash 50,000 Other cash payments and transfer. b. Pine Ridge General Fund Preclosing Trial Balance December 31, 20X2 Debit Credit Cash $ 191,000 Property Tax Receivable – Delinquent 93,000 Allowance for Uncollectibles – Delinquent $ 16,000 Due from Central Stores Fund 13,000 Vouchers Payable 26,000 Due to Motor Pool Fund 10,000 Fund Balance – Unreserved 161,000 Property Tax Revenue 1,586,000 Sales Tax Revenue 284,000 Miscellaneous Revenue 39,000 Expenditures 1,788,000 Other Financing Uses – Transfer Out 37,000 ESTIMATED REVENUES CONTROL 1,877,000 APPROPRIATIONS CONTROL 1,840,000 ESTIMATED OTHER FINANCING USES– TRANSFER OUT 37,000 ENCUMBRANCES 48,000 BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 48,000 $4,047,000 $4,047,000
  31. 31. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-31 P17-15 (continued) c. Closing entries: APPROPRIATIONS CONTROL 1,840,000 ESTIMATED OTHER FINANCING USES – TRANSFER OUT 37,000 ESTIMATED REVENUES CONTROL 1,877,000 Close budgetary accounts. BUDGETARY FUND BALANCE – RESERVED FOR ENCUMBRANCES 48,000 ENCUMBRANCES 48,000 Close remaining encumbrances. Fund Balance – Unreserved 48,000 Fund Balance – Reserved for Encumbrances 48,000 Reserve fund balance for outstanding purchase orders. Property Tax Revenue 1,586,000 Sales Tax Revenue 284,000 Miscellaneous Revenue 39,000 Expenditures 1,788,000 Other Financing Uses – Transfer Out 37,000 Fund Balance – Unreserved 84,000 Close operating statement accounts. d. Pine Ridge General Fund Balance Sheet December 31, 20X2 Assets Cash $191,000 Property Tax Receivables – Delinquent $ 93,000 Less: Allowance for Uncollectibles – Delinquent (16,000) 77,000 Due from Central Stores Fund 13,000 Total Assets $281,000 Liabilities and Fund Balance Vouchers Payable $ 26,000 Due to Motor Pool Fund 10,000 Fund Balance: Reserved for Encumbrances $ 48,000 Unreserved 197,000 245,000 Total Liabilities and Fund Balance $281,000
  32. 32. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-32 P17-15 (continued) e. Pine Ridge General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For Fiscal Year Ended December 31, 20X2 Revenue: Property Taxes $1,586,000 Sales Taxes 284,000 Miscellaneous 39,000 Total Revenue $1,909,000 Expenditures: Current $1,746,000 Capital Outlay – Furniture Total Expenditures 42,000 $1,788,000 Excess of Revenue over Expenditures $ 121,000 Other Financing Sources (Uses): Transfer Out (37,000) Change in Fund Balance $ 84,000 Fund Balance, January 1, 20X2 161,000 Fund Balance, December 31, 20X2 $ 245,000 [Note that the $42,000 expenditure for the office furniture capital outlay is reported separately. The theoretical support for this is that the expenditure will also benefit future periods. Some governmental entities report capital outlays made in the general fund with current expenditures because current financial resources were expended. Some governments integrate capital outlay expenditures into the appropriate functional categories (e.g., fire protection, government administration, or streets and highways) rather than separately report the expenditures for capital outlays. The choice of reporting alternative for the general fund is up to the governmental entity because the total expenditures will be the same regardless of how or where the capital outlay is reported.]
  33. 33. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-33 P17-16 Matching Governmental Terms with Descriptions 1. J 2. I 3. H 4. G 5. M 6. Q 7. R 8. E 9. N 10. D 11. F 12. P 13. A 14. B 15. L 16. C
  34. 34. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-34 P17-17 Identification of Governmental Accounting Terms 1. Government-wide financial statements 2. The Governmental Accounting Standards Board (GASB) 3. A fund 4. Interfund services provided or used 5. Internal service and enterprise funds 6. Infrastructure assets 7. Agency and trust funds 8. Modified accrual basis 9. Flow of total economic resources 10. The property tax levy 11. The general, special revenue, capital projects, debt service funds and permanent funds 12. The allowance for uncollectible property taxes 13. Budgetary fund balance – unreserved 14. Encumbrances 15. The consumption method 16. Other financing uses – transfer out 17. Expenditures 18. Fund balance – unreserved 19. Expenditures 20. Appropriations 21. Nonlapsing method
  35. 35. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-35 P17-18 Questions on General Fund Entries [AICPA Adapted] 1. D 2. C 3. C 4. C 5. N 6. D 7. N 8. C 9. C 10. N 11. D 12. C 13. N 14. N 15. N 16. C 17. D 18. D 19. C 20. N 21. N 22. N 23. C 24. D 25. N 26. C 27. D 28. D 29. D 30. C 31. D 32. C 33. D 34. N 35. N 36. C 37. D 38. D 39. C
  36. 36. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-36 P17-19 Questions on Fund Items [AICPA Adapted] a. 16 $700,000 = $630,000 of current year’s taxes collected plus $70,000 of 20X1 taxes expected to be collected within 60 days after the end of the year b. 8 $170,000 = $80,000 of the restricted grant that has been expended, plus $50,000 in fines plus $40,000 in fees c. 3 $50,000 = the fair and present value of the lease agreement d. 6 $140,000 = the capital outlay for the new police vehicles e. 2 $30,000 = the amount of the transfer in received by the debt service fund and then expended for interest for the year f. 18 $760,000 = $260,000 for governmental services and $500,000 for public safety and welfare services. For this problem, the capital outlay of $140,000 was separately reported in the listing of expenditures. In practice, some governmental entities include capital outlays in the general fund as an expenditure under the appropriate functional activity. However, in a capital projects fund, capital outlays are generally separately reported in the expenditures reported on the statement of revenues, expenditures, and changes in fund balances. g. 7 $150,000 = the amount of the state grant. The bond proceeds would be reported as an other financing source. h. 13 $500,000 = the amount of the expenditures in the capital projects fund i. 11 $345,000 = Fund Balance-Unreserved on 1/1/X1 $110,000 Add: Grant revenues $150,000 Other financing sources 610,000 760,000 Less: Expenditures $500,000 Fund balance – reserved for encumbrances 25,000 (525,000) Fund Balance – Unreserved on 12/31/X1 $345,000
  37. 37. Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-37 P17-20 Identifying Types of Revenue Transactions 1. B 2. E 3. D 4. A 5. B 6. E 7. C 8. D 9. C 10. D 11. C 12. D 13. D 14. D

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