18.1 Flashcards
The City of Curtain had the following interfund transactions during the month of May:
- Billing by the internal service fund to a department financed by the general fund for services rendered in the amount of $5,000.
- Transfer of $200,000 from the general fund to establish a new enterprise fund.
- Routine transfer of $50,000 from the general fund to the debt service fund.
What was the total reciprocal interfund activity for Curtain during May?
$5,000
Reciprocal interfund activities are comparable to exchange and exchange-like transactions. They include interfund loans and interfund services. Thus, only the $5,000 for services rendered by the internal service fund results from reciprocal interfund activities.
During the year, Public College received the following:
- An unrestricted $50,000 pledge to be paid the following year.
- A $25,000 cash gift restricted for scholarships.
- A notice from a recent graduate that the college is named as a beneficiary of $10,000 in that graduate’s will.
What amount of contribution revenue should Public College report in its statement of activities?
$75,000
Private donations are voluntary nonexchange transactions. They result from agreements, other than exchanges, entered into willingly by the parties (e.g., certain grants and private donations). Revenues are recognized by recipients when all eligibility requirements are met. Eligibility requirements are that (1) the recipient has certain characteristics (e.g., it is a public college); (2) any time requirements are satisfied (e.g., use in a given period); (3) the donation is on an expenditure-driven basis, and the recipient has incurred costs; and (4) a contingent recipient action required by the provider has occurred. In this case, only the first requirement applies, and it has been satisfied. The promise of $50,000 in cash to be paid the following year is recognizable as current revenue if, in addition to meeting eligibility requirements, (1) the promise is verifiable and (2) the resources are measurable and probable of collection. The $25,000 of restricted cash already received also is revenue. The testamentary gift is not revenue because of verifiability and collectibility issues. For example, the gift may not be received for many years if the recent graduate is young, and the will may be changed.
Imposed nonexchange revenues other than from property taxes most likely should be recognized in the accounting period in which
Their use is first allowed if time requirements have been established.
Imposed nonexchange revenues other than from property taxes (e.g., fines, penalties, and forfeitures) are recognized at the same time as the recognition of the assets unless time requirements apply. If they do apply, revenues are recognized when (1) the resources are required to be used, or (2) their use is first allowed by the time requirements. Resources received or recognized as receivable before the time requirements are met are deferred inflows of resources. Property tax revenues are recognized in the period for which they are levied.
Which of the following funds of a governmental unit uses the modified accrual basis of accounting to prepare its fund financial statements?
Special funds revenue.
Governmental fund types (general, special revenue, capital projects, debt service, and permanent funds) are required to use the modified accrual basis to prepare their fund financial statements.
Which of the following statements are required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)?
The financial statements required for enterprise funds, including MD&A and RSI.
SPGs are legally separate entities that are component units or other stand-alone governments. If an SPG is engaged only in business-type activities, it presents only the financial statements for enterprise funds. For an SPG, the basic financial statements and RSI include (1) MD&A, (2) enterprise (proprietary) fund statements (statement of net position; statement of revenues, expenses, and changes in fund net position; and statement of cash flows), (3) notes, and (4) RSI other than MD&A.
A government makes a contribution to its pension plan in the amount of $10,000 for Year 1. The actuarially-determined annual required contribution for Year 1 was $13,500. The pension plan paid benefits of $8,200 and refunded employee contributions of $800 for Year 1. What is the pension expenditure for the general fund for Year 1?
$10,000
Governmental fund reporting uses the modified accrual basis of accounting. Thus, the government should recognize the actual amount contributed to the plan during the year as the pension expenditure.
In the fund financial statements of which of the following fund types of a city government are revenues and expenditures recognized on the same basis of accounting as the general fund?
Debt service.
A debt service fund is the only type of fund listed that is classified as a governmental fund. The other funds are proprietary or fiduciary. The modified accrual basis is used to prepare the financial statements for governmental funds. Proprietary and fiduciary funds are reported on the accrual basis.
During its current fiscal year, a municipality issued the following debt instruments:
Tax anticipation notes (proceeds received by the general fund): $2,500,000
Utility bonds: 3,000,000
General obligation bonds issued to finance a capital project: 8,000,000
How much of this debt should be reported in the fund financial statements?
$5,500,000.
General long-term liabilities are reported only in the governmental activities column of the government-wide statement of net position. They include the unmatured principal amounts of general obligation indebtedness. Accordingly, the general obligation bond issue is a general long-term liability. Its proceeds presumably will be accounted for in a capital projects fund (a governmental fund). However, a long-term liability is not recognized in a governmental fund. Tax and revenue anticipation notes, if no intent and ability to refinance on a long-term basis have been demonstrated, are reported as short-term liabilities in the government-wide financial statements and the governmental funds financial statements (if a governmental fund receives the proceeds). The utility bonds are long-term liabilities that should be accounted for in the public utilities enterprise fund and therefore should be reported in the government-wide financial statements and the proprietary funds financial statements. Thus, the debt reported in the governmental funds balance sheet is $2,500,000, and the debt reported in the proprietary funds statement of net position is $3,000,000, a total of $5,500,000.
During its fiscal year ended June 30, Cliff City issued purchase orders totaling $5 million, which were properly charged to encumbrances at that time. Cliff received goods and related invoices at the encumbered amounts totaling $4.5 million before year end. The remaining goods of $500,000 were not received until after year end. Cliff paid $4.2 million of the invoices received during the year. The amount of Cliff’s encumbrances outstanding in the general fund at June 30 was
$500,000.
When a commitment is made to expend general fund resources, encumbrances is debited and encumbrances outstanding is credited. When the goods or services are received and the liability is recognized, this entry is reversed, and an expenditure is recorded. Because goods totaling $500,000 were not received at year end, encumbrances outstanding total $500,000 ($5,000,000 – $4,500,000).
Information about infrastructure assets of a state government reported using the modified approach is required supplementary information (RSI) other than management’s discussion and analysis. All of the following should be disclosed except
The assessed condition for at least the two most recent complete condition assessments.
Infrastructure assets are stationary capital assets that can be preserved for a longer time than most capital assets. An alternative to depreciation of very long-lived infrastructure assets is the modified approach. RSI other than management’s discussion and analysis includes information about infrastructure assets reported using the modified approach. The assessed condition for at least the three most recent complete condition assessments is disclosed.
A budgetary fund balance of a government’s general fund is classified for encumbrances in excess of a balance of encumbrances. This accounting indicates
A recording error.
The budgetary fund balance account is a general ledger budgetary account sometimes used to record the anticipated change in fund balance at the beginning of the period. Encumbrances is debited and encumbrances outstanding is credited to record commitments related to unperformed executory contracts and unfulfilled purchase orders. When the expenditure is recorded, the encumbrance entry is reversed. At year end, any remaining encumbrances may be eliminated if the legal authority of appropriations expires. If (1) encumbrances will be honored by the entity, and (2) encumbered amounts have not been restricted, committed, or assigned, they are reclassified from unassigned fund balance to committed or assigned fund balance, as appropriate. They are not reported as encumbrances in the financial statements. (But significant encumbrances should be disclosed.) However, none of these entries involves budgetary fund balance, a nominal account that is (1) debited (credited) at the beginning of the year and (2) credited (debited) at year end for the budgeted change in fund balance. Thus, a recording error must exist if a budgetary fund balance is classified for any purpose.
Carlson City’s fiscal year ends December 31. On August 1, the city issued a purchase order for new vehicles to be delivered at the rate of two per month beginning October 15. The authority for this purchase was the city council, the entity’s highest-level decision maker. Furthermore, appropriations do not lapse at year end. Twelve vehicles were delivered as scheduled and payments of $264,000 were made upon delivery. Estimated costs equaled actual costs. If these were the only transactions made by the city, which of the following balances appear on the general fund’s balance sheet as of December 31?
Unassigned fund balance $132,000
Fund balance – committed $132,000
Because six vehicles (2 × 3 months) were delivered during the year, $132,000 of the encumbrances [$264,000 × (6 ÷ 12)] is outstanding at year end. Given that encumbered appropriations do not lapse at year end, the outstanding commitments should be reported in an appropriate classification of fund balance. This classification is committed fund balance because the authority for the encumbrance was the city’s highest decision maker. The entry is to debit unassigned fund balance (the residual classification in the fund balance of the general fund) and credit committed fund balance for $132,000. This accounting is appropriate because encumbrances are never reported in a government’s financial statements. However, significant encumbrances at year end should be disclosed in the notes.
An interfund transfer
Is reported in a proprietary fund’s statement of revenues, expenses, and changes in fund net position after nonoperating revenues and expenses.
Interfund transfers are one-way asset flows with no repayment required. In a governmental fund, a transfer is an other financing use (source) in the transferor (transferee) fund. In a proprietary fund’s statement of revenues, expenses, and changes in fund net position, transfers should be reported separately after nonoperating revenues and expenses. This component includes (1) capital contributions, (2) additions to endowments, and (3) special and extraordinary items.
A public school district should recognize revenue from property taxes levied for its debt service fund when
Funds from the levy are measurable and available to the district.
Debt service funds apply the modified accrual basis of accounting. Thus, revenues are recognized when they are measurable and available. Property tax revenues are recognized in the period for which the taxes are levied if the availability criterion is met. For property taxes, this criterion is met if they are collected within the current period or soon enough thereafter (not exceeding 60 days) to pay current liabilities.
What is the correct approach to presentation of the notes to the financial statements?
The notes are essential for fair presentation of the statements.
Notes to the financial statements are an integral part of the basic financial statements. They disclose information essential to fair presentation that is not reported on the face of the statements. The focus is on the primary government’s (1) governmental activities, (2) business-type activities, (3) major funds, and (4) nonmajor funds in the aggregate.
