18.10 Flashcards
Harold City’s fiduciary funds contained the following cash balances at December 31:
Cash confiscated from illegal activities to be disbursed only for law enforcement activities: $300,000
Sales taxes collected by Harold to be distributed to other governmental units: 500,000
What amount of cash should Harold report in a special revenue fund at December 31?
$300,000.
A special revenue fund is a governmental fund that accounts for the proceeds of specific revenue sources legally restricted to expenditure for specified purposes. Fiduciary funds report assets held in a trustee or agency capacity for individuals, private organizations, and other governments. Thus, these assets cannot be used to support the government’s own programs. An agency fund is a fiduciary fund that reports assets held in a purely custodial capacity. Given that the sales taxes collected are to be distributed to other governmental units, it is accounted for in an agency fund. Accordingly, a special revenue fund should report the $300,000 of confiscated cash.
Beginning on the first day of the new fiscal year, Modi Township’s commission approved and established a self-insurance fund by collecting insurance premiums from employees and paying medical bills directly. The fund balance classification used for this type of activity is
Committed.
Amounts in committed fund balance may be spent only for specific purposes established by a formal act of the entity’s highest decision maker (e.g., a county commission). However, this decision maker may redirect the resources by following the necessary due process procedures.
On January 2, City of Walton issued $500,000, 10-year, 7% general obligation bonds. Interest is payable annually, beginning January 2 of the following year. What amount of bond interest is Walton required to report in the statement of revenue, expenditures, and changes in fund balances of its governmental funds at the close of this fiscal year, September 30?
$0
The financial statements of governmental funds are prepared using the modified accrual basis of accounting. Accordingly, expenditures for principal and interest on general long-term debt are recognized only when these amounts are due. Because the fiscal year ends on September 30 and the interest is payable on the following January 2, Walton does not recognize the bond interest.
Valley Town’s public school system is administered by a separately elected board of education. The board of education is not organized as a separate legal entity and does not have the power to levy taxes or issue bonds. Valley Town’s city council approves the school system’s budget. How should Valley Town report the public school system’s annual financial results?
Discrete presentation:
Blended:
No
Yes
Discrete presentation is reporting component-unit financial data separately from that of the primary government. But some component units are, in substance, the same as the primary government and should be reported as a part of it, that is, blended. The public school system is part of Valley Town’s primary government and is not legally separate. Also, Valley Town has a financial benefit or burden relationship with the school system given that the school board cannot levy taxes or issue bonds. Thus, the school system’s data should be blended with those of Valley Town.
Which of the following is a required part of a local government’s management’s discussion and analysis (MD&A) as part of its financial statements?
The MD&A should compare current-year results to the prior year with emphasis on the current year.
MD&A is required supplementary information. It is analysis of financial activities based on (1) currently known facts, (2) decisions, or (3) conditions expected to affect significantly financial position or results of operations. MD&A compares the current and prior years, with an emphasis on the current year, based on government-wide information. The focus is on the primary government.
A state or local government has the following funds:
Special revenue fund Permanent fund Internal service fund Pension trust fund Debt service fund Capital projects fund Investment trust fund Agency fund Enterprise fund
How many fiduciary funds does this entity have?
3.
Three of the four fiduciary funds are listed: pension trust fund, investment trust fund, and agency fund. Four of the five governmental funds are listed: special revenue fund, permanent fund, debt service fund, and capital projects fund. Both proprietary funds (enterprise and internal service) are listed.
A state or local government recognizes property tax revenues in the period
For which they were levied.
Property tax revenues (net of estimated refunds and uncollectibles) are recognized in the period for which they were levied.
Fund balance is reported only for a general fund. Amounts in
Nonspendable fund balance must be kept intact if not in a form that is nonspendable.
Nonspendable fund balance includes amounts that either (1) are in a form (e.g., inventory, prepayments, or long-term loans) that is not spendable or (2) must be kept intact (e.g., the principal of a permanent fund).
The budget of a governmental unit, for which the appropriations exceed the estimated revenues, was adopted and recorded in the general ledger at the beginning of the year. During the year, expenditures and encumbrances were less than appropriations, and revenues equaled estimated revenues. The budgetary fund balance account is
Debited at the beginning of the year and credited at the end of the year.
Budgetary fund balance, a nominal account, is a general ledger budgetary account sometimes used to record the anticipated change in fund balance at the beginning of the period. It should be distinguished from fund balance, a real account. When estimated revenues are expected to exceed appropriations, the budgetary fund balance will have a credit balance. When appropriations are expected to exceed estimated revenues, the budgetary fund balance will have a debit balance. At year end, the initial budgetary fund balance entry is reversed.
The expenditures control account of a governmental unit is increased when
A purchase order is approved:
The budget is recorded:
No
No
Approval of a purchase order, that is, a commitment to purchase goods or services, results in the following entry:
Encumbrances control $XX,XXX
Encumbrances outstanding $XX,XXX
Recording of the budget results in the following entry:
Estimated revenues $X,XXX,XXX
Estimated other financing sources X,XXX,XXX
Appropriations control $XX,XXX,XXX
Estimated other financing uses X,XXX,XXX
Budgetary fund balance XX,XXX
The expenditures account is not affected until the goods ordered are received, and a liability is simultaneously recorded.
A state or local government has the following funds:
Special revenue fund Permanent fund Internal service fund Pension trust fund Debt service fund Capital projects fund Investment trust fund Agency fund Private-purpose trust fund
How many proprietary funds does this entity have?
1.
One of the two proprietary funds is listed: internal service fund. The enterprise fund is not listed. The pension trust fund, investment trust fund, agency fund, and private-purpose trust fund are fiduciary funds.
A city taxes merchants for various central district improvements. Which of the following accounting methods, if any, assist in assuring that these revenues are expended legally?
Fund accounting:
Budgetary accounting:
Yes
Yes
To ensure budgetary control and accountability, budgetary accounts are integrated into the accounting system of a governmental entity. Such integration is necessary in (1) general, (2) special revenue, and (3) other annually budgeted governmental funds with many revenues, expenditures, and transfers. Accordingly, funds and budgetary accounts are useful for assuring fiscal accountability.
In what fund type should the proceeds from special assessment bonds issued to finance construction of sidewalks in a new subdivision be reported?
Capital project funds.
Construction of sidewalks in a new subdivision financed by special assessment bonds is a capital project that results in a general capital asset that will be recognized only in the governmental activities column of the government-wide statement of net position. If the governmental unit is obligated in some manner on the special assessment debt, this capital improvement may be accounted for in the same way as other capital transactions. Thus, the transactions of the construction phase are reported in a capital projects fund. Transactions of the debt service phase are reported in a debt service fund, if one is required. If the government is not obligated, the construction transactions may still be reported in a capital projects fund, but the debt service transactions are recorded in an agency fund.
Encumbrances outstanding at year end in a state’s general fund should be reported in a
Fund balance account in the general fund.
An encumbrance is recorded by debiting encumbrances and crediting encumbrances outstanding when a purchase order has been approved. Thus, funds are committed to be paid when the goods arrive and the invoice is received. When the liability is incurred, the encumbrance entry is reversed, expenditures is debited, and vouchers payable is credited. But if an encumbrance is outstanding at year end, it is not reported in the financial statements (but should be disclosed in the notes if significant). Instead, if encumbered amounts have not been restricted, committed, or assigned, fund balance is reclassified [debit unassigned fund balance, and credit fund balance – committed (or assigned)].
The notes to the financial statements of a state or local government disclose information on the primary government’s
I. Governmental activities
II. Business-type activities
III. Major funds in the aggregate
I & II.
The notes to the financial statements should disclose information essential to fair presentation not reported in 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.
