18.3 Flashcards
In connection with Albury Township’s long-term debt, cash accumulations are available to cover payment of principal and interest on
Bonds for financing of water treatment plant construction: $1,000,000
General long-term obligations: 400,000
The amount of these cash accumulations that should be accounted for in Albury’s debt service funds is
$400,000
Utilities are customarily accounted for in enterprise funds because they tend to be financed and operated in the same manner as private businesses. Thus, cash accumulations to cover payment of principal and interest on enterprise fund obligations are accounted for in the enterprise fund itself. Only the $400,000 of proceeds from general long-term obligations should be accounted for in the debt service funds.
Which of the following is considered part of the required supplementary information for general purpose external financial reporting of a local government?
Management discussion and analysis.
A comprehensive annual financial report (CAFR) should be prepared annually. It includes introductory, financial, and statistical sections. The financial section contains management’s discussion and analysis (MD&A), which is required supplementary information (RSI). MD&A is an analysis of financial activities based on currently known facts, decisions, or conditions expected to significantly affect financial position or results of operations. Other RSI includes (1) schedules, (2) statistical data, (3) budgetary comparison schedules, and (4) other information that is an essential part of financial reporting. It should be presented with, but not as a part of, the basic financial statements of a governmental entity.
Derived tax revenues should be recognized in the government-wide financial statements in the accounting period in which
The exchange occurs.
Nonexchange revenues derived from an exchange or exchange-like transaction are recognized when the underlying exchange transaction occurs. The availability criterion need not be met because the accrual basis of accounting is used to report the government-wide financial statements.
The following information pertains to property taxes levied by Oak City for calendar Year 6:
Collections during Year 6: $500,000
Expected collections during the first 60 days of Year 7: 100,000
Expected collections during the balance of Year 7: 60,000
Expected collections during January Year 8: 30,000
Estimated to be uncollectible: 10,000
Total levy: $700,000
$600,000
Property taxes are recognized in the period for which they are levied if the availability criterion is met. (Property taxes generally are accounted for in governmental funds, which use the modified accrual basis.) For property tax purposes, “available” means collected within the current period or expected to be collected soon enough thereafter to be used to pay current liabilities. Moreover, “soon enough thereafter” means within 60 days. Accordingly, the $500,000 of Year 6 collections plus the $100,000 expected to be collected in the first 60 days of Year 7 are recognized as Year 6 property tax revenue.
A company has the following accrual-basis balances at the end of its first year of operation:
Unearned consulting fees: $2,000
Consulting fees receivable: 3,500
Consulting fee revenue: 25,000
The company’s cash-basis consulting revenue is what amount?
$23,500.
Under the accrual-basis of accounting, consulting fees receivable (earned but not received) are recognized as consulting fee revenue, and the liability for unearned consulting fees (received but not earned) is not. Thus, two adjustments are necessary to determine cash-basis consulting revenue. Consulting fee revenue: $25,000 Consulting fees receivable: (3,500) Unearned consulting fees: 2,000 Cash-basis consulting revenue: $23,500
The following proceeds received by Grove City are legally restricted to expenditure for specified purposes:
Donation by a benefactor mandated to an expendable trust to provide meals for the needy through a program operated by Grove City: $300,000
Sales taxes to finance the maintenance of tourist facilities in the shopping district: 900,000
What amount should be accounted for in Grove’s special revenue funds?
$1,200,000
A special revenue fund is used to account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Accordingly, the $900,000 of sales taxes to be used for tourist facilities and the $300,000 of public-purpose expendable trust resources to be used to support a government program should be accounted for in special revenue funds.
The estimated revenues control account balance of a governmental fund is eliminated when
The budgetary accounts are closed.
The year-end closing of a governmental fund includes transferring the balances of the operating statement accounts and the balances of the budgetary accounts to the fund balance. This process reverses the entry made at the beginning of the year to record the budget.
When Rolan County adopted its budget for the year ending June 30, Year 1, $20 million was recorded for estimated revenues control. Actual revenues for the year ended June 30, Year 1, amounted to $17 million. In closing the budgetary accounts at June 30, Year 1,
Estimated revenues control should be credited for $20 million.
Estimated revenues control is an anticipatory asset recognized by a debit upon the adoption of the budget. Revenues control is a nominal account in which revenues are credited when they meet the recognition criteria. At year end, both accounts are closed. Because no other entries are made to estimated revenues control, the closing entry credits the account for the initial amount.
During the current year, Knoxx County levied property taxes of $2,000,000, of which 1% is expected to be uncollectible. The following amounts were collected during the current year:
Prior year taxes collected within the first 60 days of the current year: $50,000
Prior year taxes collected between 60 and 90 days into the current year: 120,000
Current year taxes collected in the current year: 1,800,000
Current year taxes collected within the first 60 days of the subsequent year: 80,000
What amount of property tax revenue should Knoxx County report in its government-wide statement of activities?
$1,980,000
Regardless of whether the accrual or modified accrual basis of accounting is used, revenue from a property tax assessment is recognized in the period for which it was levied. However, the accrual basis is used to prepare the government-wide statement of activities. Recognition is net of estimated refunds and uncollectible amounts. Consequently, current-year property tax revenue recognized on the accrual basis is $1,980,000 [$2,000,000 levied × (100% – 1% estimated to be uncollectible)]. The amounts (1) collected currently but levied for a prior year and (2) levied for the current year and collected in the subsequent year are accrual basis revenue of the prior year and the current year, respectively.
On December 31, Year 1, Elm Village paid a contractor $4.5 million for the total cost of a new Village Hall built in Year 1 on Village-owned land. Financing for the capital project was provided by a $3 million general obligation bond issue sold at face amount on December 31, Year 1, with the remaining $1.5 million transferred from the general fund. What account and amount should be reported in Elm’s Year 1 financial statements for the general fund?
Other financing uses control, $1,500,000.
Nonreciprocal interfund activity is similar to nonexchange transactions. 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. Consequently, the one-way asset flow from the general fund (a governmental fund) to the capital projects fund (also a governmental fund) requires a debit to other financing uses – interfund transfer for $1.5 million. The cash inflow from the general obligation bond issue is recorded in the capital projects fund by a credit for $3 million to other financing sources – bond issue proceeds. Capital projects funds account for financial resources, including general obligation bond proceeds, intended for acquiring or constructing major capital facilities, except for those financed through proprietary and trust funds.
Fact Pattern:
On December 31, the city of Vane paid a contractor $3 million for the total cost of a new municipal annex built during the year on city-owned land. Financing was provided by a $2 million general obligation bond issue sold at face amount on December 31, with the remaining $1 million transferred from the general fund.
What accounts and amounts should be reported in Vane’s current-year financial statements for the capital projects fund?
Other financing sources control, $3,000,000; expenditures control, $3,000,000.
Bond issuance proceeds and interfund transfers from other governmental funds are classified as other financing sources by a capital projects fund. For the year, the amount of other financing sources credited in the capital projects fund equals $3,000,000 ($2,000,000 bond issue proceeds + $1,000,000 transferred from the general fund). Because capital projects funds use the modified accrual basis of accounting, expenditures should be recognized in the accounting period in which a measurable liability is incurred. Thus, the $3 million paid to the contractor for the total cost of the new municipal annex should be reported as an expenditure of the capital projects fund in the governmental funds statement of revenues, expenditures, and changes in fund balances.
The summary of significant accounting policies makes which of the following general disclosures?
The policy for defining operating and nonoperating revenues of proprietary funds.
A government should have a policy that defines operating items in a way that is consistent with the nature of the activity, disclose that policy in the summary of significant accounting policies, and apply it consistently. How transactions are classified in a statement of cash flows is a consideration in defining operating items for proprietary funds.
A state or local government is financially accountable for a legally separate organization that
I. Is financially dependent on the primary government.
II. Has a financial benefit or burden relationship with the primary government.
I & II.
A component unit is a legally separate organization for which the primary government is financially accountable. Financial accountability exists if the primary government (1) appoints a voting majority of the governing body of the separate organization and (2) can impose its will on, or has a potential financial benefit or burden relationship with, the separate organization. Also, financial accountability exists if the separate organization (1) is financially dependent on the primary government and (2) has a financial benefit or burden relationship with the primary government.
The city of Hull has established a separate internal service (self-insurance) fund to pay claims and judgments of all of Hull’s funds. In the current year, payments to the internal service fund amounted to $500,000, but the actuarially determined amount was $400,000. The payments to the internal service fund should be accounted for by that fund as
A transfer of:
Interfund Revenues of:
$100,000
$400,000
A governmental entity may use a single fund to account for its risk financing activities. The choice of fund depends on the nature of the activity to be reported. Thus, an entity may use a governmental fund or an internal service fund to account for risk-financing activities. But participation in such an internal service fund is not limited to governmental funds. For example, proprietary funds and trust funds of the same primary government may participate. An internal service fund may be used only if the reporting government is the predominant participant in the activity. The fund may use any basis it deems to be appropriate for charging other funds, subject to certain conditions: (1) The total periodic charge is calculated in accordance with procedures similar to those used to report contingent liabilities under GAAP for nongovernmental business enterprises, or (2) the total charge is based on an actuarial method or historical costs adjusted over a reasonable time so that internal service fund revenues and expenses are approximately equal. The second calculation also may include a reasonable provision for expected future catastrophic losses. Charges determined under (1) or (2) are revenues of the internal service fund and expenditures or expenses of the other funds. If the charge to the other funds exceeds the amount determined under (1) or (2), the excess should be reported in the internal service fund and the other funds as an interfund transfer.
A county’s balances in the general fund included the following:
Appropriations: $745,000
Encumbrances: 37,250
Expenditures: 298,000
Vouchers payable: 55,875
What is the remaining amount available for use by the county?
$409,750
Appropriations is the account credited in the general fund’s budgetary entry. It establishes the total amount available for use during the period. When a commitment is made to expend resources of a governmental unit, the amount of the commitment is recognized by an encumbrance. Comparison of encumbrances, appropriations, and expenditures determines the unencumbered amount of appropriations that may still be expended. Encumbrances are decreased when previously ordered items have been received. Expenditures and vouchers payable are increased for the actual amount to be paid for the items. Accordingly, the remaining amount available for use by the county is $409,750 ($745,000 – $37,250 – $298,000).
