18.6 Flashcards
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. If this project was accounted for in a capital projects fund, the transfer is reported in the government-wide statement of activities as
An elimination.
The general fund and the capital projects fund are governmental funds. Because governmental activities are reported in those funds, the transfer is within the scope of the governmental activities section of the statement of activities. But transfers within the governmental activities section are eliminated (not reported in the government-wide statements). These transfers result in no overall change in governmental activities.
During the current year, Wythe County levied $2,000,000 property taxes, 1% of which is expected to be uncollectible. During the year, the county collected $1,800,000 and wrote off $15,000 as uncollectible. What amount should Wythe County report as property tax revenue in its government-wide statement of activities for the current year?
$1,980,000.
Revenue from a property tax assessment is recognized in the period for which it was levied, provided the criteria of being available and measurable are met. (Property taxes are accounted for in governmental funds, which use the modified accrual basis.) Property taxes are measurable when assessed property values can be multiplied by a known tax rate. Available means collectible within the current period or expected to be collected soon enough thereafter to pay current liabilities. Such time may not exceed 60 days for a property tax assessment except in unusual circumstances. However, the accrual basis is used to prepare the entity-wide (government-wide) statement of activities. Accrual basis recognition of property tax revenue (imposed nonexchange revenue) also is in the period for which the taxes are levied, but the availability criterion does not apply. 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 collected currently but levied for a prior year are accrual basis revenue of that year.
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.
Kew City received a $15,000,000 federal grant to finance the construction of a center for rehabilitation of drug addicts. The proceeds of this grant should be accounted for in the
Capital projects fund.
A capital projects fund is used to account for the receipt and disbursement of resources restricted to the acquisition of major capital facilities (other than those financed by proprietary and trust funds) through purchase or construction.
A state and local government must disclose required supplementary information (RSI) other than management’s discussion and analysis. Which of the following is not RSI?
Statement of activities.
RSI is presented in a separate section of the comprehensive annual financial report. 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. But the government-wide statement of activities is a basic financial statement, not RSI.
The general fund of a state or local government lends $50,000 to an internal service fund for an equipment purchase on the second day of the fiscal year. The loan is to be repaid in 9 months. The internal service fund records which journal entry?
Cash $50,000
Interfund loan payable - current $50,000
Interfund loans are reciprocal interfund activities (internal events) that are comparable to exchange transactions. The loan should be recorded by the internal service fund as a debit to cash and a credit to interfund loan payable. Also, the payable is current because it is due within 1 year.
Which of the following is a true statement about a fund balance classification?
The general fund is the only fund that reports a positive unassigned fund balance.
The general fund is the only fund that reports a positive unassigned balance (the sum of the amounts not classified elsewhere). In other governmental funds, this classification is used only for a deficit balance, e.g., when expenditures exceed amounts restricted, committed, or assigned to the fund.
The primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements is the
GASB
The GASB is the primary body that establishes authoritative accounting and reporting standards, including those on measurement focus and basis of accounting, for state and local governments. However, pronouncements in effect when the GASB was created remain in force until changed by a subsequent GASB pronouncement.
Encumbrances would not appear in which fund?
Enterprise.
Encumbrance accounting is used only for internal purposes in governmental funds, especially general and special revenue funds. An enterprise fund is a proprietary fund. The accounts and reports of proprietary funds are maintained and prepared in essentially the same way as those of businesses. Thus, such budgetary control accounts as encumbrances are not used in enterprise funds.
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.
Clay City levied property taxes of $600,000 for the current year and estimated that $25,000 would be uncollectible. Which of the following is the correct general fund journal entry to record the property tax levy?
Property taxes receivable – current $600,000
Property tax revenue $575,000
Allowance for uncollectible property taxes – current 25,000
On the date that the assessment is legally enforceable, the city recognizes a receivable (reduced by an allowance for uncollectible taxes) and a liability (deferred revenue).
Which of the following is an example of a selection from existing acceptable accounting alternatives that should be included in a summary of significant accounting policies?
Depreciation method.
Various accounting methods are used to calculate depreciation, e.g., straight-line, sum-of-the-years’-digits, units of production, or declining balance.
Peg Township expects a $70 million budget deficit for the next fiscal year. Peg should appropriate $70 million in which fund balance classification?
Assigned.
Assigned fund balance includes amounts not nonspendable, restricted, or committed. Expenditure is limited only by the entity’s intent to use such amounts for specific purposes. An example of an assignment is an appropriation of fund balance to offset a budget deficit expected in the next year. The amount should equal no more than the excess of expected expenditures over expected revenues. But, an assignment should not create a deficit in fund balance. Consequently, the $70 million appropriation is reported in assigned fund balance.
A state or local government is reported as a special-purpose government if it
Is engaged in one governmental program.
A special-purpose governments is a legally separate entity that is a component unit or other stand-alone government. If it has governmental and business-type activities or engages in two or more governmental programs, it should be reported as a general-purpose government. If it engages in one governmental program, it is reported as a special-purpose government. It may combine the government-wide and fund statements in a format that reconciles individual items of fund data to government-wide data in a separate column.
For which of the following funds do interfund transfers affect the results of operations?
Governmental funds:
Proprietary funds:
Yes
Yes
Interfund transfers are one-way asset flows with no repayment required. They must be reported in the basic financial statements separately from revenues and expenditures or expenses. In a governmental fund, a transfer is an other financing use (source) in the transferor (transferee) fund. It is reported after excess (deficiency) of revenues over expenditures in the statement of revenues, expenditures, and changes in fund balances. 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. Accordingly, the change in fund balances reported in governmental funds and the change in net position reported in proprietary funds are affected by interfund transfers.
