18.8 Flashcards
In state and local governmental financial statements, what is the difference between special items and extraordinary items?
Special items are within the control of management.
Special items are transactions or other events that are (1) within the control of management and (2) either unusual in nature or infrequent in occurrence.
Required supplementary information (RSI) of a state or local government other than management’s discussion and analysis (MD&A) includes
I. Individual fund statements
II. Combining statements
III. Budgetary comparison schedules
III.
RSI other than MD&A is presented in a separate section of the CAFR. It 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. Budgetary comparison schedules should include the original appropriated budget; final appropriated budget; and actual inflows, outflows, and balances. Combining statements are required to be included in the financial section of the CAFR when the primary government has more than one (1) nonmajor governmental or enterprise fund or (2) internal service or fiduciary fund. Combining statements also are included when the reporting entity has more than one nonmajor discretely presented component unit. Individual fund statements are required to be reported in the financial section of the CAFR when (1) the primary government has just one nonmajor fund of a given type or (2) prior-year or budgetary comparisons are not included in RSI. Fund financial statements for individual component units are necessary in the absence of separately issued financial statements of the individual component units.
A local governmental unit could issue financial statements using which of the following accounting bases?
Accrual Basis:
Modified Accrual Basis:
Yes
Yes
The modified accrual basis is used in the presentation of governmental fund financial statements. The accrual method is used to prepare the government-wide statements, the proprietary fund statements, and the fiduciary fund statements.
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.
The following information pertains to Park Township’s general fund at December 31:
Total assets, including $200,000 of cash: $1,000,000
Total liabilities: 600,000
Encumbrances: 100,000
Appropriations do not lapse at year end. At December 31, what amount should Park report as unassigned fund balance in its general fund balance sheet?
$300,000.
Appropriations encumbered at year end are reported in the balance sheet as committed or assigned fund balance (as appropriate). Accordingly, the amount of the unassigned fund balance in the general fund is equal to the amount of assets available to finance expenditures of the current or succeeding year. Funds that are (1) nonspendable, (2) restricted, (3) committed, or (4) assigned must be removed from the unassigned fund balance. Because $600,000 is needed to cover liabilities and $100,000 is reported in assigned or committed fund balance, the unassigned fund balance is $300,000 ($1,000,000 total assets – $600,000 liabilities – $100,000 assigned or committed).
Lake County received the following proceeds that are legally restricted to expenditure for specified purposes:
Levies on affected property owners to install sewers:: $500,000
Gasoline taxes to finance road repairs: 900,000
What amount most likely will be accounted for in Lake’s special revenue funds?
$900,000.
Special assessments for construction activity may be accounted for in a capital projects fund or other appropriate fund. The gasoline taxes are special revenues received from the state government to be expended for a specific purpose and are properly recorded in the special revenue funds. However, special revenue funds need not be used unless they are legally required.
A capital projects fund of a local government must be reported as major if
Total liabilities of that fund are 10% of the total liabilities of all governmental funds and 5% of the total liabilities of all governmental and enterprise funds combined.
Any fund must be reported as major if total revenues, expenditures or expenses, assets, or liabilities (excluding extraordinary items) of the fund (1) are at least 10% of the corresponding element total (assets, etc.) for all funds of the same category or type, that is, for all governmental or all enterprise funds, and (2) the same element that met the 10% standard is at least 5% of the corresponding element total for all governmental and enterprise funds in the aggregate.
The following information pertains to Cobb City.
Year 6 governmental fund revenues that became measurable and available in time to be used for payment of Year 6 liabilities (including $2,000,000 from Year 4 and Year 5): $16,000,000
Sales taxes collected by merchants in Year 6 but not remitted to Cobb City until January Year 7: 3,000,000
For the year ended December 31, Year 6, Cobb City should recognize revenues in its governmental fund financial statements of
$19,000,000.
Governmental fund revenues are recognized when the resources are measurable and available to satisfy current liabilities. The $16 million of Year 6 revenues is measurable and available to pay current liabilities, and the amounts included from Year 4 and Year 5 transactions did not meet the recognition criteria until Year 6. Thus, $16,000,000 should be recognized for the year ended December 31, Year 6. Sales taxes are derived tax revenues. Recognition of such revenues occurs when (1) the underlying exchanges occurred and (2) the resources are available. When the modified accrual basis is used, the resources (the sales tax collections) also must be available (collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period). Collection in the month following the December 31 fiscal year end meets the availability criterion (i.e., 60 days). Thus, $3 million of sales taxes should be recognized as revenues regardless of which basis of accounting (accrual or modified accrual) applies. Total revenues recognized are $19 million ($16 million + $3 million).
The estimated revenues control account of a governmental unit is debited when
The budget is recorded.
The basic budgetary entry is
Estimated revenues $X,XXX,XXX
Estimated other financing sources X,XXX,XXX
Appropriations $XX,XXX,XXX
Estimated other financing uses X,XXX,XXX
Budgetary fund balance XXX,XXX
No other entries are made in these accounts until they are closed to fund balance at the end of the fiscal year.
In a state or local government’s comprehensive annual financial report (CAFR), which of the following is required supplementary information (RSI) other than management’s discussion and analysis?
Budgetary comparison schedules.
RSI other than MD&A is presented after the notes to the basic financial statements in a separate section of the CAFR. RSI other than MD&A 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.
Tang City received land from a donor who stipulated that the land must remain intact, but any income generated from the property may be used for general government services. In which fund should Tang City record the donated land?
Permanent.
A permanent fund is a governmental fund that accounts for resources that are restricted to the use of earnings for the benefit of the government and its citizens.
The Town of Nema prepaid an $18,000,000 insurance premium on October 10, 2017. The coverage period was 12 months beginning November 1, 2017. The amount of the premium included in the committed fund balance as of June 30, 2018, is
$0.
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). 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). Because a prepayment is nonspendable, the amount reported in committed fund balance for prepaid insurance is $0.
Users of a government’s financial statements should be able to distinguish between the primary government and its component units. Furthermore, an overview of the discretely presented component units should be provided. Accordingly,
Information about each major component unit must be provided in the reporting entity’s basic statements.
To provide an overview of component units, discrete presentation of component unit data is required in the government-wide statements. Each major component unit should be reported in the basic statements by presentation (1) in a separate column in the government-wide statements, (2) in combining statements of major component units after the fund statements, or (3) of condensed statements (a statement of net position and a statement of activities) in the notes. However, major component unit information is not required for fiduciary component units.
The measurement focus of governmental fund accounting is on which of the following?
Current financial resources.
The basis of accounting is the timing of the recognition in the financial records of economic events or transactions. The basis of accounting of a fund depends on its measurement focus. This measurement focus is what is being measured or tracked by information in the financial statements. The modified accrual basis of accounting is used to report the governmental fund financial statements. The measurement focus is on current financial resources, that is, on determining the financial position and changes in it. The reporting elements are sources, uses, and balances of current financial resources.
Which of the following is the measurement focus and basis of accounting for the government-wide financial statements?
Measurement Focus:
Basis of Accounting:
Economic resources
Accrual
Government-wide financial statements do not display funds or fund types but instead report information about the government as a whole. They do not report information about fiduciary activities, and the primary government is distinguished from its discretely presented component units. These statements separately present information about the governmental activities and business-type activities of the primary government. The accrual basis of accounting is used to report the (1) government-wide, (2) proprietary fund, and (3) fiduciary fund statements. The measurement focus is on economic resources. The emphasis is on (1) a longer-term measure of operating results and (2) the cost of services. Thus, revenues and expenses are measured in the same way as in for-profit accounting.
