18.9 Flashcards
A statement of revenues, expenditures, and changes in fund balances must be reported for governmental funds. In that statement,
Proceeds of long-term debt should be reported in the other financing sources and uses classification.
A statement of revenues, expenditures, and changes in fund balances is required for governmental funds. It reports inflows, outflows, and balances of current financial resources for each major fund, for nonmajor funds in the aggregate, and in a total column. In this statement, the other financing sources and uses classification appears after excess (deficiency) of revenues over expenditures. Other financing sources and uses include the face amount of long-term debt, issuance premium or discount, some payments to escrow agents for bond refundings, transfers, and sales of capital assets (unless the sale is a special item).
A state or local government’s reporting includes required supplementary information (RSI) (other than management’s discussion and analysis). Which of the following is not RSI other than MD&A?
Statement of financial position.
RSI other than MD&A is presented in a separate section of the comprehensive annual financial report following the notes to the basic financial statements. 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. But the government-wide statement of net position (or the proprietary funds statement of net position) is a basic financial statement, not RSI.
Which of the following statements about the statistical section of the comprehensive annual financial report (CAFR) of a governmental unit is true?
The statistical section is not part of the basic financial statements.
State and local governments are required to prepare and publish a comprehensive annual financial report (CAFR). As a minimum, the CAFR should include (1) an introductory section, (2) MD&A, (3) the basic financial statements, (4) required supplementary information in addition to the MD&A, (5) combining and individual fund statements, (6) schedules, (7) narrative explanations, and (8) a statistical section. The basic financial statements should include (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. Thus, the statistical section is not a part of the basic financial statements.
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.
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.
Expenditures of a government for insurance extending over more than one accounting period
May be allocated among periods or accounted for as expenditures when acquired.
In the governmental fund financial statements, prepaid insurance may be reported under either (1) the purchases method, in which an expenditure is reported when the policy is purchased, or (2) the consumption method, in which an expenditure is reported when the asset is consumed.
Elm City issued a purchase order for supplies with an estimated cost of $5,000. When the supplies were received, the accompanying invoice indicated an actual price of $4,950. What amount should Elm debit (credit) to encumbrances outstanding in its general fund after the supplies and invoice were received?
$5,000
When supplies are received by or services are rendered to a governmental unit, a journal entry is made to debit expenditures and to credit vouchers payable. Also, the previously recorded encumbrance must be reversed by debiting encumbrances outstanding and crediting encumbrances. Because the original encumbrance entry is reversed in full, encumbrances outstanding must be debited for the estimated cost of $5,000.
In state and local governmental accounting, the notes to the financial statements should focus on the primary government’s
I. Business-type activities.
II. Governmental activities.
III. Individual major funds.
IV. Individual nonmajor funds.
I, II, & III only.
Notes to the financial statements are an integral part of the basic financial 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.
The state levies a 4 percent sales tax on merchant sales volume while the local government levies a 2 percent sales tax on the same activity. Merchants are required to remit the full amount of all levied taxes to the state government within 15 days of month-end and the state is required to remit collected taxes to local authorities within 30 days of receipt. Assume the state and local authority had June 30 year-ends, and that sales volume for the months of June and July were $100,000 and $200,000, respectively. At June 30, each government would accrue the following related to sales activity:
State Tax Revenue:
Payable:
Local Government Tax Revenue:
$4,000
$2,000
$2,000
Taxation of sales is a nonexchange transaction. It results in derived tax revenues, that is, assessments on exchange transactions (such as sales and income taxes). Assets are recognized at the earlier of (1) when the underlying exchange transaction occurs or (2) receipt of resources. The underlying exchange occurred in June. Revenues (net of estimated refunds and uncollectibles) are recognized at the same time as the assets if the underlying exchange has occurred. In governmental funds (e.g., the general fund), resources also must be susceptible to accrual in accordance with the modified accrual basis of accounting. This criterion is met when the resources become measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay current liabilities. Sales taxes are measurable because (1) liability has been established by the legal requirements for transfers of tax collections, and (2) collectibility is reasonably assured when one state or local government is liable for sales tax collections to be remitted to another. Moreover, collectibility soon enough to be used to pay current liabilities must be assumed if payment is to be made 15 days after June 30 (merchants) or 30 days after receipt (state government). Merchants must remit the full amount of all levied taxes to the state government within 15 days of month-end. This amount is $6,000 [$100,000 × (4% state sales tax + 2% local state sales tax)]. The state must remit collected taxes to local authorities within 30 days of receipt. This amount is $2,000 ($100,000 June sales × 2% state sales tax). Accordingly, as of June 30, the state recognizes tax revenue of $4,000 ($100,000 × 4% state sales tax) and a payable of $2,000, and the local government recognizes revenue of $2,000.
The appropriations control account of a governmental unit is debited when
The budgetary accounts are closed.
When a budget is initially recorded, appropriations control is credited for the total authorized and estimated expenditures for the fiscal year. It is debited at year end when the budgetary accounts are closed.
On December 31, Calla Township paid a contractor $4 million for the total cost of a new police building built during the year. Financing was by means of a $3 million general obligation bond issue sold at face amount on December 31, with the remaining $1 million transferred from the general fund. What amount should Calla record as revenues in the capital projects fund in connection with the bond issue proceeds and the transfer?
$0.
In governmental funds, revenues are increases of fund financial resources other than from interfund transfers and debt issue proceeds and redemption of demand bonds. Accordingly, proceeds from the issuance of general long-term debt should be recorded in the capital projects fund as other financing sources. The amount received from the general fund should be classified as an interfund transfer and credited to other financing sources. Thus, the amount that should be recorded as revenues in the capital projects fund in connection with the bond issue proceeds and the transfer is $0.
Nonexchange transactions of a state or local government may include
Imposing income taxes and fines.
In a nonexchange transaction, a government gives or receives value without directly receiving or giving something of equal value in exchange. All nonexchange transactions are classified as (1) derived tax revenues, (2) imposed nonexchange revenues, (3) voluntary nonexchange transactions, and (4) government-mandated nonexchange transactions. An example is receipt of income tax payments, derived tax revenues because they are assessments on exchange transactions. Another example is receipt of fines, imposed nonexchange revenues because they result from assessments on nongovernmental entities.
A special revenue fund is used to account for the proceeds of specific revenue sources used
To create a Private-Purpose Trust:
For Major Capital Projects:
No
No
Special revenue funds account for restricted or committed proceeds of specific revenue sources. Expenditure must be for a specified purpose (but not debt service or a capital project). Also, a special revenue fund is not used for the resources of a trust benefiting specific individuals, private organizations, or other governments. A private-purpose trust fund is a fiduciary fund, other than a pension (or other employee benefit) trust fund or an investment trust fund, that reports a trust arrangement for the benefit of individuals, private organizations, or other governments.
The summary of significant accounting policies of a state or local government most likely should disclose
A unique policy followed by all governments in the industry.
Notes are an integral part of the basic financial statements. They disclose information essential to fair presentation not reported in the statements. The notes include a summary of significant accounting policies. Disclosure of significant accounting policies is required when (1) a selection has been made from existing acceptable alternatives; (2) a policy is unique to the industry in which the government operates, even if the policy is predominantly followed in that industry; and (3) GAAP have been applied in an unusual or innovative way.
Which of the following is a governmental fund that uses the current financial resources measurement focus?
Special revenue fund.
Governmental funds include the general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds.
