19.4 Flashcards
In a statement of net position for proprietary funds,
Assets, deferred inflows or outflows of resources, and liabilities must be classified.
A statement of net position is required for proprietary funds, and assets and liabilities must be classified as current or noncurrent. Either a net position format [(assets + deferred outflows of resources) – (liabilities + deferred inflows of resources) = net position] or a balance sheet format [(assets + deferred outflows of resources) = (liabilities + deferred inflows of resources) + net position] may be used. Furthermore, net position should be reported in three components (net investment in capital assets, restricted, and unrestricted).
Which of the following capital assets are least likely to be considered infrastructure assets of a state or local government?
Buildings.
Infrastructure assets are capital assets that normally are stationary and can be preserved for a longer time than most capital assets, e.g., roads, bridges, water and sewer systems, drainage systems, and lighting systems. However, buildings, other than those that are ancillary parts of a network of infrastructure assets, are not deemed to be infrastructure assets.
A state or local government’s change in fiduciary net position
Cannot be reconciled with the government-wide statements.
Unlike governmental funds and proprietary funds, fiduciary funds report assets that cannot be used to support the government’s own programs. Thus, information about fiduciary activities is not reported in the government-wide financial statements. For this reason, no reconciliation is possible.
The following information pertains to Spruce City’s liability for claims and judgments:
Current liability at January 1: $100,000
Claims paid during the year: 800,000
Current liability at December 31: 140,000
Noncurrent liability at December 31: 200,000
What amount should Spruce report for claims and judgments expenditures for the year in its general fund?
$840,000.
An expenditure is a decrease in (use of) fund financial resources other than by an interfund transfer or expiration of a demand bond takeout agreement. The claims paid of $800,000 are expenditures. The increase in current liabilities is also an expenditure because it is expected to be liquidated with expendable available financial resources. However, long-term liabilities not directly related to and expected to be paid from proprietary funds or fiduciary funds are general long-term liabilities. They are reported in the governmental activities column in the governmental statement of net position. Thus, claims and judgments expenditures equal $840,000 [$800,000 + ($140,000 – $100,000)].
Lisa County issued $5,000,000 of general obligation bonds at 101 to finance a major capital project. The $50,000 premium was to be used for payment of principal and interest. This transaction should be accounted for in the
Capital projects fund, debt service fund, and government-wide financial statements.
Capital outlays financed from general obligation bond proceeds should be accounted for in a capital projects fund. Consequently, the $5,000,000 in bond proceeds to be used to finance the major capital project should be credited to other financing sources in a capital projects fund. The $50,000 issuance premium to be used for payment of principal and interest should be recorded directly as an other financing source in the debt service fund. A debt service fund must be used if legally required or if resources are being accumulated for payments due in future periods. Moreover, the debt service fund is included in each answer choice. The $5,000,000 of general obligation bonds should be reported only in the governmental activities column of the government-wide statement of net position. This treatment of an unmatured long-term liability is appropriate if it is not directly related to or expected to be paid from proprietary or fiduciary funds.
A city council designates funds in the enterprise fund for future equipment replacement. The enterprise fund should report this as
An unrestricted component of net position.
Net position has three components. Net investment in capital assets includes unrestricted and restricted capital assets, net of (1) accumulated depreciation and (2) related liabilities and deferred inflows and outflows of resources. Restricted net position includes restricted assets minus related liabilities and deferred inflows of resources. The restrictions are imposed by external entities (creditors, grantors, or other governments) or by law (constitutional provisions or enabling legislation). Unrestricted net position is the net of (1) assets, (2) deferred inflows and outflows of resources, and (3) liabilities not included in the other components of net position. Thus, it is a residual category. Unrestricted net position includes items that may be internally committed or assigned (designated). These commitments and assignments are not reported on the face of the statements.
A state or local government’s general capital assets and general long-term liabilities must be reported in the
Governmental activities column of the government-wide statement of net position.
General capital assets are all capital assets not reported in proprietary funds or fiduciary funds. They usually result from expenditure of governmental fund financial resources, and should be reported in the governmental activities column of the government-wide statement of net position. However, they are not reported as assets in governmental funds because they apply to all governmental activities. Likewise, general long-term liabilities are not reported as liabilities in governmental funds because they apply to all governmental activities. They should be reported in the governmental activities column of the government-wide statement of net position.
A state had general obligation bonds outstanding that required payment of interest on July 1 and January 1 of each year. State law allowed for the general fund to make debt payments without the use of a fiscal agent. The fiscal year ended June 30. Which of the following accounts would have decreased when the state paid the interest due on July 1?
Fund Balance.
General long-term liabilities are not directly related to and expected to be paid from proprietary and fiduciary funds. Thus, payment requires expenditure of governmental fund resources. Governmental funds are accounted for using the modified accrual basis, so expenditures for principal and interest on general long-term liabilities are generally recognized only when those amounts are due. Interest becoming due on the first day of the fiscal year (July 1) would not have been accrued in the prior year. The debt service process usually involves an interfund transfer (another financing use) from the general fund to the debt service fund. The debt service fund debits an expenditure (not an expense) on the legal due date. The recognition of the interfund transfer in the general fund and the expenditure in the debt service fund decreases the fund balance of each fund. Debt service also usually involves transfers of amounts to a fiscal agent, which makes the actual payments and performs other administrative tasks. Furthermore, a government may dispense with debt service funds if they are not (1) legally mandated or (2) used to accumulate resources for debt service in future years.
Which financial statements must be reported for fiduciary funds?
I. Statement of fiduciary net position
II. Statement of changes in fiduciary net position
III. Statement of revenues, expenditures, and changes in fund balances
IV. Statement of cash flows
I & II only.
Fiduciary fund financial statements include information about all fiduciary funds and similar component units. The statements report information in a separate column for each fund type but not by major fund. The notes present financial statements for individual pension plans and postemployment healthcare plans unless separate GAAP reports have been issued. A statement of fiduciary net position is required for fiduciary funds. It reports assets, liabilities, and net position for each fiduciary fund type but does not present the three components of net position reported in the government-wide statement of net position or in the proprietary fund statement of net position. A statement of changes in fiduciary net position is required for fiduciary funds. It reports additions to, subtractions from, and the annual net change in net position for each fiduciary fund type.
The government-wide financial statements report purchased capital assets
At historical cost, including ancillary charges.
General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds. Purchased capital assets are reported at historical cost, including ancillary charges (e.g., for freight and site preparation) only in the governmental activities column of the government-wide statement of net position.
The majority of state and local governmental entities, including external investment pools, report most investments at fair value. Assuming that a governmental entity reports investments at fair value, changes in the fair value of the investments should be recognized as
Investment income in the operating statement when they occur.
Fair value is a better measure of a government’s investments than cost because it helps to assess investment management and performance and financial position. Furthermore, changes in fair value should be recognized as investment income in the year they occur because they are as relevant as other investment earnings, e.g., dividends and interest, to the foregoing assessment. This approach also avoids the possibility that investment sales might be timed to distort results.
A government has the following liabilities at the end of the year:
General obligation bonds: $1,500,000
Compensated absences: 120,000
Salaries payable: 40,000
What amount of liabilities should be reported in the governmental activities column of the government-wide statement of net position?
$1,660,000.
Government-wide financial statements report information about the government as a whole. Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds. The statement of net position reports all financial and capital resources. General obligation bonds, compensated absences, and salaries payable are all included in the governmental activities column of the government-wide statement of net position if they are not financed through enterprise funds.
A government entity is required to include a statement of cash flows in which of the following financial statements?
Proprietary fund financial statements.
The proprietary funds financial statements are the statements of (1) net position; (2) revenues, expenses, and changes in fund net position; and (3) cash flows. A statement of cash flows also is required for entities engaged in business-type activities, e.g., public colleges and universities.
Beach City’s internal service fund received an interfund transfer of $100,000 in cash from the general fund. This transfer should be reported in Beach’s proprietary fund statement of revenues, expenses, and changes in fund net position as
The final item before the change in net position.
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. 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. This component includes (1) capital contributions, (2) additions to endowments, and (3) special and extraordinary items. Transfers are presented as the final item before the change in net position.
Cy City’s Municipal Solid Waste Landfill (MSWLF) enterprise fund was established when a new landfill was opened January 3, Year 4. The landfill is expected to close December 31, Year 23. Cy’s Year 4 expenses include a portion of which of the Year 24 expected disbursements?
I. Cost of a final cover to be applied to the landfill
II. Cost of equipment to be installed to monitor methane gas buildup
Both I & II.
Owners and operators of MSWLF sites must incur costs to protect the environment during the period of operation and during the postclosure period. Certain costs result in disbursements near or after the date that the MSWLF stops accepting solid waste and during the postclosure period. The costs of final cover and of gas monitoring systems are included in the estimated total current closure and postclosure care costs. A proprietary fund (e.g., an enterprise fund) should recognize a portion of the estimated total current cost as an expense and a liability in each period that the MSWLF accepts solid waste.
