19.5 Flashcards
If a primary government’s general fund has an equity interest in a joint venture, all of this equity interest should be reported in
The government-wide statement of net position.
An equity interest in a joint venture ordinarily does not meet the definition of a financial resource. For example, the interest in the joint venture usually reflects equity primarily in capital assets. The amount recorded in the governmental fund is limited to that recognized under the modified accrual basis of accounting. Thus, the entire net investment in the joint venture should not be reported in a governmental fund, e.g., the general fund. However, the entire equity interest should be reported in the government-wide statement of net position.
Preparation of government-wide financial statements requires elimination of
Internal balances from the total primary government column in the statement of net position.
Numerous eliminations and reclassifications are necessary in preparing the government-wide statements. Thus, interfund receivables and payables are eliminated in the governmental and business-type activities columns of the statement of net position, except for net residual amounts due (presented as internal balances). However, the total primary government column excludes internal balances.
At the beginning of the current year, Sac County’s enterprise fund had a $125,000 balance for accrued compensated absences. During the year, Sac paid $500,000 for compensated absences and reported $550,000 for compensated absences expense. What amount should Sac County’s enterprise fund report for accrued compensated absences at the end of the year?
$175,000.
Enterprise funds use the accrual method of accounting. Thus, the accrual is calculated using the same method used for business entities. The entity paid $500,000 for compensated absences and reported $550,000 for compensated absences expense. Accordingly, it must report $175,000 ($125,000 beginning balance + $550,000 expense – $500,000 paid) for accrued compensated absences.
River City has a defined contribution pension plan. How should River report the pension plan in its financial statements?
Disclose in the notes to the financial statements the classes of employees covered and the employer’s and employees’ obligations to contribute to the fund.
A defined contribution pension plan must report (1) a plan description, (2) a summary of significant accounting policies, and (3) information about investment concentrations. The plan description should identify the plan as a defined contribution plan and disclose the number of participating employers and other contributing entities. The description also should include (1) the classes of employees covered, (2) the total current membership, (3) a brief description of plan provisions, (4) the authority under which they are established (or may be amended), and (5) contribution requirements.
Which of the following governmental entities that use proprietary fund accounting should be reported in a statement of cash flows?
Public Benefit Corporation:
Governmental Utilities:
Yes
Yes
Because proprietary funds concentrate on the capital maintenance concept, their reporting requirements are similar to those for business enterprises. Thus, the measurement focus concentrates on the recording of revenues and expenses. The statements required for proprietary funds include (1) a statement of net position; (2) a statement of revenues, expenses, and changes in fund net position; and (3) a statement of cash flows.
A statement of cash flows must be presented by a state or local government for which funds?
Proprietary funds.
A statement of cash flows is required only for proprietary funds and entities engaged in business-type activities (e.g., utilities, healthcare providers, and colleges and universities). Other fund types account for governmental activities, not business-type activities.
The following are the city of Boa’s capital assets:
Capital assets used in proprietary fund activities: $1,000,000
Capital assets used in trust funds: 1,800,000
All other capital assets: 9,000,000
What aggregate amount should Boa account for as general capital assets?
$9,000,000.
General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds.
Items reported only in the fund financial statements of the primary government are those arising from
Fiduciary activities.
The resources of fiduciary activities are not available to finance the government’s programs. Thus, they are reported only in the fund financial statements. Fiduciary activities are reported in or with the fiduciary funds of the primary government. Fiduciary component units are included only in the fund financial statements with the primary government’s fiduciary funds.
Fact Pattern:
The city of Lud formally integrates budgetary accounts into its general fund. Lud uses an internal service fund to account for the operations of its data processing center, which provides services to Lud’s other governmental units.
Lud’s current year expenditures from the general fund include payments for structural alterations to a firehouse and furniture for the mayor’s office.
To report the billing for data processing services provided to Lud’s other governmental units in the statement of revenues, expenses, and changes in fund net position, which of the following should be credited in the internal service fund?
Operating revenues.
The statement of revenues, expenses, and changes in fund net position is the operating statement for proprietary funds (enterprise funds and internal service funds), which use the accrual basis of accounting. This statement distinguishes operating and nonoperating revenues and expenses. Internal service funds may be used for activities that provide goods and services to other subunits of the primary government and its component units or to other governments on a cost-reimbursement basis. The provision by an internal service fund of data processing services to other units of the same reporting entity is an interfund service provided and used. These services result in revenues to seller funds. Given that the principal purpose of the internal service fund is to provide data processing services to other subunits of the primary government, the revenues are classified as operating.
A government’s assets include inventory of $2 million, roads constructed for $25 million with accumulated depreciation of $10 million, and equipment acquired for $5 million with accumulated depreciation of $1 million. Its liabilities include an outstanding balance of $5 million for bonds payable issued to construct the roads and a $1 million short-term loan for inventory purchases. What amount should be reported as the net investment in capital assets in the government-wide statement of net position?
$14 million.
Net investment in capital assets includes capital assets, net of accumulated depreciation, reduced by outstanding debt related to acquiring, constructing, or improving the assets. Related deferred inflows and outflows of resources also are included. Net investment in capital assets equals $14,000,000 ($15,000,000 roads net of accumulated depreciation + $4,000,000 equipment net of accumulated depreciation – $5,000,000 bonds payable).
During the current year, Vann County’s motor pool internal service fund sold two vehicles for $5,000. The vehicles had a cost of $6,000 and a carrying value of $4,000. How should Vann County’s motor pool internal service fund report this transaction in its fund financial statements?
Gain of $1,000.
Journal entries for proprietary funds (internal service and enterprise funds) are virtually the same as for any business because the accrual basis of accounting and the economic resources measurement focus apply. Thus, a gain should have been accrued for this exchange transaction when it occurred. The entry is
Cash $5,000
Accumulated depreciation 2,000
Motor vehicles $6,000
Gain 1,000
Which capital assets must be depreciated in the government-wide financial statements?
All capitalized collections that are exhaustible.
Individual items or collections of works of art, historical treasures, and similar assets ordinarily must be capitalized. However, if a collection is (1) held in furtherance of public service and not for gain; (2) protected, preserved, cared for, and kept unencumbered; and (3) subject to a policy that sale proceeds are to be used to obtain other collection items, capitalization is not required. If capitalized collections or individual items are exhaustible, for example, because their useful lives are reduced by display, educational, or research uses, they must be depreciated.
Grove Township issued $50,000 of bond anticipation notes at face amount and placed the proceeds in its capital projects fund. All legal steps were taken to refinance the notes, but Grove was unable to consummate refinancing. In the capital projects fund, which account should be credited to record the $50,000 proceeds?
Bond anticipation notes payable.
Bond anticipation notes of governmental funds are reported only as general long-term liabilities in the governmental activities column of the government-wide statement of net position if (1) all legal steps have been taken to refinance them, and (2) the intent is supported by an ability to consummate the refinancing on a long-term basis. If the government fails to meet both criteria, the bond anticipation notes must be reported as a liability in (1) the governmental fund in which the proceeds are recorded and (2) the government-wide statement of net position. Thus, given an inability to consummate the refinancing, the proceeds should be recorded as a bond anticipation note payable in the capital projects fund.
A state or local government’s statement of fiduciary net position
Includes information about deferred inflows and outflows of resources.
Net position is presented as (1) the sum of assets and deferred outflows of resources minus (2) the sum of liabilities and deferred inflows of resources.
A local government transfers $10,000,000 from the general fund to an enterprise fund to develop a public park. In the government-wide statement of activities, how should this transaction be reported for the primary government?
Governmental Activities:
Business Activities:
Total:
$10,000,000.
$(10,000,000).
$0
Preparation of the government-wide statements requires that certain interfund activity and fund balances be eliminated or reclassified. Certain interfund amounts, e.g., transfers or receivables and payables, are eliminated from the governmental and business-type activities columns of the statement of net position. The exceptions are net residual amounts due between the two types of activities. However, the total primary government column excludes internal balances and transfers. Accordingly, the transfer between activities (governmental to business-type) is recognized in the government-wide statement of activities but eliminated from the total primary government column. The entry to recognize the transfer in the governmental activities column is to debit the transfer (an other financing use) and credit cash. The entry in the business-type activities column is to debit cash and credit the transfer.
