19.6 Flashcards
A local government’s utility sells part of its output to the primary government. The utility is accounted for in an enterprise fund. In the comprehensive annual financial report, the sale of the utility’s output most likely is accounted for as
Expenditures in the general fund.
Interfund services provided and used are sales and purchases of goods and services between funds for a price approximating external exchange value. They should be reported as revenues in seller funds and expenditures or expenses in purchaser funds. Unpaid amounts should be reported as interfund receivables and payables in the fund statements. Thus, the enterprise fund (seller) reports revenues and the general fund (a governmental fund purchaser using the modified accrual basis of accounting) reports expenditures.
Kingwood Town, at the beginning of the year, paid $22,000 cash for a flatbed trailer to be used in the general operations of the town. The expected useful life of the trailer is 6 years with an estimated $7,000 salvage value. Which of the following amounts should be reported?
$22,000 increase in general capital assets.
Capital assets related to proprietary funds are accounted for in the government-wide financial statements and in the fund financial statements. Capital assets related to fiduciary funds are reported only in the statement of fiduciary net position. All other capital assets are general capital assets reported only in the governmental activities column in the government-wide statement of net position. Capital assets are recorded at historical cost or at estimated fair value if donated. Thus, general capital assets should be debited for $22,000, the historical cost of the equipment.
Total governmental fund balances should be reconciled to the net position of governmental activities in the government-wide statements of net position. All of the following are components of this reconciliation except
Bonds payable in the current period.
The first step in preparing government-wide financial statements is to convert the data in the governmental fund financial statements. Because those data are presented using the modified accrual basis, adjustments are necessary to convert the data to the full accrual basis. The conversion is performed at the total governmental fund summary level, not at the individual fund level. Liabilities due in the current period are reported in the governmental fund financial statements. Thus, bonds payable in the current period is not a reconciling item.
Which of the following is a reporting requirement for agency funds?
Agency fund assets (plus deferred outflows of resources) should equal liabilities (plus deferred inflows of resources) in the statement of fiduciary net position.
Agency fund assets (plus deferred outflows of resources) should equal liabilities (plus deferred inflows of resources) in the statement of fiduciary net position. However, agency funds are not reported in the statement of changes in fiduciary net position.
Meen County uses an internal service fund to account for printing services provided to other departments. Meen County paid $200,000 for new printing equipment, a $5,000 fee for installation of new printing equipment, and $7,000 for ink. What amount should the internal service fund report as the cost of the new printing equipment on the proprietary funds statement of net position?
$205,000.
The economic resources measurement focus and the accrual basis of accounting are required in the proprietary funds financial statements. Enterprise funds and internal service funds are proprietary funds. Capital assets of internal service funds are reported in the proprietary funds statement of net position on the same basis as business entities. The printing equipment therefore is reported at the cost of acquisition and installation, or $205,000 ($200,000 price + 5,000 cost of installation).
General long-term debt of a state or local government is least likely to be a
Current liability recorded in the debt service fund.
General long-term debt is not limited to liabilities from debt issuance. It also may include noncurrent liabilities on (1) capital and operating leases, (2) compensated absences, (3) claims and judgments, (4) pensions, (5) termination benefits, (6) landfill closure and postclosure care, (7) pollution remediation obligations, and (8) other commitments that are not current liabilities properly recorded in governmental funds. Moreover, general long-term debt of a state or local government is secured by the government’s general credit and revenue-raising power. It is not secured by the assets acquired or by specific current fund financial resources.
The statement of revenues, expenses, and changes in fund net position for proprietary funds
Distinguishes between operating and nonoperating revenues and expenses.
A statement of revenues, expenses, and changes in fund net position is the required operating statement for proprietary funds. Operating and nonoperating revenues and expenses should be distinguished, and separate subtotals should be presented for operating revenues, operating expenses, and operating income.
If a capital asset is donated to a governmental unit, the asset is accounted for in an enterprise fund, and eligibility requirements are met, it should be recorded
At acquisition value as revenue.
If a capital asset is donated to a governmental unit, it should be recorded at its acquisition value (an entry price). It is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date. In any voluntary nonexchange transaction, assets and revenues are recognized when all eligibility requirements (including time requirements) are met. Because an enterprise fund uses the accrual basis, the resources need not be available.
Glen County uses governmental fund accounting and is the administrator of a multiple-jurisdiction deferred compensation plan covering both its own employees and those of other governments participating in the plan. This plan is an eligible deferred compensation plan under the U.S. Internal Revenue Code and Income Tax Regulations and meets the criteria for a pension (and other employee benefit) trust fund. Glen has legal access to the plan’s $40 million in assets, of which $2 million pertain to Glen and $38 million pertain to the other participating governments. In Glen’s balance sheet, what amount should be reported in an agency fund for plan assets and as a corresponding liability?
$0.
The plan should be reported in a pension (and other employee benefit) trust fund in the statements of fiduciary net position and changes in fiduciary net position if it meets the criteria for that fund type. This treatment is in accordance with a tax law amendment that required all assets and income of the plan to be held in trust for the exclusive benefit of participants and their beneficiaries. Consequently, no amounts should be reported in an agency fund.
The government-wide statement of activities reports
Net (expense) revenue for each function equal to expenses minus program revenues.
The statement of activities presents operations in a format that displays net (expense) revenue for each function. The net (expense) revenue for each governmental or business-type function equals expenses minus program revenues. The minimum levels of detail for activities of governmental funds and enterprise funds are by function and by different identifiable activities, respectively.
Restricted net position in the government-wide statement of net position is not
Always equal to restricted fund balance in the governmental funds financial statements.
Net position includes (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. Restricted net position is not always equal to restricted fund balance in the governmental funds financial statements. Restricted net position in the government-wide statement of net position is presented on the accrual basis. Restricted fund balances in the governmental funds balance sheet is presented on the modified accrual basis.
Cash receipts from grants and subsidies to decrease operating deficits should be classified in which of the following sections of the statement of cash flows for governmental, not-for-profit entities?
Noncapital financing.
Cash flows should be classified as operating, financing, and investing. Moreover, financing cash flows are reported in separate categories. Noncapital financing activities include borrowings for purposes other than acquiring, constructing, or improving capital assets and debt. Cash flows may include (1) grants and subsidies received or paid, (2) tax receipts, (3) debt proceeds, and (4) cash received from or paid to other funds (excluding flows from interfund services provided or used).
Chase City uses an internal service fund for its central motor pool. The assets and liabilities account balances for this fund that are not eliminated normally should be reported in the government-wide statement of net position as
Governmental activities.
Any balances of internal service funds that are not eliminated are usually reported in the government activities column because these funds’ activities are ordinarily more governmental than business-type. However, this presentation is not appropriate if enterprise funds are the predominant participants in the internal service funds.
With regard to the statement of cash flows for a governmental unit’s proprietary funds, items generally presented as cash equivalents are
2-month Treasury Bill:
3-month CD:
Yes
Yes
Cash equivalents are highly liquid investments, readily convertible to known amounts of cash with an original time to maturity at acquisition of 3 months or less. The T-bills and CDs both meet these criteria and are presented as cash equivalents.
A local government reports the following:
Due to internal service fund from general fund data services: $450,000
Refunds payable from an agency fund: 110,000
Liability of a proprietary fund for compensated absences: 65,000
Accounts payable of governmental funds: 230,000
The amount of the items that is reported in the liabilities section of the government-wide statement of net position is
$295,000
The government-wide statements do not report transactions within activities (business-type or governmental). An internal service fund’s provision of services to a governmental fund (the general fund) is a governmental activity. Although an internal service fund is a proprietary fund, most of its activities are governmental. Fiduciary funds and similar component units are not reported in the government-wide statements. An agency fund is a fiduciary fund. But accounts payable of governmental funds are reported in the governmental activities column of the government-wide statement of net position. The liability of a proprietary fund for compensated absences is reported in the business-type activities column. The amount reported in the liabilities section is $295,000 ($230,000 + $65,000).
