19.7 Flashcards
Eureka City should report which of the following funds in a statement of cash flows?
Eureka City Hall Capital funds project:
Eureka Water Enterprise funds:
No
Yes
Governmental funds (e.g., a capital projects fund) emphasize sources, uses, and balances of current financial resources. The required financial statements are the balance sheet and the statement of revenues, expenditures, and changes in fund balances. The emphasis of proprietary funds (e.g., an enterprise fund) is on operating income, changes in net position (or cost recovery), financial position, and cash flows. 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. Thus, the cash flows of an enterprise fund, but not a capital projects fund, must be reported in a separate fund financial statement. Furthermore, the required government-wide financial statements do not include a statement of cash flows.
La Chua County issued bond anticipation notes and recorded the proceeds in the capital projects fund. The county subsequently failed to take the necessary legal steps to refinance the notes. Accordingly, the notes should be reported as a liability in the
Capital funds project.
Bond anticipation notes of governmental funds are reported only in the governmental activities column of the government-wide statement of net position if (1) all legal steps have been taken to refinance the notes and (2) the intent is supported by an ability to consummate the refinancing on a long-term basis. If these criteria are not met, the bond anticipation notes must be reported as a short-term liability in the fund in which the proceeds are recorded (as well as in the governmental activities column of the government-wide statement of net position).
The following information pertains to a computer properly classified as a general capital asset that Pine Township leased from Karl Supply Co. on July 1:
Karl’s cost: $5,000 Fair value at July 1: $5,000 Estimated economic life: 5 years Fixed noncancelable term: 30 months Rental at beginning of each month: $135 Guaranteed residual value: $2,000 Present value of minimum lease payments at July 1, using Pine’s incremental borrowing rate of 10.5%: $5,120 Karl’s implicit interest rate of 12.04%: $5,000
On July 1, what amount should Pine capitalize for this leased computer?
$5,000.
Meen County approved an annual budget for the general fund with estimated revenues of $2,000,000,000, appropriations of $1,850,000,000, and approved transfers of $100,000,000. Which amount is required to reconcile the governmental fund financial statements to the government-wide financial statements?
$0.
One step in preparing government-wide financial statements is to convert the modified accrual data in the governmental fund financial statements. Thus, reconciliation 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. However, a government-wide journal entry is not required because budget entries are not reported.
Grove County collects property taxes levied within its boundaries and receives a 1% fee for administering these collections on behalf of the municipalities located in the county. In the current year, Grove collected $1 million for its municipalities and remitted $990,000 to them after deducting fees of $10,000. In the initial recording of the 1% fee, Grove’s agency fund should credit
Due to Grove County general fund, $10,000.
Agency fund assets should equal liabilities in the statement of fiduciary net position. Hence, Grove County should record in its agency fund a liability to its general fund for the 1% fee that is owed to it by the various municipalities. It also debits its liability for the tax collections owed to the municipalities and credits cash. The general fund credits revenues for the fees due.
All of the following are components of net position in the government-wide statement of net position except
Net (expense) revenue.
Net position in the government-wide statement of net position includes (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. Net (expense) revenue is displayed in the statement of activities for (1) each function, (2) the total primary government (governmental activities and business-type activities), and (3) total component units.
The City of Bell entered into a capital lease agreement on December 31, Year 4, to acquire a capital asset. Under this agreement, Bell is to make three annual payments of $75,000 each on principal, plus interest of $22,000, $15,000, and $8,000 at the end of Year 5, Year 6, and Year 7, respectively. At the beginning of the lease, what amount should be debited to expenditures control in Bell’s general fund?
$225,000.
General capital assets that are acquired by capital lease are recorded in the same manner as those acquired by outright purchase. The asset is reported only in the governmental activities column of the government-wide statement of net position. It is measured in accordance with nongovernmental GAAP. In the general fund, when a capital lease represents the acquisition of a general capital asset, the transaction is reported by debiting an expenditure and crediting an other financing sources – capital lease at the present value of the minimum lease payments ($75,000 annual principal repayment × 3 years = $225,000).
When preparing worksheets to convert governmental fund financial statements to government-wide financial statements, conversion entries
Should be performed at the total governmental fund summary level.
The first step in preparing government-wide financial statements is to convert the modified accrual data in the governmental fund financial statements. Thus, reconciliation 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.
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 city government would report each of the following categories in its government-wide statement of net position except
Fiduciary activities.
Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types. Government-wide statements also do not report information about fiduciary activities. They involve assets that cannot be used for the government’s own programs. These assets are held in trust or in an agency capacity for specific individuals, private organizations, or other governments.
During the current year, the city of Willow reported the following receipts from activities for which it set pricing policies to recover its costs from users of the services rendered:
Operation of water supply plant: $5,000,000
Operation of bus system: 900,000
If these receipts are principal revenue sources of the activities, what amount should be accounted for in Willow’s enterprise funds?
$5,900,000.
Enterprise funds may be used for activities for which fees are charged to external users, but they must be used if one of three criteria (applied in the context of the activity’s principal revenue sources) is satisfied. The criteria primarily emphasize fees charged to external users. An activity should be reported as an enterprise fund if (1) it is financed with debt secured only by the activity’s net revenues from fees and charges, (2) costs of its services are legally required to be recovered from fees and charges, or (3) its pricing policies set fees and charges to recover its costs. Typical enterprise fund activities include public transportation systems, state-run lotteries, public utilities (water, sewage, and electric), emergency services, and government-owned healthcare facilities. Because pricing policies for the operation of the water supply plant and the bus system are set to recover their costs, they must be accounted for in enterprise funds. Hence, $5,900,000 ($5,000,000 + $900,000) should be accounted for in enterprise funds.
A local government is preparing its government-wide statements. Certain eliminations and reclassifications are necessary. They include
Reclassification of a payable to a fiduciary fund as a payable to an external party.
Receivables from or payables to fiduciary funds are reclassified as receivables from or payables to external parties because fiduciary funds report only balances held for individuals, private organizations, and other governments.
A local governmental entity classified the following as extraordinary items in its government-wide statement of activities:
Loss on write-down of inventory: $15,000
Loss on write-off of receivables: 20,000
Gain on sale of capital assets: 25,000
Loss on write-off of an intangible asset: 5,000
The entity most likely should report an extraordinary gain (loss) of
$0.
Certain gains (losses) are not extraordinary because they are usual in nature or may be expected to recur in customary and continuing operations. Examples are (1) write-downs or write-offs of receivables, inventories, and intangible assets; (2) gains (losses) from sale or abandonment of capital operating assets; and (3) gains (losses) from exchange or transaction of foreign currencies. Accordingly, the most likely extraordinary gain (loss) is $0.
In the government-wide statement of net position, which component of net position includes restricted capital assets?
Net investment in capital assets.
Net investment in capital assets includes unrestricted and restricted capital assets, net of accumulated depreciation and related liabilities for borrowings. Related deferrals of resource flows also are included in this component. However, debt related to significant unspent proceeds is classified in the same net position component as those proceeds or deferred inflows.
At the end of the fiscal year, a state government reported capital assets of $20 million, accumulated depreciation of $5 million, restricted assets of $3 million, and liabilities of $7 million. What amount should the government report as the total net position in its government-wide financial statements?
$11 million.
Total net position in the government-wide financial statements should be displayed as three components. Net investment in capital assets includes capital assets, net of accumulated depreciation, minus outstanding debt related to acquiring, constructing, or improving the assets. Related deferred inflows and outflows of resources also are included. (Unspent debt proceeds and deferred inflows of resources existing at period-end are excluded.) Restricted net position equals restricted assets minus related liabilities and deferred inflows of resources. Unrestricted net position is the net of (1) assets, (2) deferred outflows of resources, (3) liabilities, and (4) deferred inflows of revenue not included in the other components.
Total net position therefore is calculated as follows:
Capital assets net of accumulated depreciation ($20 million – $5 million): $15 million
Restricted assets: 3 million
Liabilities: (7 million)
Total net position: $11 million
