19.8 Flashcards
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).
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.
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.
A summary reconciliation of the government-wide and fund financial statements
Must be presented at the bottom of the fund statements or in an accompanying schedule.
A government must provide a summary reconciliation to the government-wide statements at the bottom of the fund statements or in a schedule. Brief explanations on the face of the statements may suffice, but a more detailed explanation in the notes may be necessary.
A statement of cash flows for proprietary funds
Must be prepared using the direct method.
A statement of cash flows is required for proprietary funds, and the direct method (including a reconciliation of operating cash flows to operating income) is required. The direct method reports major classes of gross operating cash receipts and payments and their sum (net cash flow from operating activities). The minimum classes to be reported are cash receipts from customers, cash receipts from interfund services provided, other operating cash receipts, cash payments to employees for services, cash payments to other suppliers, cash payments for interfund services used, and other operating cash payments.
Meen County issued a $50,000,000 bond at its face amount and received a $1,000,000 grant for improving parks. What is the net effect on the reconciliation of (1) the net change in governmental fund balances to (2) the change in net position of governmental activities in the government-wide statement of activities?
$50,000,000 decrease.
The first step in preparing government-wide financial statements is to convert the modified accrual data in the governmental fund financial statements. The conversion is performed at the total governmental fund summary level, not at the individual fund level. Bond proceeds increase current financial resources in the governmental funds. However, issuing debt increases long-term liabilities in the statement of net position with no effect on the statement of activities. Also, grant receipts are reported in the same way in governmental fund financial statements and government-wide financial statements. Thus, the change in net position of governmental activities in the government-wide statement of activities is $50,000,000 less than the net change in governmental fund balances.
During fiscal year 2016, Meen County issued $1,000,000 of bonds to purchase trucks. Accumulated depreciation on the trucks was $180,000, and $200,000 of the principal of the bonds has been paid. How much should Meen County include in net investment in capital assets when it reports its government-wide statement of net position?
$20,000.
Net position includes (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. 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. The amount of $20,000 is the effect on net investment in capital assets.
Cost of the trucks: $1,000,000
Minus: Accumulated depreciation: 180,000
Outstanding debt related to trucks: (800,000)
= $20,000
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.
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.
A local government reports the following information about its funds for Year 2:
Pension fund Benefits paid: $600,000 Expenses: $22,000 Contributions: $1,110,000 Appreciation $68,000 Interest; $415,000 Dividends: $38,000 Net position –1/1/Year 2: $3,050,000
Investment trust fund Benefits paid: $60,000 Expenses: $7,500 Contributions: $10,000 Appreciation: $2,400 Interest: $45,000 Dividends: $2,000 Net position –1/1/Year 2: $60,300
The total change in net position of the government’s fiduciary funds was
$1,000,900.
The pension trust and investment trust funds are the only fiduciary funds for which information is presented. (Permanent funds are governmental funds.) The total change in net position for the fiduciary funds was therefore $1,000,900 ($1,009,000 – $8,100).
Lily City uses a pay-as-you-go approach for funding postemployment benefits other than pensions. The city reports no other postemployment benefits (OPEB) liability at the beginning of the year. At the end of the year, Lily City reported the following information related to OPEB for the water enterprise fund:
Benefits paid: $100,000
Annual required contribution: 500,000
Unfunded actuarial accrued liability: 800,000
What amount of expense for OPEB should Lily City’s water enterprise fund report in its fund level statements?
$500,000.
Lily City’s water enterprise fund should report the amount of the annual required contribution (ARC) of $500,000 as an expense in its fund level statements. The ARC is the employer’s periodic required contribution to a defined benefit OPEB plan. The ARC is the sum of the normal cost and an amortization payment for the unfunded actuarial accrued liability.
The portion of capital improvement special assessment debt maturing in 5 years, to be repaid from general resources of the government, should be reported in the
Government-wide statement of net position.
If the government is obligated for capital improvement special assessment debt, it should be reported as a general long-term liability only in the governmental activities column of the government-wide statement of net position (except for any portion related to, and expected to be paid from, proprietary funds). The public benefit portion (the amount repayable from general resources of the government) is treated in the same manner as other general long-term liabilities.
The following information for the year ended June 30 pertains to a proprietary fund established by Burwood Village in connection with Burwood’s public parking facilities:
Receipts from users of parking facilities: $400,000 Cash outlays: Parking meters: 210,000 Salaries and utilities expenses: 90,000 Depreciation of parking meters: 70,000
For the year ended June 30, the proprietary funds statement of revenues, expenses, and changes in fund net position should report operating income for the parking facilities of
$240,000.
Proprietary funds (enterprise and internal service funds) account for their operations on the accrual basis. Operating income (loss) is reported as a separate subtotal equal to the difference between total operating revenues and total operating expenses. A government should consistently follow appropriate definitions of operating items. One consideration in defining these items is the principal purpose of the fund. A second consideration is their presentation in a cash flows statement. For example, cash flows from operating activities ordinarily are those that enter into the determination of operating income. With regard to the parking facilities, the outlay for parking meters involves a capital and related financing activity (e.g., acquisition of capital assets to provide services or produce goods), not an operating activity. However, capital assets should be depreciated, and depreciation expense for the parking meters is an operating item because it is specifically identifiable with the parking function. The salaries and utilities expenses are also typical operating items for this function. The charges for services (receipts from users) are operating revenues. Accordingly, operating income is $240,000 ($400,000 – $90,000 – $70,000).
A local government reports the following:
Deferred outflow of resources from an enterprise fund: $40,000
Due to debt service fund from general fund: 185,000
Total defined benefit pension liability of a pension trust fund: 860,000
Noncurrent liability of an enterprise fund for an operating lease: 10,000
Liability of an investment trust fund for the external portion of an external investment pool sponsored by the local government: 250,000
The amount reported as liabilities in the government-wide statement of net position is
$10,000.
A deferred outflow of resources from an enterprise fund is a consumption of net assets that applies to a future period, not a liability. The government-wide statements do not report transactions within activities (business-type or governmental). The debt service fund and general fund are governmental funds engaged in governmental activities. A pension trust fund and an investment trust fund are fiduciary funds. Fiduciary funds and similar component units are not reported in the government-wide statements. However, general long-term debt reported in the liabilities section of the government-wide statement of net position is not limited to liabilities from debt issuance. It also may include noncurrent liabilities for capital and operating leases. Thus, the noncurrent liability of an enterprise fund for an operating lease ($10,000) is the only listed item reported. Information about the activities of an enterprise fund (a proprietary fund) is reported in the business-type activities column of the government-wide statement of net position.
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.
