F8: Governmental Funds

Question 1

Capital assets donated to a governmental unit should be recorded at?

Answer 1

The estimated FV when received + ancillary charges, if any.

Question 2

When a capital lease of a gov’t unit represents the acquisition of a general fixed asset, the acquisition should be reflected in fund F/S as?

Answer 2

Both an expenditure and an other financing source.

DR Expenditure
CR Other Financing Source

The acquisition should be recorded in the fund acquiring the asset as an expenditure and the financing as an increase in other financing sources. If the fund acquiring the asset is a governmental fund, the asset should be recorded as general capital assets and the lease obligation should be recorded in the general LT liabilities. Both non-current accounts appear in the governmental activities column of the government-wide statement of net position.

Question 3

The debt service fund of a governmental unit is used to account for the accumulation of resources for, and the payment of, principal and interest in connection with what fund?

Answer 3

The debt service fund services general debt.

Both fiduciary and proprietary funds record their own LT liabilities and service their own debt.

Question 4

The portion of special assessment debt maturing in 5 years, to be repaid from general resources of the government, should be reported in?

Answer 4

The government-wide statement of net position.

The debt should be recorded as general LT liabilities in the governmental activities column of the government-wide statement of net position as is any debt that is to be repaid from general resources.

Question 5

Are bond premium/discounts amortized in governmental funds?

Answer 5

Since the measurement focus is sources and uses of financial resources, bond premium/discount is not amortized in its governmental funds, including the debt service fund.

The bond/premium discount is usually recorded in the fund receiving the proceeds. If the premium is to be used for debt service, the premium is accounted for in the debt service fund

Question 6

For capital projects fund, what is considered “revenue” and what is considered “other financing sources”?

Answer 6

Revenues: capital grants

Other financing sources: proceeds from general obligation bond issue, transfer from general fund

Question 7

capital project fund expenditures: What is the way to record the JE amount for a fixed asset in government-wide F/S if the fixed asset was acquired through “purchase”?

Answer 7

Amount recorded: cost to buy

Question 8

capital project fund expenditures: What is the way to record the JE amount for a fixed asset in government-wide F/S if the fixed asset was acquired through “construction”?

Answer 8

Amount recorded: cost to construct

Question 9

capital project fund expenditures: What is the way to record the JE amount for a fixed asset in government-wide F/S if the fixed asset was acquired through “capital lease”?

Answer 9

Amount recorded:

PV of lease payments

Question 10

capital project fund expenditures: What is the way to record the JE amount for a fixed asset in government-wide F/S if the fixed asset was acquired through “donated”?

Answer 10

Amount recorded: FMV

Question 11

capital project fund expenditures: What is the way to record the JE amount for a fixed asset in government-wide F/S if the fixed asset was acquired through “forfeiture”?

Answer 11

Amount recorded: lower of cost (to acquire) or market

Question 12

What is the purpose of special revenue funds?

Answer 12

Special revenue funds account for revenue and expenditures that are legally restricted or committed for specific purposes other than permanent funds or capital projects. The life of special revenue fund may be limited or unlimited but resources are expendable.

Question 13

What is the purpose of the debt service fund?

Answer 13

The debt service fund is created to account for the accumulation of resources (cash and investments) and the payment of currently due interest and principal on “LT general obligation debt” by setting aside cash and cash equivalents.

The debt service fund pays off debt of the GRaSPP funds

Debt service fund does NOT pay debt off of SE-PAPI funds.

Question 14

What is the debt service fund’s resources for new debt? (revenue and other financing sources)

Answer 14

Other financing sources: interfund transfers, proceeds from general obligation refunding bonds

revenue: any income from investment of resources (investment income)

Question 15

What is the purpose of permanent fund?

Answer 15

Perm funds should be used to report resources that are legally restricted to the extent that only earnings and NOT principal may be used for the purposes that support the reporting government’s programs (i.e. benefit the public)

> do not record encumbrances (debt service fund does not also)
available for public spending: interest only (whereas special revenue fund, both principal n interest)

Question 16

what is the purpose of capital projects funds?

Answer 16

capital projects funds are established for the construction or purchase or leasing of significant Fixed assets (used by GRaSPP only) not by SE-PAPi. the life of capital projects is short and limited to a construction period of 1-3 years

Question 17

what are the sources of revenue and other financing sources for capital projects funds?

Answer 17

1) investment earnings
2) tax revenues
3) capital grants - may be restricted and are reported as “revenues” when earned (earned = spent) or may be unrestricted and recognized immediately

unrestricted: revenue now
DR Cash
CR Revenue

restricted: revenue deferred
DR Cash
CR Revenue collected in advance

when spend and earn:
DR Expenditure
CR Vouchers payable/cash

DR Revenue collected in advance
CR Revenue

4) general fund (or special revenue fund) transfers - “other financing sources”

DR Cash (or due from other fund)
CR Other financing sources 

5) special assessments - these are taxes or fees levied against property owners who will directly benefit from the project (sidewalks)
> gov’t primarily or potentially liable for debt: account for capital project and debt related tx through appropriate governmental or proprietary fund
> not primarily or potentially liable: agency fund will account for tx. assets and liabilities exclude form gov’t wide presentations

6) bond issue proceeds = other financing sources –> I/S
> the amount of net bond issue proceeds presented on statement of revenues, expenditures, and changes in fund balances (I/S)
> other bond issue costs displayed as “debt service expenditures” when incurred

Question 18

what is the purpose of the general fund?

Answer 18

the general fund is created at the beg of the govt’l unit, and it exists throughout the life of that unit. general fund accounts for general activities of a government that are not accounted for by any other fund (admin and general services of gov’t)

Question 19

what are the revenue sources of the general fund?

Answer 19

1) taxes = revenue when recorded/billed (and owed) … property taxes
2) public safety and regulation - fees and fines, license and permit revenues
3) intergovernmental - shared or grant revenues
4) charges for services - exchange revenues
5) other revenues - investment earnings

Question 20

what are the expenditures of the general fund?

Answer 20

1) general government - admin functions such as city manager, finance
2) public safety
3) culture and recreation

Question 21

what are the unique accounting issues for the general fund?

Answer 21

1) current resources measurement focus
> no FA because capital outlay treated as expenditures.
> FA purchased with governmental fund resources are only reported in the government-wide F/S
> since doesn’t record non-current items and thereby creates reconciling items between the govt’l fund F/S and gov’t wide F/S

2) modified and budgetary accounting - BAE BAE

Question 22

what are the revenue sources of special revenue funds?

Answer 22

1) intergovernmental revenues - ex: specific taxes / shares taxes/ grants
2) fees - fees collected, other earmarked revenue sources

Question 23

what are the unique accounting issues with special revenue funds?

Answer 23

1) expendable trust activities
> expendable trust activities represent funding whose principal and income may be expended in the course of their designated operations so that they are depleted by the end of their designated lives
> donations - may be either 1) donor / grantor restricted (principal and interest) or 2) government restricted
2) grants - when grant is received, a recipient government monitors and/or determines eligibility (note: monitoring = special revenue fund. non-monitoring = agency trust fund)

Question 24

for debt service funds, are there encumbrances?

Answer 24

encumbrances accounts are not used. interest payments are considered expenditures. as such, at close, the entry is similar to general fund except there are no encumbrances.

1) budget closed at year end
2) activity closed at year end

Question 25

for capital project funds, what are the expenditure and encumbrance types?

Answer 25

capital project funds are entirely classified as capital outlay. during construction, encumbrances are recorded as commitments are incurred. vouchers are recorded when liability incurred and expenditure is known. as vouchers are recoded, the encumbrance entry is reversed. cash is credited and vouchers payable is debited as payments are made.

1) contract signed for construction:
DR Encumbrances
CR Budgetary control 
2) one completed contract approved for payment:
DR Budgetary control
CR Encumbrances

DR Expenditures (NOT capital asset) 
CR Vouchers payable 
3) record the capital lease equipment: 
DR Expenditures
CR other financing sources

Question 26

what are the unique accounting issues with capital projects funds?

Answer 26

> the bond liability is NOT recorded in the capital projects fund - report on government-wide F/S only
closing entries - BAE BAE
outstanding encumbrances at YE should be carried forward as a component of fund balance. the entire amount of the capital projects fund is presumed to be restricted for capital outlay

Question 27

what are the unique accounting issues for permanent funds?

Answer 27

investments are generally required to be accounted for at fair value.

Question 28

how are inter fund transfers recorded for governmental funds?

Answer 28

as other financing sources (uses) rather than revenues (expenditures).

do not affect revenues or expenditures, but do affect both funds’ expendable resources and therefore, operations for the fund.

Question 29

if city legally adopts its annual general fund budget on the modified accrual basis of accounting, its estimated revenues should be reported where?

Answer 29

reported on the modified accrual basis of accounting in the general fund budgetary comparison schedule - appears in the required supplementary information.

Question 30

governmental funds use a fund balance or net position to display equity?

Answer 30

fund balance

net position used for proprietary and fiduciary funds

Question 31

debt proceeds would be recorded in what fund?

Answer 31

capital projects funds, and the resulting debt would appear in the government wide financial statements

Question 32

for capital projects funds:

what is the JE to record a short term borrowing to be refinanced with LT debt?

Answer 32

DR cash

CR other financing sources - debt proceeds

Question 33

for capital projects fund:

what is the JE to record a short term borrowing to be repaid with revenue or taxes ?

Answer 33

DR cash

CR tax or revenue anticipation note payable

Question 34

for capital projects fund:

when is the account “other financing sources control” used?

Answer 34

regularly used for proceeds of bond issues or bond anticipation notes when the entity has the ability and intent to refinance. if cannot refinance, the entry would be a credit to “bond anticipation notes payable”