F9 - State and Local Governments Part 1

Question 1

Why do governments present separate fund financial statements for governmental and proprietary funds, under GASB #34?

Answer 1

-They do this in order to report additional and detailed information about the primary government.

Question 2

Which characteristic of service efforts and accomplishments is most difficult to report for a governmental entity?

Answer 2

• No, not consistency
• No, not comparability
• No, not timeliness
• It’s Relevance. Hard to establish.

Question 3

What is a “fund” in fund accounting?

Answer 3

• A fund is both a fiscal and accounting entity.
• Funds have a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities/balances, as well as any changes therein.

Question 4

What are the different types of funds in fund accounting for a government?

Answer 4

Governmental Funds
Proprietary Funds
Fiduciary Funds

Question 5

How do we present different types of fund financial statements for a government?

Answer 5

Fund financial statements should be presented separately for governmental, proprietary, and fiduciary funds.

Question 6

What is the paramount objective of financial reporting by state and local governments?

Answer 6

Accountability.

Question 7

What are some components of accountability on behalf of a governmental equity?

Answer 7

-A balanced budget

Question 8

What are the three primary user groups of the external financial reports of a state government?

Answer 8

• Citizens
• Legislative/oversight groups
• Investors/creditors

Note:
-Citizens…includes “advocate groups within the state.” Citizen groups are included within the category “citizens”

Question 9

The measurement focus for a governmental fund is on the determination of which of the following:

• Current Financial Resources
• Financial Position

Answer 9

• Current Financial Resources: Yes. This is a focus as the flow of current financial resources is important.
• Financial Position: Yes. This is the result of the flow of current financial resources, and is a measurement focus.
• These measurement focuses identify which transactions should be recorded, how to report them, etc.
• For Governmental funds, Statement of Revenues and Expenditures should report resources received/consumed in the current period
• For Governmental funds, the balance sheet should show available resources/current obligations.

Question 10

Which types of fund(s) have an economic measurement focus?

Answer 10

Proprietary Funds (S,E)
Fiduciary Funds (CIPPOE)
(Not Governmental Funds)

Question 11

Which types of fund(s) have a current financial resources measurement focus?

Answer 11

Governmental Funds (GRaSPP)
(Not Proprietary Funds or Fiduciary Funds)

Question 12

What type of fund is the following:

-Internal service fund

Answer 12

-Service fund (S) -
- SE = Proprierary
Internal service fund is a proprietary fund
Proprietary E = Enterprise Fund

Question 13

What are the different types of Proprietary Funds?

Answer 13

• Internal Service Fund

- Enterprise Fund

Question 14

What types of accrual accounting are used by the following funds:

• Governmental Funds
• Proprietary Funds
• Fiduciary Funds

Answer 14

• Governmental funds (GRaSPP) use the modified accrual basis of accounting
• Proprietary funds (internal Service and Enterprise) use the FULL accrual basis of accounting
• Fiduciary funds (CIPPOE) use the FULL accrual basis of accounting

Question 15

What are the different types of Governmental Funds?

Answer 15

GRaSPP:

• General
• special Revenue
• debt Service
• capital Projects
• Permanent

Question 16

What are the different types of Fiduciary Funds?

Answer 16

CIPPOE;

• Custodial
• Investment trust
• Private purpose trust
• Pension
• Other Employee benefit trust

Key here: Think “trust” and related to trusts.
Secondary key: These funds are EXCLUDED from government-wide financial statements

Question 17

Which types of funds should be included in government-wide financials?

Answer 17

• Governmental funds (under “Governmental Activities” separate breakout)
• Proprietary funds (under “Business-Type Activities” separate breakout)

Key: Do not include Fiduciary funds in government-wide financials. These are separately reported.

Question 18

When do you recognize revenue under the modified accrual basis of accounting?

Answer 18

When the revenue is both “available and measurable”

Question 19

When is the appropriations control account of a governmental unit debited?

Answer 19

• When the budgetary accounts are closed (at the end of the fiscal year).
• Key point to note: budgetary accounts journal entries are posted only twice: once at the beginning of the year, once at the end of the year

-The original budget entry:
debit estimated revenues control
credit appropriations control

-The ending (closing) budget entry:
debit appropriations control (reverse out an accrued liability)
credit estimated revenues control with actual revenues
Difference between the two -> budgetary fund balance.

Question 20

When should a transaction be reported as a liability in the general fund’s financial statements?

Answer 20

-When the transaction has an amount “to be paid from current financial resources”

Question 21

If a budgetary account has a natural debit balance after recording the budget for a year… what is the relationship between budgeted (estimated) revenues and appropriations?

Answer 21

If there is a resulting debit balance in a budget (control account), this means that appropriations are greater than estimated revenues.
-Budgetary control accounts have natural balances that are the opposite of actual accounts. For example: appropriations are budgeted at 100, revenues are estimated at 50 for the year. Budgetary control (plug) account would be a debit balance of 50 for the year.

Question 22

If a special revenue fund has the following interfund receivables and payables, how should it account for them:

• Due to special revenue fund, from general fund: 10,000
• Due to custodial fund, from special revenue fund: 4,000

Answer 22

Asset of 10,000
Liability of 4,000

Key point: do not net your assets and liabilities resulting from interfund payables and receivables. They should be accounted for separately.

Question 23

If a city incurs 250K of fire department salaries and wages in May, what is the proper journal entry?

Answer 23

Debit: Expenditures - salaries and wages
Credit: Salaries payable

Key point: the fire department salaries will be paid out of the general fund. This is a service of the city. General fund activity.

Question 24

Long Problem:
City has purchase orders totaling 5 million. Properly charged them to encumbrances. Appropriations for this city do not lapse. City receives goods and related invoices of 4.5 M during the year. 500K is outstanding at year-end. 4.2M of the invoices were paid for during the year. What amount of encumbrances were outstanding at YE?

Answer 24

500K. 5M, minus 4.5M received = 500K outstanding encumbrances for the city.

Question 25

State levies a 4% tax on merchant sales volume, local govenrment levies 2% on the same. Sales volume was 100K for the month. Collected within 60 days. What should be recorded as revenue, payables?

Answer 25

State government:
4000 tax revenue
2000 payable

Local government
2000 revenue

Question 26

When an invoice is received for a previously recorded encumbrance, what kind of entry do we make?

Answer 26

Special revenue fund, for example:

We’d debit the budgetary control account. Reverses the encumbrance we accrued.

Question 27

City received a gift. Principal will be invested in perpetuity. Income will be used to support the local library. Which fund should we record this to?

Answer 27

Permanent fund:
-legally restricted to the extent income, and not principal, may be used for purposes supporting the reporting government’s programs for the benefit of the public

Question 28

If a city issues bonds Jan 1, and accrues interest payable due the following year (Jan 1 Y2)…
What amount of bond interest should they report in statement of rev, expenditures and changes in fund balance if FY ends September 30?

Answer 28

$0.
-Interest expenditures should be recorded when legally payable per the bond agreement. Interest expenditures should not be accrued between payment dates.
The city of Walton would not record any interest expenditures in its current year financial statements

Question 29

When recording appropriations for a budget at the beginning of the year, what journal entry should a township make?

Answer 29

Debit: (Estimated revenues)
Credit: Appropriations

Question 30

What category of revenues do property taxes and fines fall in for governmental units?

Answer 30

Imposed, non-exchange revenues.

• Key point: Imposed because they are are not grants chosen by citizens. They are mandatory.
• Non-exchange, because they do not relate to revenue derived from exchange transactions (like sales taxes would).

Question 31

450K in sales tax is collected by a city in May. 2% is the city’s tax rate on merchandise sales, 4% is the state’s tax rate on merchandise sales. What amount of sales tax revenue from May should be included in financial statements of the state? What amount for the city?

Answer 31

• The state gets 4% of a total 6% that’s taxed. That’s 2/3 of sales taxes collected. If 450K of sales tax is collected, the state will get 300K and the city will get 150K.
• As long as the revenue is eligible for recognition - meaning it has been (1) derived from sales prior to period end, and (2) measurable and available for modified accrual criteria. Available means collected within 60 days of year end.

Question 32

A town implemented a budget at the beginning of the year. 100K estimated revenues were recorded, 80K of appropriations were recorded. How should the town record the 20K of excess of estimated revenues over appropriations in its budget?

Answer 32

-The town should credit 20K of budgetary control to balance its revenues and appropriations

Question 33

When is the revenues control account of a governmental unit increased?

Answer 33

-When properties taxes are levied. The journal entry is as follows:
Debit: Property taxes receivable
Credit: Allowance for uncollectible property taxes (you won’t get all of em)
Credit: Revenues (control account)

Question 34

A government buys a snow plow. How should this be recorded in the general fund?

Answer 34

• As an expenditure. Expenditures are decreases in net financial resources, other than through interfund transfers.
• Appropriations, on the other hand, represent the total authorized expenditures for a current fiscal period. Recorded when the budget is formally integrated into the accounting system.
• Encumbrances are resources committed for future expenditures.
• Governments do not capitalize fixed assets, that is not a primary focus of government accounting.