Financial Lecture 9

Question 1

What are the basic sections of external financial reports for governmental entities using the integrated reporting model established by GASB 34?

Answer 1

Management’s discussion and analysis

Question 2

What sections of the external financial reporting model represent the basic financial statements?

Answer 2

Government-wide financial statements
Fund financial statements
Notes to the financial statements

Question 3

What is a CAFR?

What does it include?

Answer 3

CAFR: Comprehensive Annual Financial Report

Question 4

What are the minimum disclosure requirements on the government-wide statement of net position?

Answer 4

Primary government Discretely presented component units.

Question 5

What are some of the major topis included in Management’s Discussion & Analysis (MD&A)?

Answer 5

Description of the basic financial statements

Question 6

Identify the three components of net position displayed on government-wide financial statements.

Answer 6

Invested in capital assets, net

Question 7

Define infrastructure assets, and describe where they are reported.

Answer 7

Infrastructure assets refer to streets, bridges, gutters, water systems, and other assets of the government.

Question 8

What is the appropriate reporting treatment of donated works of art and historical treasures held by a government organization?

Answer 8

Government may elect not to capitalize donated works of art if works are protected and displayed and proceeds from any future dales are going to be reinvested in other works.

Question 9

When are eliminated entries made as part of preparing government-wide financial statements?

Answer 9

Interfund activities between funds that are consolidated within governmental or business-type activity reporting categories are eliminated when preparing government-wide financial statements.

Question 10

List the components of program revenues in the statement of activities. [SOC]

Answer 10

Services charges

Question 11

State the reporting treatment of internal service funds.

Answer 11

Activities resulting from internal service funds are reporting in proprietary funds and should be reported in the government-wide financial statements, unless the government’s enterprise funds are primary recipient of internal service fund services.

Question 12

What is the format of the government-wide statements of activities?

Answer 12

The government-wide statements of activities is presented in a net cost format defined as follow:

Question 13

What is the threshold for identification as a major fund?

Answer 13

Total assets and deferred outflows of revenue, liabilities and deferred inflows of revenue, revenues, or expenditures.expenses of the individual fund are:

Question 14

Name some significant potential reconciling items between fund balance accounts displayed on the balance sheer of the governmental funds’ financial statements and net position displayed in the government-wide balance sheet.

Answer 14

Reconciling items may result from differences in measurement focus or basis of accounting.

Question 15

Name some significant potential reconciling items between changes in fund balance displayed on the statement of revenues expenditures and changes in fund balance in the governmental funds’ financial statements and the change in net position displayed in the government-wide statement of activities.

Answer 15

Reconciling items may result from differences in measurement focus or basis of accounting.

Question 16

The statement of cash flows is prepared for which funds? What are the sections of the statement of cash flows?

Answer 16

A statement of cash flows is prepared for proprietary funds.

Question 17

List the types of interfund transactions.

Answer 17

Reciprocal interfund activity: Nonreciprocal interfund activity:

Question 18

Define a primary government. [SELF]

Answer 18

Primary governments are usually represented by a general-purpose government, such as a state, county, city or other jurisdiction that can stand by itSELF:

Question 19

Define a component unit.

Answer 19

Component units are those governmental or not-for-profit organizations that either do not meet the criteria of a primary government or are so intertwined with the primary government that exclusion from the primary government’s financial statements would cause the primary government’s financial statements to be misleading.

Question 20

What two methods are available for reporting component units of a primary government in the primary government’s financial statements?

Answer 20

Blended Discrete

Question 21

Define the criteria for discrete and blended presentations of component units.

Answer 21

Blended: When the component unit is, in substance, the same as the primary government:
Discrete: When the criteria for blended presentation are not met.

Question 22

Identify the basis of accounting for not-for-profit organizations.

Answer 22

Accrual basis of accounting

Question 23

Name the primary authoritative source of GAAP for not-for-profit organizations.

Answer 23

Financial Accounting Standards Board

Question 24

What financial statement are prepared for nongovernmental not-for-profit entities?

Answer 24

Statement of financial position

Question 25

Name the classification of net assets.

Answer 25

Unrestricted

Question 26

Identify the four required elements in the statement of activities for not-for-profit organizations.

Answer 26

Change in total net assets

Question 27

Name the classification of the statement of cash flows for not-for-profit organizations.

Answer 27

Cash flows from operating activities

Question 28

Name the functional classification of expenses commonly used in not-for-profit organizations.

Answer 28

Program expenses

Question 29

What are the recognition criteria for:

Answer 29

Cash contributions:

Question 30

How are pledges accounted for?

Answer 30

Unconditional promises to contribute in the future (pledges) are reported as restricted support (time restriction), at the present value of the estimated future cash flows using a discount rate commensurate with the risks involved.

Question 31

When are donated services displayed as revenue and expense (or capital improvement) on the financial statements of not-for-profit organizations? [SOME]

Answer 31

Donated services are recognized as revenue of the financial statements of not-for-profit organizations SOME of the time. Recognized donated services must meet the following criteria:

Question 32

How are donated materials accounted for?

Answer 32

Donated materials are recorded as revenue at fair value on date of receipt, if fair value can be objectively determined.

Question 33

What does the term variance power mean in the context of not-for-profit accounting and reporting?

Answer 33

Variance power defines the extent to which an organization has discretion over the use of the resources it receives. The presence or absence of variance power governs the recognition of the asset received as revenue or a liability.

Question 34

In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as liabilities by the recipient organization?

Answer 34

When assets are transferred without variance power, so that the recipient organization does not have the unilateral authority to redirect assets to another beneficiary, those transfers are recognized as liabilities.

Question 35

In considering transferring assets from a recipient organization to a beneficiary organization, when are the assets received recognized as revenue by the recipient organization?

Answer 35

When assets are transferred with variance power, which gives the recipient organization the unilateral authority to redirect assets to another beneficiary, the transfer is recognized as revenue.

Question 36

How are marketable securities reported?

Answer 36

All debt securities and those equity securities that have readily determinable fair values are measured at fair value.

Question 37

Where are gains and losses on investments reported?

Answer 37

Gains and losses on investments are reported in the statement of activities as increases or decreases in unrestricted net assets, unless the use of the investment is restricted by explicit donor stipulations or by law.

Question 38

Is depreciation expense recorded in the financial statements of a not-for-profit organization?

Answer 38

Depreciation expense and accumulated depreciation are recorded.

Question 39

For a university, identify common unrestricted revenues.

Answer 39

Student tuition and fees, at gross

Question 40

If student tuition and fees are displayed at gross amount, what happens to scholarships and tuition waivers?

Answer 40

Scholarships and tuition waivers may be displayed as expenditures or as a contra revenue line item.

Question 41

For health care entities, identify the revenue accounts.

Answer 41

Patient service revenue.

Question 42

Describe how patient service revenue is recorded.

Answer 42

Patient service revenue is recorded on the gross basis using established rates. Note that charity care does not qualify for recognition as revenue.

Question 43

Describe the treatment of charity care in a health care organization.

Answer 43

Charity care is not recognized as either revenue or expense on the financial statements of a health care organization.

Question 44

What is the definition of a governmental merger?

Answer 44

Governmental mergers are defined as the combination of legally separate entities without the exchange of significant consideration resulting in the elimination of an entity or entities and either the continuation of a single merged entity or the creation of a new government.

Question 45

How are merger transactions measured at the merger date? What is the difference in presentation for assets to be used as compared to assets held for disposal?

Answer 45

Transactions are measured at their carrying value at the merger date with possible recognition of impairment and no recognition of intangible assets such as goodwill.

Question 46

What is the definition of a governmental acquisition?

Answer 46

Governmental acquisitions are defined as the acquisition of one legally separate entity by another legally separate entity in exchange for significant consideration, resulting in the continuation of the acquiring government.

Question 47

How are acquisition transactions measured?

Answer 47

Transactions are measured at their acquisition value

Question 48

What is the definition of a transfer of operations?

Answer 48

Transfers of operations are defined as a combination of a government’s activities (less than a legal entity) with either an existing government or with a new government.

Question 49

How are transfers of operations measured?

Answer 49

Transfer of operations transactions are measured at their carrying value at the transfer date with possible recognition of impairment and no recognition of intangible assets such as goodwill.