Lecture 9

Question 1

GOES The reconciliation of the change in fund balance in governmental fund financial statements to the change in net position for governmental activities in the government-wide financials is computed using the GOES BARE mnemonic.

Answer 1

Change in Governmental Fund Balance
(Other Financing Sources)
Expenditure - Capital Outlay
(net of depreciation)
Internal Service Fund Net Income
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Change in Net Position in government-wide financial statements

Question 2

Government wide financial statements

Answer 2

Rule: The focus of government-wide financial statements is the government’s responsibility to report the extent to which they have met their operating objectives efficiently and effectively, using all resources available for that purpose, and the extent to which they can continue to meet their objectives for the future.

Question 3

Fund financial statements

Answer 3

Fund financial statements focus on fiscal accountability. Fund financial statement accountability objectives complement government-wide financial statement accountability objectives.

Question 4

GASB 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments, certain budgetary schedules are required supplementary information. What is the minimum budgetary information required to be reported in those schedules?

Answer 4

Rule: Budgetary comparison schedules should be prepared for the general fund and each major special revenue fund which requires a budget. Budgetary comparison schedules should display the original budget, final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis.variance presentations are optional. does now show proposed budget. Note the difference between orginal budget and proposed budget

Question 5

Interest income

Answer 5

Cash receipts associated with interest income are reported as investing activities for purposes of enterprise fund Statement of Cash Flow reporting.

Question 6

statistical section of the Comprehensive Annual Financial Report (CAFR) of a governmental uni

Answer 6

A comprehensive annual financial report is divided into three sections: an introductory section, the basic financial statements along with other required supplementary information mandated by GASB #34 and the statistical section. The statistical section, by definition, is not part of the basic financial statements.

Question 7

Accountibilities

Answer 7

Government-wide financial statements focus on the operational accountability of the government. Operational accountability takes an economic view that reports on the long-term efficient and effective use of resources. Fiscal accountability takes a short-term view that focuses the reader on compliance and current year performance.

Question 8

basic financial statements reported in accordance with GASB 34:

Answer 8

Rule: Government reporting standards established by GASB 34 require presentation of basic financial statements and required supplementary information. Basic financial statements are defined as government-wide financial statements, fund financial statements, and notes to the financial statements. Supplementary information covers a wide range of information including management’s discussion and analysis and supporting schedules, such as combining financial statements by fund type and budget versus actual presentations

Question 9

Integrated approach

Answer 9

The joint presentation of government-wide and fund financial statements and appropriate reconciliation is called the integrated approach.

Question 10

Non- Major funds

Answer 10

Sample City may report combining non-major individual fund financial statements in the supplementary information. Reporting the combining fund financial statements is optional.

Question 11

CAFR

Answer 11

The CAFR is divided into an introductory section, which includes a title page and table of contents, a section for the Basic financial statements and the required supplementary information (including the Management’s Discussion and Analysis) and a section for statistical data (10 years of revenue by type, expenses by type, assessed property values, etc.).

Question 12

MD&A

Answer 12

Management’s Discussion and Analysis is considered to be Required Supplementary Information that precedes the Basic Financial Statements but is still part of the Basic Financial Statements and Required Supplementary Information.

Question 13

Order of presentation

Answer 13

Management’s Discussion and Analysis is a required component of the required supplementary information preceding the basic financial statements for general-purpose governments.

Question 14

MD&A

Answer 14

Rule: The management’s discussion and analysis (MD&A) is part of required supplementary information and is meant to introduce the basic financial statements and provide an analytical overview of the government’s financial activities. The MD&A may include objective analysis of current conditions, comparison of prior and current year activities and significant results reported in fund financial statements. Reconciliation of the fund financial statements is included as part of the basic financial statements, not required supplementary information.

Question 15

overnment-wide financial statements would include all government-wide activities associated with operational accountability for all activities except:

Answer 15

Fiduciary activities should be excluded from government-wide measures of operational accountability since fiduciary resources cannot be used to support the government’s programs or other services.

Question 16

net position in its government-wide financial statement

Answer 16

Rule: Government-wide financial statements should classify net assets as: RUN
Net investment in capital assets
Restricted and
Unrestricted.

Question 17

Modified approach to capitalizing infrastructure

Answer 17

Under the modified approach, infrastructure expenditures are reported as expenses except for outlays that result in additions or improvements, which would be capitalized.

Question 18

Basic Government wide financial statements

Answer 18

The government-wide financial statements include a statement of net position and a statement of activities prepared using the economic resources measurement focus and the accrual basis of accounting distinguishing between governmental and business-type activities.

Question 19

The Statement of Activities includes separately displayed categories of program revenues.

Answer 19

Program revenues include earnings classified as charges for services, operating grants and contributions, and capital grants and contributions.

Question 20

criteria used for determination of major funds required for reporting in a government’s fund financial statements,

Answer 20

Rule: The criteria for determining major funds includes qualification as to revenues, expenditures/expenses, assets, or liabilities that are at least 10 percent of the associated total for ALL governmental OR enterprise (as appropriate) AND at least 5 percent of the total of the associated totals for ALL governmental AND enterprise funds

Question 21

financial statements in accordance with GASB 34

Answer 21

Rule: Financial statements prepared in accordance with the provisions of GASB 34 will include: government-wide financial statements prepared using accrual basis accounting, fund financial statements, notes to the financial statements and required supplementary information that encompasses a letter titled “management’s discussion and analysis,” and budget versus actual comparisons including display of the originally adopted budget and the changes that resulted in the final amended budget.

Question 22

Option

Answer 22

Presentation of the computed variance between the final amended budget and actual results is optional and not required.

Question 23

Budgetary comparison schedules

Answer 23

Budgetary comparison schedules should be presented as required supplementary information or in the Basic Financial Statements for the general fund and for each major special revenue fund that has a legally adopted annual budget.

Question 24

Modified approach to infrastructure assets

Answer 24

The modified approach allows governments to not report depreciation expense for eligible infrastructure assets if (a) the government manages the eligible infrastructure assets using an asset management system that possesses certain characteristics and (b) documents that the eligible infrastructure assets are being preserved at (or above) a condition level established by the government. The government must report the assessed condition of the infrastructure every three years and the estimated annual amount to maintain and preserve the conditions level established and disclosed.

Question 25

SELF : have to meet all criteria

if meet self than discreet
Separately elected government body
Legally seperate
Fiscally independant of other state and local governments

Answer 25

Rule: Blending is used when the component unit is so intertwined with the primary government that it is in substance the same as the primary government. One indication of a component unit’s blending with the primary government is its failure of the “legal entity” test. Entities that are not legally separate entities are blended with the primary government.

Question 26

The Blended method is used when any of the following circumstances are met. Only one is requiwed

Answer 26

A board of the component unit is substantively the same as that of the primary goverment, or the component serves the primary government exclusively or almost exclusively. The component unit is not a separate legal entity

Question 27

Which of the following is a basic criterion used to determine the reporting entity for a governmental unit?

Answer 27

The reporting entity is the oversight unit and all related component units. The basic criteria include financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability of fiscal matters.

Question 28

Cash flow

Answer 28

The cash inflow from issuing bonds to finance city hall construction is a cash inflow for a governmental fund. Governmental funds do not prepare a statement of cash flows since the measurement focus is financial resources. The cash outflow from a city utility representing payments in lieu of property taxes is a cash outflow from operating activities for an enterprise fund. Enterprise funds prepare a statement of cash flows.

Question 29

Government wide financial statment

Answer 29

When government-wide financial statements are prepared for a governmental entity, interfund receivables and payables that occur between funds categorized as governmental activities and funds classified as business type activities should be reported as internal balances and aligned so that they sum to zero on the financial statements. They are not eliminated from individual fund activities prior to preparation of the government-wide financial statements.Interfund receivables and payables are displayed in the fund financial statements but are eliminated as part of the preparation of the government-wide financial statements.

Question 30

Equity interest in a joint venture

Answer 30

Since the general fund has the equity interest, only the available and expendable portion of the investment should be recorded in that fund. The available and expendable portion would not include any equity interest. The portion of the equity interest in the joint venture that represents the government’s investment in the net position of the venture is recorded in the government-wide statement of net position.

Question 31

Capital projects fund

Answer 31

Capital projects funds account for the sources and uses of financial resources in the construction of major fixed assets. Once constructed, the capital asset is no longer accounted for through the capital projects fund since it will neither provide nor use financial resources.

Question 32

Fixed assets of a governmental unit, other than those accounted for in proprietary funds or fiduciary funds, should be accounted for in the:

Answer 32

Since proprietary funds and trust funds use the full accrual basis of accounting and economic measurement focus, fixed assets of those funds are accounted for within those funds. All other fixed assets of the governmental unit are considered general capital assets and are recorded in the governmental activities column of the government-wide statement of net position.

Question 33

general fund

Answer 33

Transfers between funds do not generally give rise to operating expenditures and revenues. However, an exception is made for quasi-external transactions (one in which the governmental fund acquires a good or service that could have been purchased from an unrelated business enterprise). Routine service charges for utilities is one example of a quasi-external transaction. The following entry should be made in the general fund to record billings from the enterprise fund:

Question 34

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

Answer 34

When special assessment debt is to be repaid from general resources of the government, the debt should be recorded as general long-term liabilities in the governmental activities column of the government-wide statement of net position. Any debt that is to be repaid from general resources would be displayed in this way. Please note The agency fund reports special assessment debt that will be repaid by collections from third parties, not by general resources of the government.

Question 35

Cash and Cash equivelents

Answer 35

ash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in interest rates. Generally, only investments with original maturities of 3 months or less qualify as cash equivalents. Original maturity is determined from the date an investment was purchased by the reporting entity, not the date of issuance of the security. Both the 3-month $30,000 T-bill and the 3-year $50,000 T-note mature in 3 months or less from the date purchased, for a total cash equivalents of $80,000.

Question 36

Government wide financial statements

Answer 36

Knoxx County would report revenue from its governmental funds on the full accrual basis in its entity wide (government-wide) statement of activities. As such, Knoxx County would recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts in the period in which they are levied. The examiners provide additional irrelevant data necessary to compute earnings on the modified accrual basis. Earnings on the accrual basis are computed as follows:
Property tax levy $ 2,000,000
Estimated uncollectible (1%) (20,000)
Revenue recognized $ 1,980,000

Question 37

unasigned fund balance

Answer 37

ULE: Unassigned fund balance represents the amount of current resources carried forward into the following year that will be available for appropriations. Assuming there are no encumbrances at year end and expenditures were less than appropriations, any commitment or assignment of fund balance for encumbrances would be released and unassigned fund balance would increase. Note that the Budgetary Comparison Schedule illustrated for Progressive Township in your text shows that the “Final” budgeted fund balance at the beginning of the year is equal to the “Actual” fund balance at the beginning of the year. The examiners’ question effectively asks when the relationships between budgeted and actual results create an actual fund balance greater than expected. When appropriations are greater than expenditures (expenditures are less than appropriations) unassigned fund balance will likely increase.

Question 38

Program revenues

Answer 38

Program revenue is revenue directly associated with a program or function. Remember the categories of program revenue and recall that the government can "SOC" away these revenues:
S
Charges (for services)
O
Operating grants and contributions
C
Capital grants and contributions

Question 39

Cash flows from non capital financing

Answer 39

Rule: Cash flows from noncapital financing activities include:
Proceeds or payments related to borrowing not attributable to the acquisition, construction or improvement of capital assets.
Cash receipts or payments related to grants or subsidies not attributable to capital purposes.
Property taxes not designated for capital purposes.
Cash paid to other funds (other than for interfund services).

Question 40

Which of the following fund’s data should be reported as part of local government’s governmental activities column in its government-wide statements?

Answer 40

he data from the GRaSPP and S funds would appear in the governmental activities column of a government’s government-wide financial statements. The GRaSPP S funds include the General, Special Revenue, DEBT SERVICE, Capital Project, Permanent and Internal Service funds. Debt service funds are included, while the remaining funds, all fiduciary, would not appear in the government-wide financial statements at all.

Question 41

Which format must an enterprise fund use to report cash flow operating activities in the statement of cash flows?

Answer 41

Proprietary funds (internal Service and Enterprise funds) must use the direct method when preparing their statement of cash flows.

Question 42

Donated works

Answer 42

Donated works of art meeting certain criteria are eligible for optional capitalization at the election of the government receiving the works of art and depreciation is not required even if the government elects to capitalize. To qualify for this treatment, the works of art must be held for public exhibition, be protected/unencumbered and the proceeds from the sale of any of the works must be reinvested in more works of art. Nack City meets all these criteria according to the fact pattern and, therefore, although the assets may be capitalized, it is not required and depreciation is not required.

Question 43

Notes to the financial statements

Answer 43

This is the only statement that is not true. Required supplementary information is reported before (MD&A) or after (budget, infrastructure, pension) the basic financial statements. The notes to the financial statements are integral to the financial statements and include important disclosures about the basic financial statements, not the required supplementary information. Separate note disclosures may accompany the schedules that comprise the required supplementary information. These disclosures (and related required supplementary information) would follow the basic financial statements.

Question 44

reconciliation of governmental fund financial statements to a government-wide presentation

Answer 44

The reconciliation of governmental fund financial statements to government-wide presentations would be found on either the face of the financial statements or in accompanying schedules with expanded disclosure in the notes to the financial statements, both of which are components of the Basic Financial Statements defined by GASB #34.

Question 45

major fund treatment

Answer 45

Rule: Major fund treatment for purposes of fund financial statement presentation requires that a fund be both 10% of its fund category’s assets, revenues, or expenditures/expenses and 5% of the combined governmental and enterprise assets, revenues and expenditures/expenses

Question 46

hh

Answer 46

Fund desc

govt funds

Question 47

this is key difference between governmental unit and component unit

Answer 47

Governments that meet all three criteria are reported as primary governments while those that fail any of the criteria are considered component units. In addition, governments that are component units whose governing bodies are substantially the same as the primary government or which exclusively serve the primary government of which it is a component or that fail to qualify as a legally separate entity are blended. Failing to meet the blending criteria, the component unit is presented discretely (as a separate column) in the primary government’s financial statements.

Question 48

investing activities

Answer 48

Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments including interest and dividend income

Question 49

Financing activities

Answer 49

The transactions listed in the fact pattern would be distributed as follows:
Cash payments from customers of $250,000 are classified as cash flows from operating activities.
Property tax receipts (sources of $150,000) and operating transfers out (uses of $125,000) would produce net noncapital financing activities of $25,000 (source).
Special assessments for capital i

Question 50

Financing activities

Answer 50

Capital and related financing activities include acquiring and disposing of capital assets, borrowing money for capital acquisitions and repaying amounts borrowed (including interest) as well as capital grants, special assessments levied for capital acquisitions, etc.

Question 51

Operating

Answer 51

Operating activities generally result from providing services and producing or delivering goods and all other transactions not defined by other classifications. Payment for services to other funds, including payments in lieu of taxes, are treated as operating.

Question 52

non capital financing

Answer 52

Non capital financing activities include borrowing for non capital purposes as well as cash receipts from grants or subsidies, property taxes, internal transfers, etc.

Question 53

cash flow ( gains are not added back()

Answer 53

Operating income is used to reconcile to cash flows from operations. Non operating income items (such as revolving debt financing and gains on the sale of assets) are excluded from the reconciliation. Interfund receivables for services are considered part of operations.

Question 54

Cash flow

Answer 54

ash payments to suppliers (uses of $250,000) and Interfund reimbursement receipts (sources of $150,000) are classified as cash flows from operating activities.
Operating transfers out (uses of $125,000) would produce net noncapital financing activities.
Capital outlay for water plant improvements would be displayed as capital and related financing activities.
There are no investing activities.

Question 55

Captal lease

Answer 55

Capital lease obligations associated with general governmental activities are recorded as an asset and as a liability on the full accrual government-wide financial statements. Governmental fund financial statements would record the asset financed by a capital lease as an expenditure and the lease financing as other financing sources under modified accrual accounting.

Question 56

Enterprise funds

Answer 56

Enterprise funds are displayed as business type activities in the government-wide financial statements.

Question 57

fiduciary funds

Answer 57

Fiduciary activities are excluded from the government-wide financial statements. Transactions with fiduciary funds are treated as if those transactions were conducted with an independent trustee for purposes of display in the government-wide financial statements.

Question 58

governmental comprehensive annual financial report?

Answer 58

comprehensive annual financial report (CAFR) includes a statistical section. A CAFR is divided into three sections;
Introductory
Financial (which includes both basic financial statements and required supplementary information as required by GASB #34)
Statistical

Question 59

Reciprocal interfund activityu

Answer 59

Reciprocal interfund activity includes interfund loans and interfund services provided and used. Billing by the internal service fund to a department financed by the general fund for services rendered is the only transaction meeting this definition. Nonreciprocal transfers include interfund transfers (which are displayed as either other financing sources or uses on the governmental fund financial statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements (which are not shown on the face of the financial statements).

Question 60

Which of the following information is needed to prepare the budgetary comparison schedules for a local government?

Answer 60

he original budget is needed to prepare the budgetary comparison schedules for a local government. Budgetary comparison schedules must show the original budget, the final amended budget, and actual amounts. Variance computations and process descriptions are optional.

Question 61

Which of the following should be included in the introductory section of a local government’s comprehensive annual financial report?

Answer 61

he introductory section of a local government’s comprehensive annual financial report would include a letter of transmittal along with an organization chart and list of principal officers.

Question 62

Md&A

Answer 62

One of the major components of the MD&A is the description of the financial statements, which includes an analysis of the government’s overall financial position and the results of operations, including reasons for changes from the prior year.

Question 63

city government reported a $9,000 increase in net position in the motor pool internal service fund, a $12,000 increase in net position in the water enterprise fund, and a $7,000 increase in the employee pension fund. The motor pool internal service fund provides service primarily to the police department. What amount should the city report as the change in net position for business-type activities in its statement of activities?

Answer 63

he statement of activities is the government-wide financial statement used to report revenues and expenses for governmental and business-type activities. The only fund type that will fall in the “business-type” classification is the enterprise fund, which in this example is the water enterprise fund. Because the net position of the water enterprise fund increased by $12,000, this amount will be reported under business-type activities in the statement of activities. The $9,000 for the motor pool internal service fund and the $7,000 for the pension fund will both be reported under “governmental” activities.