Section 2, Chapter 3 - Government-wide Financial Reporting

Question 1

What do government wide financial statements focus on?

Answer 1

• Activities of the government for both the governmental and proprietary funds
• Fiduciary funds are not reported on the government wide statements
• They don’t focus on funds
• Although funds are not reported, there’s typically a relationship between funds and activities

Question 2

What’s the central focus of government wide statements?

Answer 2

The primary government

Question 3

What two columns are presented in government wide, financial reporting?

Answer 3

• governmental activities
• Business type activities

Question 4

What are governmental activities? And what do they consist of?

Answer 4

• Those primarily associated with governmental funds
• The assets in the liabilities of the internal service funds are typically included here unless the predominant participants are enterprise funds. If so, the assets and liabilities would be included under business type activities.

Question 5

What are business type activities primarily associated with? And what do they consist of?

Answer 5

• Proprietary funds
• They consist of enterprise funds

Question 6

What is done with interfund balances when preparing the government wide reporting

transactions within a category of funds (such as governmental or proprietary)?

Answer 6

They are eliminated for government wide reporting

Question 7

What is done for interfund balances if a transaction is between governmental and proprietary funds?

Answer 7

It would not be eliminated. They are reported on the governmental activities and business type activity columns with a zero balance reported in the total column.

Exception: charges for goods and services

Question 8

Where do internal services funds’ assets and liabilities go?

Answer 8

In the governmental funds

But if their primary customers are in the enterprise funds, then the assets and liabilities would be reported there

Question 9

Where are fiduciary funds reported in the government wide financial statements?

Answer 9

• they are not presented to focus users with information about the resources available to the government to provide goods and services
• They reported at the fund level to demonstrate the government control of the assets

Question 10

How are most component units presented on the government wide financial statements?

Answer 10

Discreetly in one or more separate columns, to complete the financial picture of the reporting entity

Question 11

What totals are required on government wide financial statements?

Answer 11

• A total for the primary government is required
• the total for the reporting entity, including opponent units is optional

Question 12

What are the two required statements for government wide reporting?

Answer 12

1. Statement of net position.
2. Statement of activities.

Question 13

Where is MD&A presented?

Answer 13

Before the basic financial statements

It’s required supplementary information

Question 14

What is the intent of management discussion and analysis?

Answer 14

• To provide an easily readable analysis of the financial activities of the government
• To discuss the current year results compared to the prior year
• Distinguish between the primary government and its component units

Question 15

What is the primary focus of the management discussion and analysis?

Answer 15

The primary government

Question 16

What should be included in management discussion and analysis?

Answer 16

General, not specific information, including:
- A brief discussion of the basic financial statements, how the government wide financial statements are related, and how they are different from the fund level financial statements
- Condensed financial information with comparisons to prior year, with the following elements:
1. Capital Assets, other assets and total assets
2. Long-term and other total liabilities.
3. Total net position, distinguished by its components.
4. Program revenues by major source.
5. General revenues by major source.
6. Total revenues.
7. Program expenses by function
8. Total expenses.
9. Results of operation before contributions, special and extraordinary items.
10. Contributions to capital
11. Special and extraordinary items.
12. Transfers.
13. Change in net position.
14. Ending net position.

Question 17

How is RSI reviewed by auditors?

Answer 17

• RSI affects the auditor scope of work
• Auditor is not required to perform the same test for basic financial statements
• To ensure that all required items are present, if applicable
• Failure to include an item should be mentioned in the audit report but it will not affect the audit opinion
• auditors must ask management what methods were used to prepare the information in MD&A

Question 18

Where can information that is not required in the MD&A be reported?

Answer 18

In the transmittal letter of the ACFR

Question 19

What measurement focus and basis of accounting is used to prepare the government-wide financial statements?

Answer 19

• economic resources measurement focus
• accrual basis of accounting

Question 20

What are the adjustments for proprietary funds on the government wide financial statements?

Answer 20

There are no adjustments for proprietary funds since the same measurement, focused and basis of accounting are reported as business type activities at the government wide level

Question 21

Are governmental activities adjusted on the government wide financial statements?

Answer 21

Yes. Governmental activities, primarily reflect the transactions reported in governmental funds that use current financial resources measurement, focus and modified accrual basis of accounting. Thus it is necessary to adjust certain transactions from one measurement and basis of accounting to another

Question 22

A government purchases vehicles for $250,000 that are paid from the general fund. How is the transaction reported? (to report the purchase)

Answer 22

D: capital outlay— vehicles
C: cash

It’s reported on the operating statement of the general fund since it requires the use of current financial resources. There’s no entry on the position statement of the general funds since it does not report assets.

Question 23

A government purchases vehicles for $250,000 that are paid from the general fund. How is the transaction reported under the economic resources measurement focus?

Answer 23

D: capital asset— vehicles
C: cash

On the government wide operating statement , there would be no expense reported for the transaction. The only expense would be the depreciation on the vehicles. The transaction would be reported on the government wide statement of position as a capital asset.

Question 24

A government purchases vehicles for $250,000 that are paid from the general fund. How is the transaction reported on the government wide operating statement?

Answer 24

There would be no expense reported for this transaction. The only expense would be the depreciation on the vehicles. The transaction would be reported on the government wide statement of net position as a capital asset.

Question 25

A government purchases vehicles for $250,000 that are paid from the general fund. How would the fund information to the government wide statements be reconciled?

Answer 25

D: capital asset— vehicles
C: capital outlay— vehicles

Question 26

A government borrows $500,000 to be repaid equally over 10 years beginning the following fiscal year. How are the governmental fund record the transaction?

Answer 26

D: cash
C: other financing sources— bonds

Since the transaction involves in inflow of current financial resources, it is recorded on the operating statement of the fund. There’s no entry on the position statement since there’s no current liability to be repaid.

Question 27

A government borrows $500,000 to be repaid equally over 10 years beginning the following fiscal year. How would the transaction be recorded under the economic resources measurement focus?

Answer 27

D: cash
C: long-term debt

In this instance of financial source has been exchanged for liability. There’s no impact on the government wide operating statement.

Question 28

A government borrows $500,000 to be repaid equally over 10 years beginning the following fiscal year. What adjustment would be made to reconcile the fund information to the government wide statements?

Answer 28

D: other financing sources—
C: long-term debt

Question 29

Property tax Levy of a government is $1 million for the fiscal year (and is assumed to be 100% collectible). By the end of the fiscal year, the government has received $900,000. The government receives an additional $50,000 during the next two months. The remaining thousand dollars is received in the subsequent months. What is the entry under modified accrual basis of accounting in governmental funds?

Answer 29

D: property tax receivable $1 million
C: property tax revenue $1 million
(to record the property tax on lien date-the first day of the government’s fiscal year)

D: cash $900,000
C: property tax receivable $900,000
(to record property tax payments during the year)

D: cash $50,000
C: property tax receivable $50,000
(to record payments received during the 60 day availability period)

D: property tax revenue $50,000
C: deferred inflow of resources— property taxes $50,000
(to defer property taxes not received within the availability period) ** not made under a accrual basis of accounting. The entire $1 million would be recorded as revenue for the fiscal year.

Question 30

Property tax Levy of a government is $1 million for the fiscal year (and is assumed to be 100% collectible). By the end of the fiscal year, the government has received $900,000. The government receives an additional $50,000 during the next two months. The remaining thousand dollars is received in the subsequent months. What is the adjusting entry for the government wide statements?

Answer 30

D: deferred inflows of resources— property taxes $50,000
C: property tax revenue $50,000

Question 31

What is the starting point for preparing government wide statements?

Answer 31

The fund financial statements. Rather than posting journal entries for individual transactions, journal entries are prepared for grand totals

Question 32

A government reported total expenditures of $500,000 for various capital outlays. What would be the adjusting journal entry?

Answer 32

D: capital assets $500,000
C: outlet $500,000

To eliminate capital outlays from the statement of activities, and capitalize the asset on the statement of net position

Question 33

Where are most entries found?

Answer 33

The governmental fund position statement and operating statement. However, the beginning balances of the assets and related to depreciation, and the beginning balances of the long-term obligations and related amortization. Generally would have to be separately tracked and entered. This information would come primarily from the ending balances of the previous year.

Question 34

What entry would be posted for the beginning balance for capital assets?

Answer 34

D: capital assets, net $750,000
C: net position $750,000

Question 35

What entry would be done to post the beginning balance for long-term liabilities?

Answer 35

D: net position $500,000
C: long-term debt $500,000

Question 36

What kind of journal entries would be made in preparing the government wide financial statements?

Answer 36

1. Expenditures for principal payments on long-term obligations, bond issue costs, bond premiums and discounts, revenue deferred for lack of availability, proceeds from the sale of assets and similar transactions
2. revenues and expenses that do not require the use of current financial resources, including:
   - expense for compensated absences
   - Expenses for noncurrent claims and judgments
   - Net pension obligation
   - Amortization for bond issue costs
   - Amortization for premiums and discounts
   - Other similar transactions

Question 37

What are adjustments are made for business type activities?

Answer 37

Business type activities report the transactions of enterprise funds. No adjustments are usually necessary. An adjustment might be necessary because of a gain or loss from internal service fund charges to enterprise funds.

Question 38

How is the statement of net position prepared?

Answer 38

Assets
+ deferred outflows of resources
- liabilities
- deferred inflows of resources
= net position

This is called a columnar and net position format

Question 39

What two columns are used to report assets, liabilities, and net position of the primary government?

Answer 39

• governmental activities
• Business type activities

Question 40

What should be presented on the statement of net position?

Answer 40

• A total column for the primary government should be presented
• Discreetly presented component units are then presented
• A total column for the reporting entity is optional
• Comparative data for the prior year also be presented

Question 41

Although a net position format is encouraged, a traditional balance sheet format be used for the statement of net position. What is the format?

Answer 41

Assets + deferred outflows of resources
= liabilities + deferred inflows of resources + net position

Question 42

How are governments encouraged to present assets and liabilities?

Answer 42

In the order of relative liquidity

Question 43

How should liabilities presented if they have an average maturity greater than one year?

Answer 43

Two components — amount payable within one year and amount payable in more than one year

Question 44

The government has a long-term liability of $10 million. The amount due in the next fiscal year is $500,000 what would be reported on the statement of net position?

Answer 44

Long-term debt — current $500,000
Long-term debt — noncurrent $9,500,000

Question 45

What is a classified statement of net position?

Answer 45

• something governments can use
• Used to distinguish between current and long-term assets and liabilities

Question 46

What three components should net position display?

Answer 46

• net investments in capital assets
• Restricted net position
• unrestricted net position (or deficit)

Question 47

What does net investment in capital assets consist of?

Answer 47

Capital assets, which are net of accumulated depreciation and reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings that are attributed to the acquisition, construction, or improvement of those assets

Question 48

If the amount of assets that of accumulated depreciation is reported as $120 million and there is $50 million in long-term debt outstanding associate with those assets, what would be presented on the statement of net position?

Answer 48

Assets:
Capital Assets net of depreciation $120,000,000

Liabilities:
Long term debt $50,000,000

Net Position:
Net investment in capital assets $70,000,000

Question 49

What happens to significant unspent proceeds included in outstanding debt (cash has been received to construct, acquire, or improve capital assets, but that has not yet been spent)?

Answer 49

• that portion of debt should not be included in the calculation
• Significant unspent proceeds normally should be reported in the asset section as restricted assets and in the net position section as restricted net position

Question 50

A government recently issued $10 million in debt for capital projects. By the end of the fiscal year construction in process was $6,500,000. The remaining proceeds have not been spent. Assuming there was no other capital assets, if the proceeds were reported as related debt, investment in capital assets, net of related debt, would be. $6,500,000 in assets, $10 million debt = ($3,500,000). How would it be reported?

Answer 50

Assets:
Cash $3,500,000
Capital assets— construction process $6,500,000

Liabilities:
Long-term debt $10 million

Net position:
Net investment in capital assets $0
($6,500,000 asset less $6,500,000 related debt)

Question 51

When does a residual investment in capital assets occur?

Answer 51

With the useful life of the asset is greater than the period of the debt.

Example: ability that cost $1 million and has a useful life of 25 years would report depreciation expense of $40,000 annually under the street line depreciation method. Was used to construct the building, the investment and capital assets would be the annual book value $1 million in the first year and $960,000 in second and so on.

If bonds were issued to finance, the building in the term of the bonds was 10 years, by the end of the second year, approximately $900,000 would be outstanding. Thus, the residual investment would be $60,000.

Question 52

What does restricted assets reflect?

Answer 52

Constraints placed on asset use, either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law, through enabling legislation or constitutions

Question 53

What are some examples of assets that would be reported as a restricted component of that position

Answer 53

• States that have prohibitions against using taxes, derived from the sale of gasoline to be used for purposes that are not related to highway projects
• Assets attributed to intergovernmental funds are normally restricted by the provider

Question 54

How should the restricted net position be displayed on the government wide level when the endowments, or the principle of the restricted funds are included?

Answer 54

It should be displayed into categories:
1. Expendable.
2. Non-expendable.

To distinguish between those that are required to be maintained in perpetuity, and those that are not

Question 55

What can governments do in lieu of reporting depreciation for infrastructure?

Answer 55

They may choose a modified approach, so they do not have to record depreciation on eligible infrastructure assets

These are infrastructure assets that are part of the network or subsystem

Question 56

What is the modified approach for infrastructure based on?

Answer 56

Demonstrating that the government is maintaining the infrastructure of assets at or above a condition level the government has established

Question 57

To use the modified approach, the government needs an asset management system that meets what requirements?

Answer 57

• it has an up-to-date inventory of the infrastructure
• It performs condition assessments using a measurement scale
• Estimates, annually, the amount needed to maintain and preserve the assets based on the condition level it has established and disclosed

Question 58

How often are condition assessments performed?

Answer 58

At least every three years for all infrastructure assets, although statistical sampling, maybe used; and the results of the three most recent assessments must provide reasonable assurance that the assets are being preserved at, or above, the condition level that has been established

Question 59

What happens to depreciation if all requirements?

Answer 59

Depreciation doesn’t have to be reported on infrastructure assets

All amounts spent for maintenance should be expensed

Question 60

What are preservation costs?

Answer 60

Costs that extend the life of the infrastructure intended to be used in perpetuity. However, because of the weather and other conditions, they must be replaced on occasion.

Question 61

What must be done to preservation costs, when governments use the modified approach?

Answer 61

They would expense preservation cost

Governments that do not use the modified approach with capitalize preservation costs

Question 62

How would repaving a two-lane road (a preservation cost) be treated under the modified approach?

Answer 62

Would be expensed, since it does not increase the capacity of the road

It merely extends the useful life of the road by putting it back into condition that originally was

Additional cost of widening the road would be capitalized

Question 63

What are the required supplementary reporting requirements when governments use the modified approach?

Answer 63

• The assessed condition, performed at least every three years, for at least the three most recent complete condition assessments, indicating the dates of the assessment
• The estimated annual dollar amount required to maintain and preserve assets at or above the condition level established, compared with the actual expenses incurred for each of the preceding five years

Question 64

What is the financial statement comparable to the government wide statement that is required for state and local governments?

Answer 64

There is none

The closest comparison are the two statements prepared by the federal government —
1. the statement of net cost, and
2. the statement of changes in net position

Question 65

What is the format for the statement of activities?

Answer 65

The net cost format

Question 66

What is the purpose of the net cost format?

Answer 66

1. To identify the extent to which of particular function requires financial support from the taxpayers. As a result, it is important to determine which revenues are program revenues, attributable to a specific function and which revenues are general revenues
2. To determine the operating results for the fiscal year, including the economic cost and change in net assets

Question 67

At a minimum how should governmental activities be detailed on the statement of activities?

Answer 67

By function at the same level as it is used for the fund financial statements

These are the expenses specifically associated with Program, department or service, and clearly identifiable to a function. Governments are encouraged to provide more details, but not the extent that there’s a reduction in the ability of readers to understand the statement

Question 68

How would functions provide administrative or support services to other functions (particularly those associated with general government) be presented?

Answer 68

• some would be indirect expenses, but they are not required to be allocated to the functions
• If a government desires to allocate such expenses, they may do so in a separate column. The purpose for using a separate column is enhance comparability among governments.

Question 69

Where should depreciation expenses that are specifically identified with a function to be presented in statement of activities?

Answer 69

Included in indirect expenses as well as depreciation for infrastructure assets

Question 70

Where should depreciation for capital assets that essentially serve all functions, such as a City Hall, be included on the statement of activities?

Answer 70

• may be included as a separate line on the statement
• may be included as part of “general government” or some similar function

Question 71

What should be clearly indicated if depreciation expense is a separate line item?

Answer 71

That this line excludes direct depreciation expenses of the various programs

Question 72

What is interest on general long-term liabilities considered and where is represented on the statement of activities?

Answer 72

• It’s considered an indirect expense
• It should be reported as a separate line

Interest that is essential to the creation or continuing existence of a function should be reported as an expense of the function if it would be misleading to exclude it

Question 73

How are business type activities (airport, transportation, port, water, etc.) presented on the statement of activities?

Answer 73

Presented for each identifiable activity, which are often the same as the separate enterprise funds

Question 74

What is the difference between the terms activity and fund?

Answer 74

• activity refers to programs or services, conducted in governmental and proprietary funds
• A fund is an accounting and reporting device within governmental or proprietary funds

A single fund may account for several activities, and a single activity can be accounted for multiple funds

Question 75

If a single enterprise fund provides two different activities like water and electric services, how should they be presented on the statement of activities?

Answer 75

Each should be reported as a separate function

A government that manages for water districts and uses separate enterprise funds for each district, may report them as a single function if it wishes to do so

Component units displayed major component units with minor component units totaled

Question 76

What are the four sources in government programs are financed from?

Answer 76

1. those who purchased, use or directly benefit from the goods or services of the program (building permits, parking ticket). These are always program revenues.
2. parties who are outside the reporting government’s citizens, including other governmental entities
3. Taxes paid by all taxpayers.
4. Financing from the government itself such as investment earnings

Question 77

What type of revenues are those who purchase, use, or directly benefit from the goods or services of the program?

Answer 77

Program revenues

Question 78

What type of revenue is it if the financing is restricted to a program or is a grant that reimburses programs costs?

Answer 78

Program revenue otherwise it is a general revenue

Example: a grant to hire police officers would be programmed revenue. General shared revenue provided by the state to a municipality it would be general revenue.

Question 79

What type of revenue is taxes?

Answer 79

A general revenue, even if the taxes are restricted for particular purpose

Taxes must be levied by the government. If the government shares taxes with local government governments, the taxes would be general revenue to the state. However, the shared revenue may be program revenue to the local government if it is limited to particular functions, such as high improvements.

Question 80

What type of revenue is financing from the government itself such as investment earnings?

Answer 80

Usually general revenue, unless it is restricted to a program or function

Question 81

What three categories report program revenue?

Answer 81

1. charges for services. These result from exchanges or exchange like transactions (licenses, permits, water, and sewer fees, fines)
2. Program specific operating grants and contributions.
3. Program specific capital grants and contributions. To be reported in this category the grant needs to be restricted to capital purposes. A grant that allows for operating and would be reported as an operating grant in its entirety.

Question 82

What is required for grants and contributions to be classified as program revenues?

Answer 82

They must be restricted to a specific program

Expenditure-driven grants reimburse the expenses of the specific programs. They incurred the costs therefore, the reimbursements should be reported as Program revenues

Question 83

What type of revenue should earnings on endowments from restricted funds, be reported as?

Answer 83

Program revenues, if they are legally restricted to be used for a program. Otherwise, they are classified as general revenues.

Question 84

What does the difference between expenses and Program revenues result in?

Answer 84

Results in net (expenses) revenues for each function/program, business type activity, and component unit

Question 85

What revenues are reported as general revenues?

Answer 85

• all other revenues
• All taxes
• Unrestricted grants
• Earnings from investments
• From sale of assets would be reported as general revenue or program revenue as appropriate. The loss from the sale of assets would be reported as an expense of the appropriate function.

Question 86

What are special items?

Answer 86

Significant transactions or events that are within the control of management, and are either unusual in nature m or infrequent in occurrence

Example: proceeds received from tobacco settlement

Question 87

How are special items reported in the statement of activities?

Answer 87

Separately in the statement after general revenues

Question 88

What are extraordinary items?

Answer 88

Transactions that are both unusual in nature and infrequent in occurrence

Ex: damage from a tornado or

Question 89

Where are extraordinary items reported in the statement of activities?

Answer 89

Separately after special items

Question 90

What is the bottom line?

Answer 90

Change in net position reported after transfers

Question 91

What are some alternate statement of activity reporting formats?

Answer 91

two page format

Question 92

What does the two page format for statement of activities provide for? What does produce?

Answer 92

• provides for the presentation of the net cost of operations for the primary government and the component units on one page and the determination of the change in net position on the second
• Reduces the number that need to be recorded on a page

Question 93

What are the interfund transactions that are eliminated to minimize the “grossing up” of data resulting from interfund transactions?

Answer 93

• Interfund receivables and payables
• charges services
• transfers
• Internal service funds

Question 94

On the statement of net position, what happens to all interfund receivables and payables within a category of funds (I.e., governmental, proprietary)?

Answer 94

They should be eliminated within the governmental activities column and business type activities column

This means that due from/due to amounts among governmental funds would be eliminated, as would do from/due to amounts among enterprise funds

Question 95

On the statement of net position, what happens to the residual amounts of interfund, payable/receivables between governmental activities and business type activities?

Answer 95

They should be presented in internal balances, or as due to and due from amounts on separate lines

Internal balances would be eliminated in the total column for the primary government

Accounts due from, or due to, fiduciary funds should be included as a receivable from or payable to external parties. This is consistent with the fact that fiduciary funds are not reported in the government wide statements.

Question 96

What should be done to charges levied for services by governmental funds or internal funds?

Answer 96

They should not be eliminated nor should charges by enterprise funds to government funds. This would mistake the expenses and revenues of the respective programs

Example : a government operates a water and sewer utility as enterprise fund. The utility charges the city for water and sewer usage. The utility records program revenue, and the appropriate city function record expenses for the amount paid the utility. The program would be reported under business activities and expenses would be reported under government activities

Question 97

How should transfers be reported?

Answer 97

In the same manner as interfund payables and receivables

Transfers among governmental funds, or among enterprise funds are eliminated. Only the residual transfers between governmental funds and business type funds are reported on the statement of activities (under government activities, and business activities)

Question 98

How are internal service funds reported?

Answer 98

Although they are reported as proprietary funds, the primary customers are most often associated with governmental funds. The assets and liabilities would be reported on the statement of that position under governmental activities. However, if the primary customers are enterprise funds, then residual assets and liabilities would be reported under business type activities.

Question 99

If the amount reported as cash for governmental funds was $2 million and cash for internal service funds was $150,000, how would it be reported?

Answer 99

It would be reported on under governmental activities on the statement of net position for $2.15 million

The same amount would be true for all other asset and liability accounts

Question 100

Internal service funds are designed to break even so there should be no operating revenue from internal sales. How should it be handled if net revenue from internal sales is positive? should it be handled operating revenue is negative?

Answer 100

• positive revenue from internal sales means the internal service fund overcharged
• Negative operating revenue means they undercharged

Overcharge or undercharged, is credited or charged back to the functions that incurred the user charges

Question 101

How are blended component units reported?

Answer 101

They are reported as funds of the government and rolled up to the government wide financial statements, as either governmental activities or or business type activities (as appropriate)

Question 102

How far is discreetly presented component units reported?

Answer 102

The reported only at the government wide level. Information about each major discreetly presenting component unit should be provided separately. It is up to the government to determine which discreetly presented component units are major in relation to the primary government

Question 103

Where are component units that are fiduciary in nature reported?

Answer 103

Only in the fiduciary fund financial statements

Question 104

What three ways can major component units be reported?

Answer 104

1. In separate columns on the statement of net position, and separate columns and rows on the statement of activities
2. Providing combining statements in the basic financial statement after a fund financial statements.
3. Presenting condensed financial statements in the notes to the financial statements.

Question 105

Do governments also need to disclose the nature and amount of significant transactions of major component units with the primary government and other component units?

Answer 105

Yes