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 if a transaction is within a category of funds (such as governmental or proprietary)?

Answer 6

They are eliminated

Question 7

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

Answer 7

It would not be eliminated

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?

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 and process 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.

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

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)

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 90 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

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

Answer 31

D: cash $500,000
C: other financing sources— bond $500,000

Since the transaction involves an 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 is no current liability to be repaid

Question 32

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 32

D: cash
C: long-term debt

In this instance, a financing source has been exchanged for liability. There is no impact on the government wide operating statement.

Question 33

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 33

D: other financing sources— bonds $500,000
C: long-term debt $500,000

Question 34

What is the starting point for preparing government wide statements?

Answer 34

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

Question 35

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

Answer 35

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 36

Where are most entries found?

Answer 36

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 37

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

Answer 37

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

Question 38

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

Answer 38

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

Question 39

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

Answer 39

revenues in 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 40

What are adjustments are made for business type activities?

Answer 40

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 41

How is the statement of net position prepared?

Answer 41

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

Question 42

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

Answer 42

• governmental activities
• Business type activities

Question 43

What should be presented on the statement of cash flows?

Answer 43

• 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 44

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 44

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

Question 45

How are governments encouraged to present assets and liabilities?

Answer 45

In the order of relative liquidity

Question 46

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

Answer 46

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

Question 47

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 47

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

Question 48

What is a classified statement of net position?

Answer 48

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

Question 49

What three components should net position display?

Answer 49

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

Question 50

What does net investment in capital assets consist of?

Answer 50

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 51

If the amount of assets that of accumulated depreciation is reported as $120 million and there is $60 million in long-term debt outstanding associate with those assets, what would be presented on the statement of net position?

Answer 51

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

Liabilities:
Long term debt $60,000,000

Net Position:
Net investment in capital assets $60,000,000

Question 52

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 52

• 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 53

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 53

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 54

When does a residual investment in assets occur?

Answer 54

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

Question 55

What does restricted assets reflect?

Answer 55

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 56

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

Answer 56

• 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 57

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

Answer 57

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 58

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

Answer 58

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 59

What is the modified approach for infrastructure based on?

Answer 59

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

Question 60

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

Answer 60

• 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 61

How often are condition assessments performed?

Answer 61

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 62

What happens to depreciation if all requirements?

Answer 62

Depreciation doesn’t have to be reported on infrastructure assets

All amounts spent for maintenance should be expensed

Question 63

What are preservation costs?

Answer 63

Cost 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 64

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

Answer 64

They would expense preservation cost

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

Question 65

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

Answer 65

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 66

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

Answer 66

• 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 67

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

Answer 67

There is none

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

Question 68

What is the format for the statement of activities?

Answer 68

The net cost format

Question 69

What is the purpose of the net cost format?

Answer 69

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 70

At a minimum how should governmental activities be detailed?

Answer 70

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 71

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

Answer 71

• 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 72

Where should depreciation expenses that are specifically identified with a function to be presented?

Answer 72

Included indirect expenses as well as depreciation for infrastructure assets

Question 73

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

Answer 73

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

Question 74

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

Answer 74

That this line excludes direct depreciation expenses of the various programs

Question 75

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

Answer 75

• 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 76

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

Answer 76

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

Question 77

What is the difference between the terms activity and fund?

Answer 77

• 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 78

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

Answer 78

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 79

What are the four sources in government programs are finest from

Answer 79

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

Question 80

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

Answer 80

Program revenues

Question 81

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

Answer 81

Program revenue otherwise it is general a general revenue

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

Question 82

What type of revenue is taxes?

Answer 82

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 83

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

Answer 83

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

Question 84

What three categories report program revenue?

Answer 84

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 85

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

Answer 85

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 86

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

Answer 86

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

Question 87

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

Answer 87

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

Question 88

What revenues are reported as general revenues?

Answer 88

• 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 89

What are special items?

Answer 89

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 90

How are special items reported in the statement of activities?

Answer 90

Separately in the statement after general revenues

Question 91

What are extraordinary items?

Answer 91

Transactions that are both unusual in nature and infrequent in occurrence

Ex: damage from a tornado or

Question 92

Where are extraordinary items reported in the statement of activities?

Answer 92

Separately after special items

Question 93

What is the bottom line?

Answer 93

Change in net position reported after transfers

Question 94

What are some alternate statement of activity reporting formats?

Answer 94

two page format

Question 95

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

Answer 95

• 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 96

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

Answer 96

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

Question 97

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

Answer 97

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 98

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

Answer 98

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 99

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

Answer 99

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

Sample: 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 100

How should transfers be reported?

Answer 100

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 101

How are internal service funds reported?

Answer 101

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 102

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 102

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 103

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 103

• 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 104

How are blended component units reported?

Answer 104

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 105

How far is discreetly presented component units reported?

Answer 105

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 106

Where are component units that are fiduciary in nature reported?

Answer 106

Only in the fiduciary fund financial statements

Question 107

What three ways can major component units be reported?

Answer 107

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 108

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 108

Yes