Section 2, Chapter 4 Flashcards
What 3 things make up cash?
- ) Cash on hand
- ) Cash in transit
- ) Cash on deposit
How are investments reported on the balance sheet?
at fair market value, with cost disclosed in the footnotes
What are footnotes for cash and investments?
They are required to describe the restrictions on their use, legal and contractual provisions, and the risks associated with those assets.
What is custodial credit risk?
for deposits - a risk that in the event of the failure of a depository institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party.
When are deposits exposed to custodial credit risk?
If they are not covered by depository insurance and:
- ) uncollateralized
- ) collateralized with securities held by the pledging institution
- ) collateralized with securities held by the pledging financial institutions trust department or agent, but not in the depositor governments name.
How should governments report custodial credit?
the amount of the bank balances and why they are not covered by depository insurance.
When are investments exposed to custodial credit risk?
if the securities are uninsured and not registered in the name of the government and are held by either
- ) the counterparty
- ) the counterparty’s trust department or agent, but not the governments name.
How should governments report investment securities exposed to custodial credit risk?
- ) type
- ) amount
- ) how the investments are held
When are disclosures about the concentrations of credit risk required?
for investments that represent 5% or more total investment, except for those issued or explicitly guaranteed by the US government and investments in mutual funds and external investment pools. the disclosure should state the amount and issuer.
How should governments disclose information about interest rate risk?
1.) segmented time distribution
2.) specific identification
3.) weighted average maturity
4.) duration
or 5.) simulation model
What are securities lending transactions?
governmental entities transfer their securities to broker dealers and other entities for collateral and simultaneously agree to return the collateral for the same securities in the future.
How should investments be reported on the balance sheet?
at fair value
How should investment income be reported on the operating statement?
as revenue
What is an exchange transaction?
When each party receives and gives up something of value. Example - charge for services
In an exchange transaction, when is the receivable recognized?
at the time the exchange takes place
What is an exchange like transaction?
It allows the person receiving a license or permit to do something in exchange for “something of value” - example: having a license allows one to operate a motor vehicle.
In an exchange like transaction, when is the receivable recognized?
when the exchange takes place
What is a non exchange transaction? give the 2 categories
a transaction that does not involve an exchange - taxes and grants/shared revenue/donations.
What is a derived tax revenue transaction?
results from government’s ability to impose assessments
What are examples of derived tax revenue transactions?
sales tax, income tax, gasoline tax
What is an imposed non exchange revenue transaction?
governments impose an assessment based on something other than an exchange.
What are examples of imposed non exchange revenue transactions?
property tax assessed on property owned by citizen.
What are government mandated non exchange transactions?
these transactions occur when a government at one level provides a resource to a government at another level and requires the government to use the resources for purposes established by the provider.
in a government mandated non exchange transaction, when is the receivable recognized?
when the recipient government meets all of the eligibility requirements established by the provider.
What is an example of a government mandated non exchange transaction?
a grant
What are voluntary non exchange transactions?
two or more parties willingly enter into an agreement. Eligibility requirements may need to be met by the recipient.
What are examples of voluntary non exchange transactions?
entitlements, shared revenues and donations
When should an allowance for doubtful accounts be recorded?
- ) it is probably that receivables recorded at the financial statement date will not be collected.
- ) the uncollectable amount can be reasonably estimated.
What are the two ways that an allowance can be recorded, even if specific uncollectible receivables cannot be identified?
- ) percent of revenue method
2. ) percent of sales method
What is percent of revenue method?
the ending balance of receivables is multiplied by the historical percentage of bad debts
What is percent of sales method?
total sales for a period are multiplied by the historical percentage of bad debts
What are the two types of activity that takes place among funds?
- ) reciprocal
2. ) non reciprocal
What is reciprocal activity?
similar to an exchange transaction
What are the two types of reciprocal transactions?
- ) interfund loans
2. ) interfund services provided and used
What are the two types of non reciprocal activity?
- ) interfund transfers
2. ) interfund reimbursements
How do interfund loans impact the operating statement?
interfund loans only affect the balance sheet or statement of net asserts of the respective funds - there is no impact on the operating statement.
How are loans between funds to be disclosed?
governments are required to disclose the loans between funds in the notes to the financial statements.
What funds are most associated with inventory?
- ) proprietary funds
2. ) enterprise funds
What is the consumption method?
goods remain in inventory until requested by customer - the inventory is an asset until it is used.
What are the three ways to value inventory?
- ) FIFO
- ) LIFO
- ) Weighted Average
What is the FIFO method?
assumes that inventory is used in the same order as it was purchased - the first items purchased are the first to be consumed.
What is the LIFO method?
assumes that most recently purchased inventory is the first to be consumed.
What is the weighted average method?
smoothes the cost of inventory by calculating a single cost based on the average price during the fiscal year.
What services require prepayments in advance?
Rent, insurance
How do Governmental funds commonly report prepaid items?
using the purchases method
What option does GAAP allow for prepaid items to be reported?
consumption method - prepaid items are reported similar to inventory items.
Which funds defer and amotorize bond issue costs over the life of the issue?
- ) governmental funds
- ) business like activities
- ) proprietary funds
At the time bonds are issued, how are the costs associated with the issue reported to recognize as asset for issue costs?
Deferred charge bond issue costs - debit
Cash - credit
How is an expense for bond issue cost recorded annually to report the annual charge for issue costs?
Expense for bond issue costs - debit
Deferred charge-bond issue cost - credit
Where are capital assets reported for governmental funds?
Capital assets are reported in proprietary funds for governmental and business type activities.
What 7 categories can capital assets be classified into?
- ) Land
- ) Buildings
- ) Improvements other than buildings
- ) Machinery and Equipment
- ) Works of Art
- ) infrastructure
- ) construction in progress
What are additions and betterments?
They extend the life or the capacity of capital assets
What are expenses to restore damaged property to its original condition?
maintenance or repairs
What is preservation?
applies to infrastructure and applies to transactions needed to restore infrastructure to its original condition
How should capital assets be depreciated?
over their useful lives
How should inexhaustible capital assets be depreciated? ex. land, infrastructure
not depreciated
When is a capital asset considered impaired?
When its service utility has declined significantly and unexpectedly
ex. a building destroyed by fire, tornado, or hurricane
What is a deferred revenue?
a resources inflow that has not been earned
Which long term obligations should be presented in disclosures?
those due within one year
What is a claim?
a demand for payment of damages or a policy benefit because of the occurrence of an event - such as the destruction of property and related deaths or injuries.
What is a judgement?
the adjudication of a claim through action of court or other legal body.
When are losses recognized and reported in the financial statements?
1.) information available before the financial statements are issued indicates that it is probably that an asset had been impaired or a liability had been incurred at the date of the financial statements
AND
2.) the amount of the loss can be reasonable estimated
If a loss is possible, where is that reported?
in the notes of the financial statement
What are the two type of pension programs?
- ) defined benefit
2. ) defined contribution
What is a defined benefit plan?
the member knows the amount of benefit that she will receive at the time of retirement.
What is a defined contribution plan?
the plan specifies how much will be contributed by the employee and the employer. The benefit is based n the contributions and the net gains/earnings from the investment of those contributions.
When are pension liabilities recognized?
when the employee retires, the pension is due and payable in accordance with the plan
What type of funds are pension funds?
fiduciary funds
