advanced accounting Chapter 17Solution Manual.docx

advanced accounting Chapter 17Solution Manual.docx

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advancedaccountingChapter17SolutionManual

CHAPTER17

GOVERNMENTALENTITIES:

INTRODUCTIONANDGENERALFUNDACCOUNTING

ANSWERSTOQUESTIONS

Q17-1   Afundisanindependentfiscalandaccountingentitywithaself-balancingsetofaccountsrecordingcashand/orotherresourcestogetherwithallrelatedliabilities,obligations,reserves,andequitieswhicharesegregatedforthepurposeofcarryingonspecificactivitiesorattainingcertainobjectivesinaccordancewithspecialregulations,restrictions,orlimitations.Afundmayreceiveresourcesfromavarietyofsources,includingcollectionoftaxesonproperty,income,orcommercialsales;receiptofgrants,fines,orlicenses;andcollectionofservicecharges.

Q17-2   Theelevenfundsgenerallyusedbylocalandstategovernmentsare:

Governmental

a.

Generalfund

b.

Specialrevenuefund

c.

Capitalprojectsfund

d.

Debtservicefund

e.

Permanentfund

Proprietary

f.

Internalservicefund

g.

Enterprisefund

Fiduciary

h.

Pensiontrustfund

i.

Investmenttrustfund

j.

Private-purposetrustfund

k.

Agencyfunds.

Thepurposeofeachfundisindividuallydiscussedbelow:

a.Generalfund:

Allfinancialresourcesexceptthoserequiredtobeaccountedforinanotherfundareaccountedforinthegeneralfund.

b.Specialrevenuefund:

Theproceedsofspecificrevenuesourcesthatarelegallyrestrictedforspecifiedpurposesareaccountedforinthespecialrevenuefund.

c.Capitalprojectsfund:

Financialresourcestobeusedfortheacquisitionorconstructionofmajorcapitalprojectsthatwillbenefitalargepopulationareaccountedforinthecapitalprojectsfund.

d.Debtservicefund:

Theaccumulationofresourcesforandthepaymentof,generallong-termdebtprincipalandinterestareaccountedforinthedebtservicefund.

Q17-2（continued）

e.Permanentfund:

Accountsforresourcesforwhichtheprincipalmustbemaintained,butforwhichtheearningsmaybeusedinsupportofgovernmentalprograms.

f.Internalservicefund:

Thefinancingofgoodsorservicesprovidedbyonedepartmentoragencytootherdepartmentsoragenciesofthegovernmentalunit,ortoothergovernmentalunits,areaccountedforininternalservicefunds.

g.Enterprisefund:

Operationsofgovernmentalunitsthatchargeforservicesprovidedtothegeneralpublicareaccountedforintheenterprisefunds.

h.Pensiontrustfund:

Resourcesheldbyagovernmentalunitinatrusteecapacityforthemembersandbeneficiariesofpensionplans,postemploymentplans,orotheremployeebenefitplans.

i.Investmenttrustfunds:

Accountsfortheexternalportionofinvestmentpoolsofgoverningunits.

j.Private-purposetrustfund:

Accountsfortrustarrangementsunderwhichbothprincipalandinterestmaybeusedtobenefitspecificindividuals,privateorganizations,orothergovernmentalunits.Notethattheseresourceshavespecificpurposesasstatedbythedonororgrantor,andarenotavailableforgeneralgovernmentalprograms.

k.Agencyfunds:

Assetsheldbyagovernmentalunitinanagencycapacityforemployeesorotherindividualsareaccountedforinagencyfunds.

Q17-3   Themodifiedaccrualbasisincludessomeaspectsofaccrualaccountingandsomeaspectsofcash-basisaccounting.Underthemodifiedaccrualbasis,theemphasisisonreportinghowwellthegovernmentperformedbyfocusingonwhentherevenueandexpendituresarerecognizedintheaccountsandreportedinthefinancialstatements.Theemphasisisnotonhowmuchwasearnedorontheamountofexpenses.

Q17-4   Themodifiedaccrualbasisisusedforfundsforwhichexpendabilityistheconcernbecausethegoverningentityisinterestedinthedeterminationoftheresourcesstillremainingtobeexpendedtocarryouttheobjectivesofthefund.

Q17-5   Propertytaxesarerecognizedasrevenueinthegeneralfundwhenthetaxesarelevied,providedtheyapplytoandarecollectiblewithinthecurrentfiscalperiod,orwithinashortperiod（<60days）aftertheendofthefiscalperiod.

Q17-6   GASB33statesthattaxpayer-assessedincomeandsalestaxesshouldbeaccruedinthegeneralfundwhentheybecomebothmeasurableandavailabletofinanceexpendituresofthefiscalperiod.Salestaxesheldbyothergovernmentalunitsshouldberecognizedifthetaxesarebothmeasurableandavailableforexpenditure.Measurabilityinthiscaseisbasedonanestimateofthesalestaxestobereceived,andavailabilityisbasedontheabilityofthegoverningentitythatwillreceivethefuturedistributiontoobtaincurrentresourcesthroughcreditbyusingfuturesalestaxreceiptsascollateralfortheloan.

Q17-7   Budgetaryaccountingistheenteringofthebudgetedrevenue,appropriations,andnetincreaseordecreaseinfundbalanceintotheformalaccountingrecordsasaformalaccountingcontrolmechanism.Expectedrevenueisaccountedforasestimatedrevenue,ananticipatoryassetaccount.Thegovernmentalunitanticipatesreceivingresourcesfromtherevenuesourceslistedinthebudget.Anticipatedexpendituresareaccountedforasappropriations,ananticipatoryliabilityaccount.Thegovernmentalunitanticipatesincurringliabilitiesforthebudgetedamount.Boththeexpectedrevenueandtheappropriationsaccountsareclosedattheendofthefiscalperiod.

Q17-8   Allexpendituresarenotencumbered.Payrollcostsandothercostsforgoodsreceivedfromwithinthegovernmentalentityarenotencumberedbecausethesearenormalandrecurringcosts.

Q17-9   Somegovernmentalunitsdonotreportsmallamountsofinventoriesofsuppliesintheirbalancesheetsbecausetheamountofinventoryisnotmaterial.

Q17-10  UnderthelapsingmethodtheReserveforEncumbrancesaccountisshownasareservationofthefundbalanceonthefiscalyear-endbalancesheet.Theencumbranceaccountisanominalaccountthatisclosedattheendofthefiscalperiod.Theneteffectistocloseouttheremainingencumbrancesagainstthefundbalance-unassigned.Alternatively,theGASBdoesallowforjustfootnotedisclosureofthelapsingopenordersatyear-endthatareexpectedtobehonoredinthenextfiscalperiod.

Underthenonlapsingmethodtheexpenditureauthorityfrompriorperiodsiscarriedoverasnonlapsingencumbrances.Thebudgetforthenextfiscalperioddoesnotincludethesecarryoversandismorerealisticforsituationsinwhichordersplacedwithoutsidevendorscannoteasilybecanceled.Theencumbrancesaccountandthebudgetaryreserveforencumbrancesaccountarestillclosedattheendofthefirstperiod.

Whenaccountingfortheactualexpenditureinthesubsequentyear,thelapsingmethodrequiresthenewgoverningboardtodecideifitwillhonortheoutstandingencumbrancesfromthepreviousyearbyincludingtheminthecurrentbudgetedappropriations.Ifthegoverningboardacceptstheobligationtohonortheiroutstandingpurchaseordersfromtheprioryear,therecordingofthecurrentyear’sbudgetestablishestheexpenditureauthorityfortheprioryear-end’sopenencumbrance.Intheeventthenewgoverningboarddecidesnottohonortheoutstandingencumbrances,thereserveforoutstandingencumbrancesisclosedtotheunassignedfundbalanceandtheorderforthegoodsiscancelledwiththeexternalvendor.

Whenaccountingfortheactualexpenditureinthesubsequentyear,thenonlapsingmethodseparatesexpendituresmadefromspendingauthoritycarriedoverfrompriorperiods.Thisisdoneinareclassificationentrymadeonthefirstdayofthenextfiscalperiod,whichdatesthereserveforencumbrances.Whenthegoodsarereceivedinthesecondyear,theexpendituresaccountisalsodatedtonotethatitreferstoexpenditureauthorityoftheprioryear.

Q17-11  Theexpenditureforinventoriesisrecognizedintheperiodthesuppliesareacquiredunderthepurchasemethod.Undertheconsumptionmethod,theexpenditureforinventoriesisrecognizedforonlytheamountofinventoryusedintheperiod.

Q17-12  Interfundservicesprovidedandusedareinterfundactivitiesthatwouldbetreatedasrevenuesorexpendituresiftheyweremadewithpartiesexternaltothegovernmentalentity.Anexamplewouldbeifthegeneralfundpurchasedsuppliesfromtheinternalservice

Interfundtransfersoutorinaretransfersofresourcesbetweenfunds.Anexamplewouldbeatransferofresourcesfromthegeneralfund（aninterfundtransferout）tothecapitalprojectsfund（atransferin）toassistintheconstructioncostsofanewmunicipalbuilding.

Q17-13  Aninterfundtransferisreportedas"OtherFinancingSourcesorUses"inthegeneralfund'sstatementofrevenues,expenditures,andchangesinfundbalance.

Q17-14  Theloanof$2,000fromthegeneralfundtotheenterprisefundisreportedonthefinancialstatementsofthegeneralfundonthebalancesheetasareceivable.Theloanisnotshownonthefund'sstatementofrevenues,expenditures,andchangesinfundbalance.

Q17-15  Governmentalaccountingplacesmanycontrolsoverexpenditures,andmuchofthefinancialreportingfocusesonthevariousaspectsofanexpenditure.Anexpenditurecanbemadeforafunctionofthegovernmentalentityoranactivitywithinafunction.Expendituresforanactivitycanbeclassifiedbyobject,whichisthetypeofexpenditure.Theextensivedetailrequiredtoaccountforandcrossreferenceanexpendituretoensureitisproperlyclassifiedatalllevelsrequiresaverycomprehensiveaccountingsystem.

SOLUTIONSTOCASES

C17-1BudgetTheory

a.Agovernmentalaccountingsystemmustmakeitpossibleto:

1.Presentfairlyandwithfulldisclosure,inconformitywithgenerallyacceptedaccountingprinciples,thefinancialpositionandresultsoffinancialoperationsofthe