Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
1
CHAPTER 18
GOVERNMENTAL ENTITIES: SPECIAL FUNDS AND
GOVERNMENT-WIDE FINANCIAL STATEMENTS
ANSWERS TO QUESTIONS
Q18-1 A governmental entity would use a special revenue fund rather than a general
fund when the resources earmarked for the fund, such as federal or state government
grants or special tax levies, are restricted for specific purposes.
Q18-2 Operating budgets are prepared for the general fund, special revenue funds,
and debt service fund. Capital budgets are prepared for the capital projects fund.
Q18-3 Interest on long-term debt is accounted for in the debt service fund for only the
interest that is due and legally payable as an expenditure. Interest is not accrued on the
outstanding balance of the long-term debt.
Q18-4 The major differences between a special revenue fund and an enterprise fund
are
Special Revenue
Fund
Enterprise
Fund
Measurement focus
Current financial resources
Economic resources
Accounting basis
Modified accrual
Accrual
Budgetary basis
Operating budget
None required
Long-term assets
No
Yes
Long-term debt
No
Yes
Encumbrances
Yes
No
Financial statements
Governmental type
Commercial type
Q18-5 The basis of accounting used in the proprietary funds is the accrual basis
because the focus of the governmental entity is on capital maintenance and income
determination rather than budgetary spending authority.
Q18-6 The financial statements that must be prepared for the governmental funds are
the balance sheet and the statement of revenues, expenditures, and changes in fund
balances. The financial statements that must be prepared for the enterprise funds are
the statement of net assets, the statement of revenues, expenses, and changes in fund
net assets, and the statement of cash flows.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
Q18-7 Proceeds from a bond issue are accounted for as an other financing source in
the fund that issued the bonds. However, some governments have a policy that the
capital projects fund may not keep any bond premium, in which case the bond premium
is typically transferred to a debt service fund. Other financing sources and uses are
reported separately below operations, but above special items, on the governmental
funds’ statement of revenues, expenditures, and changes in fund balance.
Q18-8 A permanent fund is a governmental fund for which the principal is maintained,
but the income in the fund can be used by the government for its programs that benefit
all of its citizens. The basis of accounting in permanent funds is the modified accrual
method. Private-purpose trust funds are established to benefit specific individuals or
organizations, as specified by the donor. These private-purpose trust funds may have an
expendable principal, or the principal may be non-expendable. The accrual basis of
accounting is used for private-purpose funds. Thus, a major difference between these
funds is the specificity of who the beneficiaries of the fund are.
Q18-9 GASB 34 specifies that only governmental and enterprise funds determined to
be “major” funds need to be separately disclosed in their own columns in the fund
financial statements. There are two tests to determine which individual governmental
and enterprise funds are considered major if they meet both tests. The general fund is
always considered a major fund. The first test is total assets, liabilities, revenues, or
expenditures/expenses of that individual fund are at least 10 percent or more of the
governmental or enterprise category. The second test is that total assets, liabilities,
revenues, or expenditures/expenses of the individual governmental or enterprise fund
are at least 5 percent of the total for all governmental and enterprise funds combined.
Any individual funds that are not considered major are aggregated and presented in a
single column. Management may, at any time, separately disclose even those non-major
funds for which they feel the additional disclosure will provide information valuable to the
readers of the financial statements.
Q18-10 Because the measurement focus of the governmental funds is on current
financial resources, revenue would be recognized in the governmental funds only if the
donated items are available to finance expenditures of the current period, For example,
donated land would be included in contribution revenue of a governmental fund if the
land was sold, or the government has entered into a contract to sell the land, and that
the proceeds from the sale will be available to finance expenditures of the current period.
However, a donation to a governmental fund, in the form of financial resources or capital
assets, that has a restriction imposed by the donor which makes the donation
unavailable to finance current expenditures, is not included in the governmental fund’s
financial statements. Of course, on the government-wide statement of activities, all
donations would be shown, at fair value on a separate line below general revenues.
Specifically, endowment and permanent fund principal donations are reported below
general revenues and above special and extraordinary items.
On the governmental funds financial statements, special and extraordinary items are
reported below operations, but above the net change in fund balance line, in the
statement of revenues, expenditures, and changes in fund balance. Special items are
those significant transactions within the control of management that are either unusual in
nature or infrequent in occurrence. Extraordinary items are transactions or events that
are both unusual and infrequent in occurrence.
Q18-11 Agency funds must be self-balancing with assets equaling liabilities. Therefore,
agency funds do not have a net fund balance.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
Q18-12 Component units are separate government entities for which the primary
government is financially accountable. The financial presentation of these component
units is dependent on the separability from the primary government. If the component
unit is virtually inseparable, then the component unit’s financial information is blended
into the primary government’s financial statements. However, if the component unit is
distinguishable, and has its own taxing authority, then the component unit’s financial
information is presented in a separate column in the government-wide financial
statements.
Q18-13 Two reconciliation schedules are required by GASB 34. The first reconciles the
fund balances reported in the governmental funds to the net assets of governmental
activities reported on the government-wide financial statements. For example, internal
service funds are not a governmental fund, but the accounts for internal service funds
are blended into the governmental activities that are reported on the government-wide
financial statements. The second reconciliation schedule reconciles the net change in
fund balances reported in the governmental funds statements to the change in net
assets reported in the government-wide financial statements. These two reconciliation
schedules are required by GASB 34 to be presented either on the face of the fund
financial statements or in a separate schedule immediately following the fund financial
statements.
Q18-14 The budgetary comparison schedule reports, for the general fund and any other
governmental fund that has a legally adopted budget, the initially approved budget, the
final budget of the year, and the actual amounts, for each line item in the statement of
revenues, expenditures, and changes in fund balance. A variance column may also be
used to compare the actual against the final budget. This budgetary comparison
schedule is part of the required supplementary information (RSI) required by GASB 34.
GASB 41 amended GASB 34 for those governments that do not use the general fund
and special revenue fund structure specified in GASB 34 for their budgetary purposes.
GASB 41 specified that those governments with significant perspective differences
should provide a budgetary comparison schedule in the RSI based on the structure the
government used for its legally adopted budget.
Q18-15 The government-wide financial statements present the infrastructure assets,
such as roads, bridges, tunnels, sewer and water systems, etc., and other long-term
assets of the government entity, such as buildings, equipment, vehicles, etc. The capital
assets should be reported at historical cost or fair value at the time of donation, if
donated. Because the basis of accounting for the government-wide financial statements
is the accrual method, depreciation is recorded on the other long-term assets and these
are reported net of depreciation. For infrastructure assets, the governmental entity may
elect to use a modified approach in which depreciation is not recorded. The modified
approach requires an assessment of the current condition of the infrastructure assets
and an estimate of the annual amount required to maintain and preserve the
infrastructure assets. In addition, the government-wide financial statements present the
general long-term debt obligations of the governmental entity at the present value of the
debt principal and future interest, just as computed under the accrual basis of accounting
that is used for commercial entities.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
SOLUTIONS TO CASES
C18-1 Basis of Accounting and Reporting Issues
a. In the accrual basis of accounting, revenue should be recognized in the accounting
period in which it is earned and becomes measurable.
In the modified accrual basis of accounting, revenue should be recognized in the
accounting period in which it becomes both measurable and available to finance
expenditures of the fiscal period. "Available" means collectible within the current period
or soon enough thereafter to be used to pay current period liabilities.
b. For the general fund, the modified accrual basis of accounting should be used
because it is a governmental fund, which is, in essence, an accounting segregation of
financial resources.
For the special revenue fund, the modified accrual basis of accounting should be used
because it is a governmental fund, which is, in essence, an accounting segregation of
financial resources.
For the enterprise fund, the accrual basis of accounting should be used because it is a
proprietary fund, with activities similar to those in the commercial, profit-seeking sector.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-2 Capital Projects, Debt Service, and Internal Service Funds
a. Capital projects funds account for the acquisition or construction of major capital
facilities or improvements. A separate capital projects fund is created at the time the
project is approved and ceases at the completion of the project. Accounting for capital
projects funds is similar to accounting for the general fund. The modified accrual basis of
accounting is used; no fixed assets, depreciation, or long-term debt is recorded in these
funds.
The bond proceeds are not revenue to the capital projects fund; they are reported as
Other Financing Sources. A premium on the sale of bonds is transferred to the debt
service fund. When the expenditure is recorded, Contract Payable is credited for the
current portion due and Contract Payable-Retained Percentage is credited for the
amount held back to ensure that the contractor fully completes the project to the
satisfaction of the governmental entity.
The financial statements for capital projects funds are a balance sheet and a statement
of revenues, expenditures, and changes in fund balance. No budget versus actual is
required because capital projects funds use a capital budget rather than an operating
budget.
b. Debt service funds account for the accumulation and use of resources for the
payment of general long-term debt principal and interest. Accounting for the debt service
fund is similar to accounting for the general fund. The modified accrual basis of
accounting is used; no fixed assets or long-term debt is recorded; only current maturities
are recorded in the fund.
The bond premium received from the capital projects fund is recorded as an other
financing source – transfer in. The matured portion of a serial bond is recognized as an
expenditure and Matured Bonds Payable is credited. Interest legally due and payable is
recorded as an expenditure and Matured Interest Payable is credited.
The financial statements of the debt service fund are a balance sheet and a statement of
revenue, expenditures, and changes in fund balance.
c. Internal service funds account for the financing of goods or services provided by one
department to other departments on a cost-reimbursement basis. Separate internal
service funds are established for each type of service. Accounting for internal service
funds is the same as for enterprise funds or commercial entities. The accrual basis is
used; these funds record fixed assets, depreciation, and long-term debt.
The internal service fund may be started with a transfer in from the general fund. The
billings are recorded in "Due from" accounts and the revenue account, Charges for
Services. The closing entries involve a Profit and Loss Summary or Excess of Net
Revenues over Costs account.
The financial statements of an internal service fund are a statement of net assets; a
statement of revenues, expenses, and changes in fund net assets; and, a statement of
cash flows.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-3 Discovery Case
Summary of major information items in the Financial Report of the United States
Government,
1.
The report is prepared by the Secretary of the Treasury.
2.
The Management’s Discussion and Analysis presents comparative historical
information for operations and financial position along with budget information,
both historical and projected.
3.
The Comptroller General of the United States heads the General Accountability
Office (GAO) who is the auditor for the U.S. government. For several years, the
Comptroller General has disclaimed an opinion on the consolidated financial
statements because of the material deficiencies in the government’s systems,
recordkeeping, documentation, and financial reporting. The material deficiencies
are listed in the auditor’s report.
4.
The following five statements are presented: (1) Statements of Net Cost,
(2) Statements of Operations and Changes in Net Position, (3) Reconciliations of
Net Operating Revenue (Cost) to the Budget Surplus (unaudited), (4) Dispositions
of the Budget Surplus (unaudited), and (5) Balance Sheets.
5.
The Statements of Net Cost present the costs and revenue for the major
departments, agencies, commissions, and other units of the federal government.
6.
The Statement of Operations and Changes in Net Position presents the revenues
by type, the total costs, and the net operating revenue (cost) for each year.
7.
The Reconciliation of Net Operating Revenue (Cost) to the Budget Surplus
presents the increases or decreases in major cost programs, along with the
amount of capitalized fixed assets by major agencies of the federal government.
8.
The Dispositions of the Budget Surplus presents the changes in assets and
liabilities during the years reported.
9.
The Balance Sheets present the assets, by major type, the liabilities, by major
type, and reconciles to the net position of the U.S. government.
10.
Major footnotes include a stewardship report on the resources held by the U.S.
government, and a large number of notes to the financial statements that report
on specific items related to agencies, commissions, and other entities within the
federal government.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-4 Becoming Familiar With a Local Government’s Comprehensive Annual
Financial Report (CAFR)
(Note to the instructor: Most local governments now produce a comprehensive annual
financial report. You might select the local city or county in which the university is located or
a large city close to the university town. Printed copies of the CAFR may be obtained
directly from that governmental entity and you could place these copies on reserve in your
university library for use by your students. Alternatively, many governments now provide
their CAFRs online. A web search using “CAFR” and the name of your city, county or state
will show if your selection provides an online copy of its CAFR. Or, you may do a web
search using “CAFR” and then select one of the government units that provide an online
copy of its CAFR and then provide that link to your students or insert that link into your
online syllabus.)
a. Students should read the MD&A to get familiar with the governmental entity. One of the
items contained in the MD&A is information on the nature of the services performed by the
government. At the local government level, the services usually consist of police and fire
protection, street maintenance, recreation, and other services typically the responsibility of
the local government.
b. Because there is so much information contained in a CAFR, it is important to see what
information is covered by the auditor’s opinion. The auditor’s opinion is usually unqualified.
The auditor does not audit the MD&A and other RSI and does not express an opinion on this
information. The auditor reads the MD&A and other RSI to determine if the information
contained therein is reasonable.
c. A general purpose government will have most fund types. It is beneficial for the student to
see which fund types are used and which ones are not used by a government.
d. Students should become familiar with the types of information found in the notes. One
item of information disclosed in the notes is a description of the measurement focus and
basis of accounting used by the governmental funds. The footnotes’ discussions regarding
the governmental funds and their use of the financial resources measurement focus and
modified accrual basis of accounting reinforce what the students learned from the text.
e. Listing the financial statements that use the economic resources measurement focus
and accrual basis of accounting reinforces the coverage in the text. In their evaluation,
students should remember that the governmental fund financial statements are the only
ones prepared using the current financial resources measurement focus and the modified
accrual basis of accounting.
f. Students should be aware of the reporting of major funds in the financial statements of
governmental and proprietary funds.
g. This question emphasizes that the reporting entity for the government may be larger
than the local governmental if the local government has fiscal accountability over other
governmental entities. Because many component units are reported discretely, students
should have little problem identifying the existence of component units.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-4 (continued)
h. The purpose of this question is for students to become acquainted with the balance
sheet equation for the governmental funds: Assets = Liabilities + Fund Balance. Another
goal for this question is for students to see that fund balance is separated into two
components: (1) assigned and (2) unassigned.
i. The purpose behind questions i - l is to help students understand the format of the
statement of revenues, expenditures, and changes in fund balance. The first section deals
with revenues, which are reported according to source. Students will discover that taxes are
generally not the only source of revenue.
j. The objective of this question is to get students to understand how governments report
expenditures. Students may expect governments to report expenditures by object; however,
expenditures are not reported this way on the statement of revenues, expenditures, and
changes in fund balance.
k. The purpose of this question is to have students examine the items reported in other
financing sources and uses. This should reinforce what they learn in the text when they read
the section dealing with interfund transfers.
l. This question covers the last items reported on the statement of revenues, expenditures,
and changes in fund balance: special items, the change in fund balance for the year, and
the ending fund balance at the end of the most recent year. Students should not expect to
see any special items since their occurrence is rare. However, students should see the
change in fund balance for the year being added to the beginning fund balance to produce
ending fund balance.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-5 The GASB’s Decision-Making Process
Until recently, the GASB’s presentation of its decision-making process was found on their
web site at www.gasb.org/ under GASB FACTS on the link entitled Facts About the GASB:
The Mission and Structure of the Board, and An Open Decision-Making Process. In order to
find this information on the revised website, it is necessary to go to the link entitled “How
Standards Are Set” in the “Education” tab.
(http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176156714545 )
1. The Governmental Accounting Standards Advisory Council (GASAC). This council is
composed of about 25 persons from a diverse background in government accounting
and finance. This council provides suggestions for topics to be considered by the GASB.
In addition, the Board receives concerns about current governmental accounting needs
from other persons and groups who work in governmental accounting or auditing.
2. Task Force. In many cases, a task force is formed shortly after the Board agrees to
place the project on its agenda. A task force is comprised of persons who know the
project’s subject matter and provides expertise and advice to the GASB as it focuses on
the critical issues and determine if a new standard is necessary.
http://www.gasb.org/cs/ContentServer?c=Page&pagename=GASB%2FPage
%2FGASBSectionPage&cid=1176156714627
3. Discussion Memorandum (DM). The DM is normally prepared by the staff and defines
the problem(s), the scope of the project, the accounting and reporting issues; and
presents relevant research, alternative solutions to the issues, and arguments both for
and against each alternative. Written comments are solicited and in many cases a public
hearing is scheduled to discuss the DM. The answers to this question and the next two
are covered in this website:
http://www.gasb.org/cs/ContentServer?c=Page&pagename=GASB%2FPage
%2FGASBSectionPage&cid=1176156714567
4. Invitation to Comment (ITC). An ITC is sometimes issued when the GASB seeks more
input on one or more of the issues.
5. Preliminary Views (PV). A PV puts forth the Board’s consensus at an early stage in the
process. A majority of the Board must approve the issuance of a PV. The Board solicits
comments on the PV.
6. Public Hearing. A public hearing is typically scheduled to provide the Board with an
opportunity to hear the viewpoints of the public as well as to allow the Board to raise
questions to the staff regarding written or oral comments received on the project,
including any submissions at the public hearing.
http://www.gasb.org/cs/ContentServer?c=Page&pagename=GASB%2FPage
%2FGASBSectionPage&cid=1176156714607
7. Analysis of Oral and Written Comments. The staff performs an analysis of the submitted
comments, looking for information and good arguments on the issues, and presents this
analysis to the members of the Board who often make their own review of the
comments.
8. Meetings of the Board. The Board may have several, or many, meetings to discuss the
issues. Board meetings on the project are open to the public, although observers are not
allowed to participate in the discussions.
9. Exposure Draft (ED). An ED presents the proposed new standards, the proposed
effective date and method of transition, background information, and explains the basis
for the Board’s conclusions regarding the issues covered by the ED.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
http://www.gasb.org/cs/ContentServer?c=Page&pagename=GASB%2FPage
%2FGASBSectionPage&cid=1176156714567
10. Further Deliberations by the Board. The Board receives comments on the ED and
discusses the comments to determine if any modifications are needed in the proposed
standard.
11. Statements of Governmental Accounting Standards or Statements of Governmental
Accounting Concepts. A majority of the Board must vote in favor of adopting a
pronouncement. Statements of Standards establish new accounting or reporting
requirements. Statements of Concepts do not create new standards, but rather give
guidance for dealing with problems that arise on an issue.
And then, the Board continues to work on the next project!
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
C18-6 Summarizing a Recent GASB Exposure Draft
Note to the Instructor: This case provides your students with the opportunity to be on the
leading edge of a proposed governmental accounting or reporting standard. Students can
learn about some of the specifics of an expected, new GASB Statement.
The most recent ED on the web page will be dependent on future actions of the GASB. Click
on the “Current Projects” link in the Projects tab of the GASB’s home page to see
information on the status of current GASB projects. These projects are in various stages of
progress, but as of late 2010, GASB projects include a conceptual framework, derivatives,
economic condition reporting, and postemployment benefit accounting and reporting. Of
course, given the dynamic nature of governmental accounting and reporting, it is expected
that new projects will be added, and some of the current projects may be discontinued or
included within a larger project the board is studying. And, some may become new GASB
Statements!
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
SOLUTIONS TO EXERCISES
E18-1 Multiple-Choice Questions on Government Financial Reporting
1. a
2. d
3. b
4. a
5. a
6. b
7. a
$8,839,000 = assets of $14,839,000 minus liabilities of $6,000,000
8. c
$7,150,000 = capital assets (net) of $12,500,000 minus long-term debt of
$5,350,000
9. c
$1,035,000 = net assets of $8,839,000 minus $7,150,000 minus $654,000
10. a
(answers b, c, and d each include a fiduciary fund which is not a major fund)
11. d
12. c
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-2 Multiple-Choice Questions on Governmental Funds [AICPA Adapted]
1. d
2. b
3. a
4. c
5. c
6. b
E18-3 Multiple-Choice Questions on Proprietary Funds [AICPA Adapted]
1. b
2. d
3. d
4. b
5. c
6. c Prepaid insurance would be reported as an asset.
7. b
8. c
9. c
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-4 Multiple-Choice Questions on Various Funds
1.
c
The additions - investment earnings include the $50,000 of dividends and the
$35,000 of interest earned. The contribution is reported as an addition
-contributions.
2.
a
The entries in the trust fund to record the resources spent would appear as
follows:
3.
d
4.
d
Deductions - Benefits
Vouchers Payable
75,000
Vouchers Payable
Cash
75,000
c
75,000
Income is determined as follows:
Revenue – Charges for Services
Operating Expenses
Depreciation Expense
Interest Expense
Income
5.
75,000
$100,000
(45,000)
(40,000)
(5,000)
$ 10,000
The assets at June 30, 20X7 appear as follows:
Cash
Due from Other Funds
Computer Equipment (net)
Total Assets
$ 96,000
7,000
610,000
$713,000
6.
b
This is an example of an interfund services provided or used transaction. The
general fund would debit expenditures.
7.
a
This is an example of an interfund services provided or used transaction. The
enterprise fund would debit operating expenses.
8.
b
The net assets would be for the $600,000 transfer in plus the $10,000 of
income for the period.
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-5
Multiple-Choice Questions on Financial Reporting Issues for
Government-wide and Fund-Based Financial Statements
1. c
2. c
the net assets of internal service funds are included in governmental activities
3. d
4. d
5. a
$150,000 = $500,000 – $350,000
6. d
$37,000 = $25,000 + $20,000 – $8,000
7. c
$660,000 = $1,000,000 + $300,000 - $40,000 - $600,000
8. d
$1,035,000 = $1,000,000 + $60,000 interest - $20,000 benefits paid
- $5,000 deduction for investment revaluation
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Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-6 Capital Projects Fund Entries
a.
Entries for capital projects fund during 20X2:
1..1. Receipt of grant, sale of bonds and transfer of premium.
January 1, 20X2
.
Cash
Revenue – County Grant
Receipt of grant from county.
January 1, 20X2
Cash
Other Financing Sources – Bond Issue
Other Financing Sources – Bond Premium
Sale of $150,000 par bonds at 104.
November 3, 20X2
Other Financing Uses – Transfer
Out to Debt Service Fund
Cash
Transfer premium to debt service fund.
2. Entries to record and pay for construction:
April 5, 20X2
ENCUMBRANCES
BUDGETARY FUND BALANCE –
ASSIGNED FOR ENCUMBRANCES
August 8, 20X2
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
ENCUMBRANCES
Expenditures—Capital Outlay
Contract Payable
Establish contract payable for walkway.
Expenditures—Capital Outlay
Vouchers Payable
Establish vouchers payable for added carpeting.
November 3, 20X2
Contract Payable
Vouchers Payable
Cash
Pay contract payable and vouchers payable.
3. Close nominal accounts:
Revenue – County Grant
Other Financing Sources – Bond Issue
Other Financing Sources – Bond Premium
Fund Balance – Unassigned
18-16
50,000
156,000
6,000
50,000
150,000
6,000
6,000
182,000
182,000
182,000
189,000
5,500
189,000
5.500
50,000
150,000
6,000
182,000
189,000
5,500
194,500
206,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-6 (continued)
Fund Balance – Unassigned
Expenditures
Other Financing Uses – Transfer
Out to Debt Service Fund
4. Transfer of ending balance and close transfer account:
Other Financing Uses – Transfer
Out to Debt Service Fund
Cash
Record transfer of remainder to Debt Service.
Fund Balance – Unassigned
Other Financing Uses – Transfer
Out to Debt Service Fund
Close transfer out against unassigned fund balance.
b.
200,500
194,500
6,000
5,500
5,500
5,500
5,500
City of Waterman
Capital Projects Fund
Statement of Revenues, Expenditures,
and Changes in Fund Balance
For Fiscal Year Ended December 31, 20X2
Revenue:
County Grant
Expenditures:
Capital Outlay
Deficiency due to excess of Expenditures over
Revenue
Other Financing Sources (Uses):
Proceeds of Bond Issue
Transfer Out to Debt Service Fund--Premium
Transfer Out to Debt Service Fund--Remainder
Total Other Financing Sources (Uses)
Net Change in Fund Balance
Fund Balance, January 1, 20X2
Fund Balance, December 31, 20X2
18-17
$ 50,000
194,500
$(144,500) )
$156,000
(6,000)
(5,500)
144,500
-0-0$
-0$
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-7 Debt Service Fund Entries and Statement
a.
Entries for debt service fund during 20X2:
1.
2.
ESTIMATED REVENUES CONTROL
ESTIMATED OTHER FINANCING
SOURCES – TRANSFER IN
APPROPRIATIONS CONTROL
BUDGETARY FUND BALANCE
Record budget.
35,000
Property Taxes Receivable
Allowance for Uncollectibles
Revenue – Property Tax
Record tax levy.
40,000
Cash
Property Taxes Receivable
Record tax collections.
35,000
5,000
Property Taxes Receivable — Delinquent
5,000
Allowance for Uncollectibles
4,000
Property Taxes Receivable
Allowance for Uncollectibles – Delinquent
Revenue – Property Tax
Revise estimate of uncollectibles and reclassify remaining receivables.
Cash
Other Financing Sources – Transfer
in from Capital Projects Fund
Receive bond premium.
3.
4,000
36,000
35,000
5,000
1,000
3,000
6,000
6,000
Expenditures
Matured Bonds Payable ($150,000 x 1/10 due)
Matured Interest Payable ($150,000 x 0.10 interest)
Record matured principal and interest.
30,000
Matured Bonds Payable
Matured Interest Payable
Cash
Pay matured principal and interest.
15,000
15,000
Expenditures
Vouchers Payable
Record other expenditures.
1,700
Vouchers Payable
Cash
Pay approved vouchers.
1,200
18-18
34,000
6,000
15,000
15,000
30,000
1,700
1,200
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-7 (continued)
4.
Cash
5,500
Other Financing Sources – Transfer
In From Capital Projects Fund
5,500
Record transfer of unspent funds in capital projects fund to debt service fund.
5.
b.
APPROPRIATIONS CONTROL
BUDGETARY FUND BALANCE
ESTIMATED REVENUES CONTROL
ESTIMATED OTHER FINANCING
SOURCES – TRANSFER IN
Close budgetary accounts.
34,000
6,000
Revenue – Property Tax
Other Financing Sources – Transfer
in from Capital Projects Fund ($6,000 + $5,500)
Fund Balance – Assigned for Debt Service
Expenditures
Close nominal accounts.
39,000
5,000
11,500
18,800
31,700
City of Waterman
Debt Service Fund
Balance Sheet
December 31, 20X2
Assets:
Cash
Property Tax Receivables (net)
Total Assets
Liabilities:
Vouchers Payable
Fund Balance:
Spendable:
Assigned to:
Debt Service
Total Liabilities and Fund Balance
c.
35,000
$15,300
4,000
$19,300
$
500
18,800
$19,300
City of Waterman
Debt Service Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For Fiscal Year Ended December 31, 20X2
Revenue:
Property Taxes
Expenditures:
Principal Retirement
$15,000
Interest
15,000
Miscellaneous
1,700
Total Expenditures
Excess of Revenue over Expenditures
Other Financing Sources (Uses):
Transfers In From Capital Projects Fund
Net Change in Fund Balance
Fund Balance, January 1, 20X2
Fund Balance, December 31, 20X2
18-19
$39,000
31,700
$ 7,300
11,500
$18,800
-0$18,800
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-8 Enterprise Fund Entries and Statements
a.
Entries for enterprise fund:
1.
Accounts Receivable
Revenue
Record charges to customers.
420,000
Cash
Accounts Receivable
Record collections on account.
432,000
2.
Cash
Due to General Fund
Receive loan from general fund.
30,000
3.
Plant and Equipment
Contracts Payable
Record extension of water and gas lines.
75,000
Contracts Payable
Cash
Record payment for extended lines.
75,000
4.
Inventory of Supplies
Operating Expenses
Interest Expense
Due to Central Stores Fund
Vouchers Payable
Interest Payable
Record expenses.
12,400
328,000
30,000
420,000
432,000
30,000
75,000
75,000
12,400
328,000
30,000
Due to Central Stores Fund
12,400
Vouchers Payable
325,000
Interest Payable
30,000
Cash
367,400
Record payment of approved vouchers, interest, and payment to central
stores.
5.
Revenue
Allowance for Uncollectibles
Reduce revenue for uncollectible accounts.
6,300
Depreciation Expense
Accumulated Depreciation
Adjust for depreciation for period.
32,000
Supplies Expense
Inventory of Supplies
Adjust for supplies on hand.
15,200
18-20
6,300
32,000
15,200
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-8 (continued)
Closing entries:
Revenue
Operating Expenses
Interest Expense
Depreciation Expense
Supplies Expense
Profit and Loss Summary
Close nominal accounts.
413,700
Profit and Loss Summary
Net Assets – Unrestricted
Close profit and loss summary.
8,500
328,000
30,000
32,000
15,200
8,500
8,500
Net Assets – Unrestricted
43,000
Net Assets – Invested in Capital
Assets, Net of Related Debt
43,000
Record increase in net assets-invested:
$43,000 = Ending balance of $563,000 net capital assets (Land + Plant &
Equipment) less $500,000 related debt minus $20,000 beginning balance in
net assets-Invested in capital assets net of related debt
b.
Augusta
MUD Enterprise Fund
Statement of Net Assets
December 31, 20X1
Assets:
Cash
Accounts Receivable
Less: Allowance for Uncollectibles
Inventory of Supplies
Land
Plant and Equipment
Less: Accumulated Depreciation
Total Assets
$ 13,000
(6,300)
$555,000
(112,000)
$111,600
6,700
5,200
120,000
443,000
$686,500
Liabilities:
Vouchers Payable
Due to General Fund
Bonds Payable, 6%
Total Liabilities
$ 18,000
30,000
500,000
$548,000
Net Assets:
Invested in Capital Assets, net of Related Debt
Unrestricted
Total Net Assets
$ 63,000
75,500
$138,500
18-21
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-8 (continued)
c.
Augusta
MUD Enterprise Fund
Statement of Revenue, Expenses, and
Changes in Fund Net Assets
For Fiscal Year Ended December 31, 20X1
Revenue:
Revenue from Services
Expenses:
Operating
Depreciation
Supplies
Operating Income
Nonoperating Expense:
Less: Interest on Capital-Related Debt
Change in Net Assets
Net Assets, January 1
Net Assets, December 31
$413,700
$328,000
32,000
15,200
375,200
$ 38,500
30,000
$ 8,500
130,000
$138,500
[Note that interest expense on capital-related debt is a non-operating expense.]
18-22
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-8 (continued)
d.
Augusta
MUD Enterprise Fund
Statement of Cash Flows
For the Year Ended December 31, 20X1
Cash Flows from Operating Activities:
Cash Received from Customers
Cash Payments for Goods and Services
Cash Paid to Internal Service Fund for Supplies
Net Cash Provided by Operating Activities
Cash Flows from Noncapital Financing Activities:
Cash Received from General Fund for Noncapital Loan
Net Cash Provided by Noncapital
Financing Activities
Cash Flows from Capital and Related Financing
Activities:
Interest on Capital-Related Debt
Extension of Service Lines
Net Cash Used for Capital and
Related Financing Activities
$ 432,000
(325,000)
(12,400)
$ 94,600
$ 30,000
30,000
$(30,000)
(75,000)
(105,000)
Cash Flows from Investing Activities
-0-
Net Increase in Cash
Cash at Beginning of Year
Cash at End of Year
$ 19,600
92,000
$111,600
Reconciliation of Operating Income to Net Cash
Provided by Operating Activities:
Operating Income
Adjustments to Reconcile Operating Income to Net Cash
Provided by Operating Activities:
Depreciation
Change in Assets and Liabilities:
Decrease in Inventory and Supplies
Decrease in net Accounts Receivable
Increase in Vouchers Payable
Total Adjustments
Net Cash Provided by Operating Activities
$ 38,500
$ 32,000
2,800
18,300
3,000
56,100
$ 94,600
[Note that interest paid on capital-related debt is reported in cash flows from capital and
related financing activities and not in the operating activities.]
18-23
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-9 Interfund Transfers and Transactions
General Fund
1.
a.
b.
2.
3.
a.
June 30, 20X8, Closing entry:
Fund Balance – Unassigned
Other Financing Uses – Transfer Out to
Building Maintenance Fund
April 1, 20X8, Financing transaction:
Due from Building Maintenance Fund
Cash
b.
Shown on the general fund balance sheet on June 30, 20X8
a.
April 15, 20X8, Transfer out:
Other Financing Uses – Transfer
Out to Debt Service Fund
Cash
b.
4.
March 1, 20X8, Transfer out:
Other Financing Uses – Transfer Out to
Building Maintenance Fund
Cash
a.
June 30, 20X8, Closing entry:
Fund Balance – Unassigned
Other Financing Uses – Transfer
Out to Debt Service Fund
May 5, 20X8, Interfund services provided or used:
Expenditures
Due to Transportation Service Fund
June 30, 20X8, Closing entry:
Fund Balance – Unassigned
Expenditures
12,000
8,000
8,000
2,400
2,400
2,400
825
825
825
18-24
12,000
12,000
2,400
Due to Transportation Service Fund
Cash
b.
12,000
825
825
825
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-9 (continued)
1.
Building Maintenance Internal Service Fund
a.
b.
2.
12,000
June 30, 20X8, Closing entry:
Transfer In from General Fund
Net Assets
12,000
12,000
12,000
April 1, 20X8, Financing transaction:
Cash
Due to General Fund
8,000
8,000
Debt Service Fund
a.
b.
4.
March 1, 20X8, Transfer in:
Cash
Transfer In from General Fund
Building Maintenance Fund
a.
3.
Other Fund
April 15, 20X8, Transfer in:
Cash
Other Financing Sources –
Transfer In from General Fund
June 30, 20X8, Closing entry:
Other Financing Sources –
Transfer In from General Fund
Unassigned Fund Balance
2,400
2,400
2,400
2,400
Transportation Service Fund
a.
May 5, 20X8, Interfund services provided or used:
Due from General Fund
Revenue from Billings
Cash
Due from General Fund
b.
825
825
June 30, 20X8, Closing entry:
Revenue from Billings
Net Assets - Unrestricted
825
18-25
825
825
825
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-10 Internal Service Fund Entries and Statements
a.
Entries for 20X2, including closing entries:
1.
2.
Inventory of Supplies
96,000
Furniture and Equipment
4,700
Vouchers Payable
Record acquisitions of supplies, furniture, and office equipment.
Due from Other Funds
Billings to Departments
Record billings for jobs completed.
292,000
Cash
Due from Other Funds
Record collections on billings.
287,300
Costs of Printing Jobs
Operating Expenses
Inventory of Supplies
Vouchers Payable
Record costs of printing jobs.
204,000
38,000
Depreciation Expense
Accumulated Depreciation
Record depreciation for period.
23,000
Vouchers Payable
Cash
Pay approved vouchers.
243,000
100,700
292,000
287,300
92,400
149,600
23,000
243,000
Closing entries:
Billings to Departments
Costs of Printing Jobs
Operating Expenses
Depreciation Expense
Profit and Loss Summary
Close nominal accounts.
292,000
Profit and Loss Summary
Net Assets – Unrestricted
Close profit and loss summary.
27,000
204,000
38,000
23,000
27,000
27,000
Net Assets – Invested in Capital Assets,
Net of Related Debt
18,300
Net Assets - Unrestricted
18,300
Reclassify net assets as of end of period:
$18,300 = (ending balance of $191,700 net capital assets less $0 related
debt ) less $210,000 beginning balance in net assets invested.
18-26
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-10 (continued)
b.
Bellevue
Printing Shop Fund
Statement of Net Assets
December 31, 20X2
Assets:
Cash
Due from Other Funds
Inventory of Supplies
Furniture and Equipment
Less: Accumulated Depreciation
Total Assets
$264,700
(73,000)
$ 68,900
20,300
13,400
191,700
$294,300
Liabilities:
Vouchers Payable
Total Liabilities
$ 19,300
$ 19,300
Net Assets:
Invested in Capital Assets, Net of Related Debt
Unrestricted
Total Net Assets
$191,700
83,300
$275,000
c.
Bellevue
Printing Shop Fund
Statement of Revenue, Expenses, and
Changes in Fund Net Assets
For Fiscal Year Ended December 31, 20X2
Revenue:
Billings to Departments
Expenses:
Costs of Printing Jobs
Operating
Depreciation
Income
Net Assets, January 1
Net Assets, December 31
$292,000
$204,000
38,000
23,000
18-27
265,000
$ 27,000
248,000
$275,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-10 (continued)
d.
Bellevue City
Internal Service Fund – Printing Shop
Statement of Cash Flows
For the Year Ended December 31, 20X2
Cash Flows from Operating Activities:
Cash Received from Customers
Cash Payments for Printing Jobs
Net Cash Provided by Operating Activities
$ 287,300
(238,300)
Cash Flows from Noncapital Financing Activities
Cash Flows from Capital and
Related Financing Activities
Acquisition of Capital Assets
(furniture and copier)
Net Cash Used for Capital and Related
Financing Activities
$49,000
-0-
$ (4,700)
(4,700)
Cash Flows from Investing Activities
-0-
Net Increase in Cash
Cash at Beginning of Year
Cash at End of Year
$44,300
24,600
$68,900
Reconciliation of Operating Income to Net Cash
Provided by Operating Activities:
Operating Income
$27,000
Adjustments to Reconcile Operating Income
to Net Cash Used by Operating Activities:
Depreciation
Change in Assets and Liabilities:
Increase in Due from Other Funds
from Billings
Increase in Inventory of Supplies
Increase in Vouchers Payable
Total Adjustments
$ 23,000
(4,700)
(3,600)
7,300
Net Cash Provided by Operating Activities
22,000
$49,000
18-28
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
E18-11 Multiple-Choice Questions on Government-wide Financial Statements
1.
c
($1,450,000 - $120,000)
2.
a
[($1,450,000 - $120,000) - $780,000]
3.
b
4.
c
For the amount of the bond issue proceeds. Note that no repayments
of debt were made during the year.
5.
c
The interest adjustment is from the modified accrual basis ($30,000)
to the accrual basis of measurement ($25,000).
6.
d
7.
c
8.
b
9.
c
10.
b
18-29
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
SOLUTIONS TO PROBLEMS
P18-12 Adjusting Entries for General Fund [AICPA Adapted]
Adjusting entries to correct the general fund:
1.
No entry required.
2.
Expenditures
Buildings
Correct for state grant expended for buildings.
Expenditures
Capital Outlays (equipment)
Correct for expenditures for playground equipment.
3.
Bonds Payable
Buildings
Correct for bonds used to construct buildings.
Other Financing Uses – Transfer
Out to Debt Service Fund
Debt Service from Current Funds
Correct for transfer to debt service fund.
4.
5.
300,000
22,000
1,000,000
130,000
ENCUMBRANCES
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
Correct for unrecorded encumbrances.
2,800
Expenditures
Inventory of Supplies
Correct for supplies used in period.
4,950
Fund Balance – Unassigned
Fund Balance – Assigned for Inventory
Correct for reserve for ending inventory.
6,500
18-30
300,000
22,000
1,000,000
130,000
2,800
4,950
6,500
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-13 Entries for Funds [AICPA Adapted]
Fund
Journal Entries
1.
General
Fund
ESTIMATED REVENUES CONTROL
400,000
APPROPRIATIONS CONTROL
BUDGETARY FUND BALANCE – UNASSIGNED
394,000
6,000
2.
General
Fund
Taxes Receivable – Current
Revenue – Taxes
Allowance for Uncollectibles – Current
382,200
7,800
3.
PrivatePurpose
Trust Fund
Investments
Contributions
50,000
Cash
Additions – Interest
4.
5.
6.
General
390,000
5,500
Other Financing Uses – Transfer
Out to Internal Service Fund
Cash
Internal
Service
Fund
Cash
Transfer In from General Fund
Capital
Projects
Cash
Other Financing Sources – Bond Issue
5,000
5,000
72,000
Due from General Fund
Other Financing Sources –
Transfer In from General Fund
3,000
Debt
Service
Fund
Special Assessments Receivable
Revenue – Special Assessments
24,000
General
Other Financing Uses – Transfer
Out to Capital Projects Fund
Due to Capital Projects Fund
5,500
5,000
5,000
72,000
3,000
3,000
General
Fund
Due to Capital Projects Fund
Cash
3,000
Capital
Projects
Fund
Cash
Due from General Fund
3,000
Debt
Service
Fund
Cash
Special Assessments Receivable
18-31
50,000
24,000
24,000
3,000
3,000
3,000
24,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-13 (continued)
Fund
7.
Capital
Projects
Fund
Journal Entries
ENCUMBRANCES
75,000
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
75,000
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
ENCUMBRANCES
75,000
75,000
Expenditures
Contracts Payable
75,000
Contracts Payable
Cash
75,000
8.
Internal
Service
Fund
Inventory of Supplies
Cash (or Vouchers Payable)
9.
General
Fund
Cash
Taxes Receivable – Current
Revenue – Licenses and Fees
Allowance for Uncollectibles – Current
Revenue – Taxes
Estimate
Actual
Correction
1,900
393,000
3,800
75,000
75,000
1,900
386,000
7,000
3,800
$7,800
(4,000)
$3,800
10.
Capital
Projects
Fund
Cash
Other Financing Sources – Bond Issue
11.
General
Fund
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
ENCUMBRANCES
Expenditures
Cash
500,000
15,000
15,000
18-32
500,000
15,000
15,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-14 Entries to Adjust Account Balances [AICPA Adapted]
a.
General Fund
Adjusting entries:
1.
Allowance for Uncollectibles – Delinquent
2,200
Fund Balance – Unassigned
2,200
Reduce estimated losses on prior year's taxes to amount of receivables of
$8,000.
2.
Revenue
27,000
Donated Land
27,000
Remove accounts belonging only in the government-wide financial statements.
3.
Fund Balance – Unassigned
Fund Balance – Assigned
for Encumbrances – 20X0
Record purchase orders outstanding on June 30, 20X0.
8,800
8,800
Expenditures – 20X0
8,800
Other Expenditures
8,800
Reclassify purchases of supplies chargeable to prior year's appropriations.
Excess of $600 actual cost over estimate is approved and charged to current year
expenditures.
4.
ENCUMBRANCES
2,100
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
2,100
Record encumbering of appropriations for purchase orders outstanding on June
30, 20X1.
5.
Special Assessment Bonds Payable
100,000
Due to Capital Projects Fund
100,000
Record liability to capital projects fund for cash obtained from sale of special
assessment bonds.
6.
Revenue
21,000
Tax Anticipation Notes Payable
20,000
Due to Water Utility Fund
1,000
Record tax anticipation notes payable and liability to water utility fund for funds
obtained from sale of scrap.
18-33
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-14 (continued)
Closing entries:
APPROPRIATIONS CONTROL
ESTIMATED REVENUES CONTROL
BUDGETARY FUND BALANCE – UNASSIGNED
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
ENCUMBRANCES
2,100
Fund Balance – Unassigned
Fund Balance – Assigned for Encumbrances
2,100
Revenue
Fund Balance – Unassigned
Other Expenditures
Expenditures – Building Addition Constructed
Expenditures – Serial Bonds Paid
306,000
31,200
Fund Balance – Assigned for
Encumbrances – 20X0
Expenditures – 20X0
b.
348,000
8,800
310,000
38,000
2,100
2,100
271,200
50,000
16,000
8,800
Adjusting Journal Entries:
Capital Projects Fund:
5.
Due from General Fund
100,000
Other Financing Sources – Bond Issue
100,000
Record receivable due from general fund for proceeds of sale of bonds.
Water Utility Fund:
6.
Due from General Fund
1,000
Revenue – Miscellaneous
1,000
Record receivable from general fund for cash obtained from sale of scrap.
18-34
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-15 Capital Projects Fund Entries and Statements
a.
Journal entries:
1.
CPF Cash
Other Financing Sources – Bond Issue
Other Financing Sources – Bond Premium
Other Financing Uses – Transfer
Out to Debt Service Fund
Cash
2.
5,080,000
80,000
DSF Cash
Other Financing Sources – Transfer
In from Capital Projects Fund
80,000
CPF Expenditures
Vouchers Payable
45,000
Vouchers Payable
Cash
5,000,000
80,000
80,000
80,000
45,000
45,000
45,000
(Note: It is not necessary to first establish, and then immediately reverse an encumbrance
account.)
3.
4.
CPF ENCUMBRANCES
4,500,000
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
4,500,000
CPF BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
ENCUMBRANCES
2,000,000
Expenditures
Contracts Payable
Contracts Payable – Retained Percentage
CPF Contracts Payable
Cash
2,000,000
2,000,000
1,800,000
1,800,000
200,000
1,800,000
Closing entries for Capital Projects Fund:
Other Financing Sources – Bond Issue
Other Financing Sources – Bond Premium
Expenditures
Other Financing Uses – Transfer
Out to Debt Service Fund
Fund Balance – Unassigned
BUDGETARY FUND BALANCE –
ASSIGNED FOR ENCUMBRANCES
ENCUMBRANCES
18-35
5,000,000
80,000
2,045,000
80,000
2,955,000
2,500,000
2,500,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-15 (continued)
Fund Balance – Unassigned
Fund Balance – Assigned
for Encumbrances
b.
2,500,000
2,500,000
West City
Capital Projects Fund
Balance Sheet
June 30, 20X3
Cash
Total Assets
Assets
$ 3,155,000
$ 3,155,000
Liabilities and Fund Balance
Contracts Payable – Retained Percentage
Fund Balance:
Spendable:
Assigned to:
General Government Services
Unassigned
Total Liabilities and Fund Balance
c.
$
$2,500,000
455,000
200,000
2,955,000
$ 3,155,000
West City
Capital Projects Fund
Statement of Revenues, Expenditures,
and Changes in Fund Balance
For Fiscal Year Ended June 30, 20X3
Expenditures:
Capital Outlays:
Building Removal
Building Construction
Total Expenditures
Deficiency of Revenues over Expenditures
Other Financing Sources (Uses):
Proceeds of Serial Bonds
Transfer Out to Debt Service Fund
Total Other Financing Sources (Uses)
Net Change in Fund Balance
Fund Balance, July 1, 20X2
Fund Balance, June 30, 20X3
18-36
$
45,000
2,000,000
$ 2,045,000
$(2,045,000)
5,080,000
(80,000)
$ 5,000,000
$ 2,955,000
-0$ 2,955,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-16 Recording Entries in Various Funds [AICPA Adapted]
1.
Entries made in the capital projects fund for 20X8:
Cash
Other Financing Sources – Bond Issue
Issued $800,000 of bonds at their face value.
800,000
ENCUMBRANCES
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
Contractor’s bid is accepted.
750,000
BUDGETARY FUND BALANCE – ASSIGNED FOR
ENCUMBRANCES
ENCUMBRANCES
One-third of the project was completed during 20X8.
Expenditures
Contracts Payable
Actual construction cost incurred in 20X8.
2.
800,000
750,000
250,000
246,000
250,000
246,000
Entries made in the special revenue fund for 20X8:
ESTIMATED REVENUES CONTROL
APPROPRIATIONS CONTROL
BUDGETARY FUND BALANCE – UNASSIGNED
Record the budget for 20X8.
112,000
Cash
Revenues
Collected hotel room taxes.
109,000
108,000
4,000
109,000
Expenditures
103,000
Vouchers Payable
Incurred expenditures for general promotion and motor vehicle.
103,000
Vouchers Payable
Cash
Paid expenditures.
103,000
103,000
18-37
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-16 (continued)
3.
Entry made in the general fund for 20X8:
Other Financing Uses – Transfer
Out to Debt Service Fund
Cash
Record transfer of resources to debt service fund.
313,500
313,500
Entries made in the debt service fund for 20X8:
Cash
Other Financing Sources – Transfer
In from General Fund
Record transfer of resources from general fund.
4.
313,500
313,500
Expenditures – Interest
Matured Interest Payable
Record interest legally due and payable.
13,500
Expenditures – Principal
Matured Bonds Payable
Record principal legally due and payable.
300,000
Matured Bonds Payable
Matured Interest Payable
Cash
Record payment of matured bonds and interest.
300,000
13,500
13,500
300,000
313,500
Closing entries in the general fund for 20X8:
BUDGETARY FUND BALANCE – ASSIGNED FOR
ENCUMBRANCES
ENCUMBRANCES
Close outstanding encumbrances at year-end.
83,000
83,000
Fund Balance – Unassigned
83,000
Fund Balance – Assigned for Encumbrances
83,000
Reserve actual fund balance for encumbrances expected to be honored in 20X9.
5.
Adjusting entry in the general fund for 20X8:
Fund Balance – Assigned for Inventories
3,000
Inventory of Supplies
Adjust inventory of supplies to balance at December 31, 20X8.
18-38
3,000
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-17 Matching Questions Involving Various Funds
1.
L
2.
C
3.
R
4.
M
5.
I
6.
G
7.
Q
8.
A
9.
O
10.
F
18-39
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-18 Questions on Fund Transactions [AICPA Adapted]
1. $104,500
(Stated in item #3.)
2. $17,000
(Stated in item #4.)
3. $125,000
(Item #5 states that $83,000 is assigned for encumbrances. To this
is added the $42,000 reserve for the ending inventory.)
4. $236,000
(Item #1 states that $600,000 of bond proceeds were received in
the capital project fund, less $364,000 of construction expenditures
in the period.)
5. $6,000
(Item #2 states that $109,000 tax revenues were received from
which $81,000 and $22,000 was expended.)
6. $104,500
(Stated in item #3.)
7. $386,000
(Item #1 states construction expenditures of $364,000 plus item #2
states a motor vehicle purchase of $22,000.)
8. $100,000
(Item #3 states a reduction in long-term debt principal of
$100,000.)
9. $181,000
(Item #6 states that $181,000 was used to purchase supplies
during the period.)
10. $190,000
(Item #6 states encumbrances of $190,000.)
18-40
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-19
1.
C
2.
A
3.
C
4.
A
5.
E
6.
A
7.
C
8.
B
9.
B
10.
C
11.
A
12.
E
13.
D
14.
D
15.
C
Matching Questions Involving the Statement of Cash Flows for a
Proprietary Fund
18-41
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-20
1.
C
2.
D
3.
C
4.
C
5.
B
6.
A
7.
C
8.
D
9.
A
10.
C
11.
B
12.
B
13.
D
Matching Questions Involving the Statement of Revenues,
Expenditures, and Changes in Fund Balance for a Capital Projects Fund
and a Debt Service Fund
18-42
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-21 Question on Fund Transactions [AICPA Adapted]
a.
1.
G
2.
K
3.
L
4.
L
5.
E
6.
J
7.
D
8.
A
9.
F
10.
B
11.
B and J
12.
F and J
13.
C and J
14.
J
15.
B and J
16.
G and J
17.
A
18.
D
19.
I and J
20.
H and J
b.
18-43
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-22 Major Fund Tests
Step 1: 10 percent criterion tests
Denominators for 10 percent tests are the total of each of the four items for that fund type (for
governmental and then for enterprise)
10 percent criterion tests:
Governmental fund type:
Percent of:
Assets
$2,112,400
Liabilities
$951,300
Revenues
$5,790,000
2.00%
3.99%
1.68%
0.00%
0.00%
5.65%
7.94%
0.71%
5.72%
0.19%
Assets
$3,996,000
Liabilities
$2,900,700
Revenues
$618,000
66.07%*
33.93%*
62.08%*
37.92%*
46.76%*
53.24%*
General fund – is always a major fund
Special Revenue
1.28%(a)
Capital Project – Library
21.30%*
Capital Project – Arena
1.33%
Debt Service
1.94%
Permanent
11.65%*
Enterprise fund type:
Percent of:
Enterprise – Electric
Enterprise – Water
(a)
1.28% = $27,000 / $2,112,400
* Meets the 10 percent criterion test
18-44
Expenditures
$5,659,800
5.80%
7.39%
0.99%
5.12%
0.32%
Expenses
$543,000
45.12%*
54.88%*
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-22 (continued)
Step 2: 5 percent criterion tests
The 5 percent criterion test is applied only to those funds that met the 10 percent criterion
test.
(For each of the four 5 percent tests, the denominator is the combined amount of that item
from the governmental funds plus the enterprise funds.)
Computation of denominators for 5 percent governmental and enterprise fund types:
Revenue Expenditures/
Assets
Liabilities
s
Expenses
Governmental fund types
$2,112,400
$ 951,300 $5,790,000
$5,659,800
Enterprise fund types
3,996,000
2,900,700
618,000
543,000
Combined
$6,108,400
$3,852,000 $6,408,000
$6,202,800
5 percent criterion tests:
Percent of combined amount of:
Governmental fund type:
General fund – is always
a major fund
Capital Project – Library
Permanent
Enterprise type funds:
Enterprise – Electric
Enterprise – Water
Assets
Liabilities
Revenues
$6,108,400
$3,852,000
$6,408,000
7.37%(a)**
4.03%
43.22%**
22.20%**
Expenditures/
Expenses
$6,202,800
0.99%
0.00%
7.18%**
0.17%
6.74%**
0.29%
46.75%**
28.56%**
4.51%
5.13%**
3.95%
4.80%
(a)
7.37% = $450,000 / $6,108,400
** Meets the 5 percent criterion test
To be a major fund, an individual fund must meet both the 10 percent and the 5 percent major
fund criteria in at least one financial statement item. Each major fund is presented in a separate
column on the fund-based financial statements presented as part of the comprehensive annual
financial report for the governmental entity.
(1) General fund – is always a major fund
(2) Capital Projects – Library fund – assets (both 10% and 5% criterion tests)
(3) Enterprise – Electric – assets and liabilities (both 10% and 5% criterion tests)
(4) Enterprise – Water – assets, liabilities, revenues (both 10% and 5% criterion tests)
The other governmental funds must be aggregated and reported in a single column in the
governmental funds balance sheet and statement of revenues, expenditures, and changes in
fund balance.
18-45
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-23 Reconciliation Schedules
a. Reconciliation of the Balance Sheet of the Governmental Funds to the Statement of
Net Assets:
City of Sycamore
Reconciliation of the Balance Sheet of Governmental Funds
to the Statement of Net Assets
Fund balances reported in the governmental funds
Amounts reported for the governmental activities in the statement of net
assets are different because:
Capital assets used in governmental activities are not financial resources and
therefore are not reported in the governmental funds. The internal service
fund reported $18,000 in capital assets. Thus, the amount of the adjustment
Is for the capital assets not reported in just the governmental funds,
($4,311,000 = $4,329,000 - $18,000)
Internal service funds are used by management to charge costs of certain
activities. The assets and liabilities of the internal service fund and are
Included in governmental activities In the statement of net assets.
Long-term liabilities, including bonds payable, are not due and payable in the
current period and therefore are not reported as liabilities in the
governmental funds.
Interest in the governmental funds is recognized under the modified accrual
basis, but under the accrual basis for the government-wide financial
statements.
Net assets are adjusted for interest ($5,000 = $6,000 - $1,000).
Net assets of governmental activities
18-46
$ 888,400
4,311,000
37,000
(460,000)
(5,000)
$4,771,400
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-23 (continued)
b. Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund
Balances of Governmental Funds to the Statement of Activities:
City of Sycamore
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund
Balances of Governmental Funds to the Statement of Activities
Net change in fund balances – governmental funds
Governmental funds report capital outlays as expenditures. However, in
the statement of activities, the costs of those assets is capitalized and
depreciated over their estimated useful lives. This is the amount by which
capital outlays in the governmental funds ($287,000) exceeded
depreciation of the governmental assets ($187,000)
Bond proceeds provide current financial resources for the governmental
funds. However, the issuance of debt increases long-term liabilities in the
statement of net assets. Bond proceeds of $460,000 are not reduced
because there is no repayment of principal during the year.
Revenues and expenses in the statement of activities are recorded on the
accrual basis. Interest in the governmental funds is recorded on the
modified accrual basis. Accrual interest revenue exceeded modified
accrual interest revenue recognized in the governmental funds by $1,000.
Accrual interest expense exceeded modified accrual interest expense
by $6,000 ($46,000 - $40,000). The net interest adjustment is $5,000.
Internal service funds are used by management to charge the costs of
certain services. The net revenue (expense) of the internal service
funds is reported with governmental activities.
Change in net assets of governmental activities
18-47
$509,400
100,000
(460,000)
(5,000)
9,000
$153,400
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-24 True/False Questions
1.
F
The budgetary comparison schedule requires both the initial budget and the
final budget.
2.
T
3.
F
A component unit is financially accountable to the primary government.
4.
F
The net assets in the government-wide statement of net assets would be
categorized by: invested in capital assets, net of related debt; restricted by
outside donors in specific funds; and, unrestricted.
5.
F
The tests for a major governmental, or enterprise fund, for which separate
disclosure is required in the government-wide financial statements are: (a)
total assets, liabilities, revenues, or expenditures/expenses of that individual
governmental or enterprise fund are at least 10 percent or more of the
governmental or enterprise category, and (b) total assets, liabilities,
revenues, or expenditures/expenses of the individual governmental or
enterprise fund are at least 5 percent of the total for all governmental and
enterprise funds combined.
6.
T
7.
T
8.
F
9.
T
10.
F
11.
T
12.
F
Depreciation on fixed assets of a government entity may be computed by any
method deemed appropriate, such as straight-line or an accelerated method,
but depreciation of fixed assets is not equal to the expenditures for fixed
assets made in the governmental funds.
13.
F
Management’s Discussion and Analysis is a required supplementary
information disclosure in the new government reporting model.
14.
F
Fiduciary funds are not part of the government-wide statement of net assets,
but would be separately reported in the fiduciary funds section of the fundbased financial statements.
15.
T
The internal service fund is blended into the governmental activities columns
of the government-wide financial statement of net assets and statement of
activities.
In the reconciliation schedule for the statement of revenues, expenditures,
and changes in fund balances, bond proceeds would be subtracted because
they were included as other financing sources in the governmental funds, but
are an addition to liabilities in the government-wide financial statements.
18-48
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
11P18-25 Determining Whether a Special Revenue Fund Is a Major Fund
1.
2.
3.
4.
Test 1: 10% criterion: Are the assets, liabilities, revenues, or expenditures of the
special revenue fund at least 10% of their respective totals for all governmental funds?
Totals for
Amount Reported by
Items Tested
Governmental Funds
Special Revenue Fund
Assets
$50,000,000
$4,100,000 ( 8.2%)
(10% test failed)
Liabilities
22,000,000
3,900,000 (17.7%)
(10% test met)
Revenues
70,000,000
6,700,000 ( 9.6%)
(10% test failed)
Expenditures
60,000,000
6,500,000 (10.8%)
(10% test met)
Test 2: 5% criterion: Two items met the 10% criterion test--liabilities and expenditures.
The 5% criterion test is met if at least one of the items that met the 10% criterion first test
is at least 5% of the respective amounts for all governmental and enterprise funds.
2.
4.
Items Tested
Liabilities
(5% test met)
Expenditures/expenses
(5% test met)
Totals for
Governmental and
Enterprise Funds
$37,000,000
Amount reported
by Special
Revenue Fund
$3,900,000 (10.5%)
82,000,000
6,500,000 ( 7.9%)
Conclusion:
The special revenue fund should be reported as a major fund on the financial statements
of the governmental funds for 20X2 because both its expenditures and liabilities met the
10% and the 5% tests.
18-49
Chapter 18 - Governmental Entities: Special Funds and Government-Wide Financial Statements
P18-26 Preparation of a Statement of Net Assets for a Governmental Entity
Gibson City
Statement of Net Assets
December 31, 20X2
Assets
Cash and cash equivalents
Taxes receivable (net)
Accounts receivable (net)
Internal balances
Inventories
Investments
Capital assets:
Land
Infrastructure
Other depreciable assets (net)
Total assets
Liabilities
Vouchers payable
Accrued interest payable
Revenue bonds payable
General obligation bonds payable
Total liabilities
Net assets
Invested in capital assets,
net of related debt
Restricted
Unrestricted
Total net assets
Governmental
Activities
Business-type
Activities
$ 68,000
52,000
$ 28,000
12,000
5,000
7,000
15,000
(5,000)
10,000
25,000
100,000
60,000
75,000
$385,000
$ 32,000
1,500
50,000
45,000
$162,000
$
4,000
2,000
80,000
Total
$ 96,000
52,000
12,000
17,000
40,000
150,000
60,000
120,000
$547,000
60,000
$ 93,500
$ 86,000
$ 36,000
3,500
80,000
60,000
$179,500
$175,000*
55,000
61,500***
$291,500
$ 15,000**
5,000
56,000***
$ 76,000
$190,000
60,000
117,500
$367,500
Computation notes:
*
$235,000 of capital assets (net) minus $60,000 of general obligation bonds equals
$175,000.
**
$95,000 of capital assets minus $80,000 of revenue bonds equals $15,000.
*** The unrestricted net assets amount is plugged in to make the total net assets equal assets
minus liabilities.
The internal balances amount of $5,000 is the amount that the governmental activities owe to
business-type activities.
18-50