Nonexchange revenues can be of four types. The GASB has identified four classes of nonexchange revenues: • Derived tax • Imposed • Government mandated • Voluntary For each of the following revenue transactions affecting a city, identify the class in which the revenue falls and prepare an appropriate fund journal entry for the current year (2018) as necessary. Provide a brief explanation of, or justification for, your entry. 1. In December, the state in which the city is located announced that it would grant the city $20 million to bring certain public facilities into compliance with the state’s recently enacted disability/accessibility laws. As of year-end the city had not yet received the funds, and it had not yet expended any funds on the state-mandated facility improvements. 2. The city imposes a $100 tax on each sale of real estate. The tax is collected by the title companies that process the sales and must be forwarded to the city within 30 days of the transaction. In December there were 600 sales of real estate. As of year-end the city had collected $40,000 of the $60,000 that it was owed. 3. In December the state announced that the city’s share of state assistance for the calendar year 2019 would be $120 million. 4. The city imposes a tax on all boats owned by residents. The tax is equal to 1 percent of the assessed value of a boat (determined by the city, taking into account the boat’s original cost and age). The tax is payable on the last day of the year prior to the year for which the tax is applicable. In 2018 the city levied $640,000 of 2019 boat taxes, of which it collected $450,000. 5. A local resident sends to the city a copy of her will in which she bequeaths $3 million to the city museum upon her death. 6. The U.S. Department of Justice announces that it will reimburse the city up to $400,000 for the purchase of telecommunications equipment. As of year-end the city had incurred only $200,000 in allowable expenditures. 7. A resident donates $10 million in securities to the city to support a cultural center. Only the income from the securities, not the principal, can be spent.
> What are the two main components of a single audit?
> What is the Yellow Book, and why has it influenced audits both of state and local governments and of not‐for‐profit organizations?
> Select one of the more recently established (and larger) capital projects funds (a major fund, if there is one). a. From where did the fund receive most of its resources? b. Did the city acquire or construct new capital assets using resources of this fun
> Kevin Watkins is a manager of a CPA firm. At the recommendation of the partner‐in‐charge he applied, and was accepted, for membership on the Accounting Standards Committee of the Government Finance Officers Association. Committee members are selected on
> Merrill Sachs is an accountant with the treasurer’s office of a midsize city. The city is about to issue $50 million in general obligation bonds to construct a new office complex. The treasurer has recommended that the city negotiate the sale of the bond
> In what significant ways would each of the three major statements of a government hospital differ from those of a private not-for-profit hospital?
> State law requires that school district budgets be balanced. After having worked for weeks to reduce expenditures to the minimum that would be educationally acceptable and politically feasible, the school board and the superintendent found the budget sti
> Five (of 10) members of a town council returned from the three‐day national convention of town council members in Las Vegas and submitted their expenses for reimbursement. The bills they presented indicated that they had stayed in luxurious suites, had l
> As business officer of a school district, Charles Bidright is required to sign off on all purchase orders over $1,000. Under state law and district policy all orders over $5,000 must be put out for bid. Government agencies are required to accept the low
> Henry Green is the assistant to a county’s comptroller. During the year he becomes aware of several accounting and budgeting practices that, taken together, clearly establish a pattern that the county is attempting to turn both budget and reporting defic
> In verifying the capital asset records of the electric utility department, Jean Hanson, staff auditor of a city’s internal audit department, noted that several trucks and pieces of equipment were out of service and apparently unrepairable. Therefore, the
> The Office of the Treasurer maintains an investment pool for several quasi‐independent governments, such as housing authorities and development boards, affiliated with a city. Michelle Ruiz, a senior manager in the treasurer’s office, recently became awa
> In June 2018, Jason King completed his audit of a 2017 grant that a city made to Field of Dreams, a private, not‐for‐profit organization that sponsors recreational programs for disadvantaged teens. In the course of his testing, King discovered that mater
> How are the capital projects and debt service funds reported in the government‐wide statement of net position?
> In a management letter following its year‐end audit of the North Country Hospital, the not‐for‐profit hospital’s independent audit firm questioned the adequacy of the hospital’s accounts receivable allowance for contractual adjustments. It noted that owi
> Why is it advantageous to budget for capital outlays apart from operating expenditures?
> Describe at least three limitations, both actual and potential, of SEA indicators, and tell how they might be overcome.
> Discuss the financial and nonfinancial measures that are important in evaluating the fiscal wherewithal of health care organizations.
> Why is it more important for governments and not‐for‐profit organizations than for businesses to report on service efforts and accomplishments?
> Indicate four significant criteria that “operational objectives” should satisfy.
> Rosewood Cancer Hospital, a county hospital, has the following assets: 1. $4 million restricted by third-party reimbursement agreements to be used to replace radiology equipment. 2. Cash and investments totaling $925,000 that the hospital board designate
> In what significant ways would each of the three major statements of a public university differ from those of a private university?
> What are the key reporting options for private colleges and universities?
> What key reporting options are available to government colleges and universities?
> How many debt service funds does the government maintain? How can you tell? Are any of these major funds? If so, for what types of obligations are they maintained?
> Review the 2014 financial statements of Hamilton College in Chapter 2, and respond to the following questions: 1. What percentage of the college’s total revenues (including nonoperating items and revenues of all funds) is attributable to tuition and fees
> In January 2017, Kirkland University receives a pledge of $200,000 to be used exclusively to support research in a specialized area of communication disorders. The university’s fiscal year ends on July 31. In December 2017 (the following fiscal year), Ki
> The following events and transactions relate to a single contribution. 1. A high-tech firm pledged to contribute $1 million in the company’s common stock to a university’s business school if the school would establish a new program in the management of i
> A private college receives the following pledges of support. 1. As part of its annual fund drive, alumni and friends of the college pledge $8 million. The college estimates that about 15 percent of the pledges will prove uncollectible. 2. A CPA firm prom
> Discuss the different kinds of information a user of a hospital’s financial information can obtain from its financial statements. How would this information differ for a nongovernmental versus a governmental hospital?
> The fund balance sheet of Sundown State University, a public institution, is presented below. For purposes of external reporting, the university has opted to report as a special-purpose entity that engages in business type activities. As best the data pe
> A university maintains several plant funds as shown in the condensed balance sheets presented below. The fund structure and presentation are consistent with the AICPA college and university reporting model. Although this model has been superseded by FASB
> A balance sheet of Brown University, issued prior to the effective date of FASB Statement No. 117, is presented below. Recast the fund balance (net asset) section of the balance sheet so that it presents the fund balances in the three categories required
> A foundation promises to donate $1 million to a local public broadcasting station (a not-for-profit organization) in one year. When, and in what amount, should the station recognize revenue? The station applies a discount rate of 10 percent to all pledge
> A not-for-profit organization receives a restricted gift. When, and in which type of fund, should it recognize the revenue? When, and in which type of fund, should it recognize the related expense? What is the reason for the apparent inconsistency betwee
> How many capital projects funds does the government maintain? How can you tell? Are any of these major funds? If so, for what purposes are they maintained?
> The GASB has established a “60-day” rule for the recognition of property taxes in governmental funds. On what basis can you justify such a rule for property taxes but not for other revenues? Do you think the 60-day rule should be extended to all revenues
> In 2018, the Bakersville Independent School District incurred $12 million in expenditures for teachers’ salary and benefits. In that year, the legislature of the state in which the district is located voted to enhance the pension benefits of all teachers
> In October 2018, the Village of Mason levied $80 million of property taxes for its 2019 fiscal year (which is the same as the calendar year). The taxes are payable 50 percent by December 31, 2018, and 50 percent by June 30, 2019. The village collected $5
> The board of trustees of an independent school district is contemplating several policy changes and other measures, all of which it intends to implement within the fiscal year that ends August 31, 2018. It requests your advice on how the changes would af
> The Foundation for Educational Excellence has decided to support the Tri-County School District’s series of teacher training workshops intended to improve instruction in mathematics. The foundation is considering four ways of wording the grant agreement,
> For each of the following grants and awards, indicate whether the recipient government should recognize revenues and expenditures. In a sentence or two, justify your response. 1. As the result of damaging floods, the state of New York receives disaster a
> A city received two state grants in fiscal 2018. The first was an award for a maximum of $800,000, over a two-year period, to reimburse the city for 40 percent of specified costs incurred to operate a job opportunity program. During 2018, the city incurr
> The Metropolitan Housing Authority is charged with providing housing to low‐income residents. The authority is currently assessing two options, each of which would provide homes for 100 families. Under the first option the authority would renovate an exi
> Kyle Township charges residents $100 per year to license household pets. As specified in a statute enacted in 2018, residents are required to purchase a license by October 1 of each year; the license covers the period October 1 through September 30. The
> Manor County was awarded a state grant to establish evening athletic programs for at-risk youth. The $3.6 million award, to cover the calendar year 2018, was announced on November 15, 2017. According to the terms of the grant, the county will be reimburs
> A state imposes a sales tax of 6 percent. The state’s counties are permitted to levy an additional tax of 2 percent. The state administers the tax for the counties, forwarding the proceeds to the counties 15 days after it receives the proceeds from the m
> A city levies property taxes of $4 billion in June 2018 for its fiscal year beginning July 1, 2018. The taxes are due by January 31, 2019. The following (in millions) indicates actual and anticipated cash collections relating to the levy: June 2018………………
> The town of Blair determines that it requires $22.5 million in property tax revenues to balance its budget. According to the town’s property tax assessor, the town contains taxable property that it assessed at $900 million. However, the town permits disc
> For each of the following indicate the amount of revenue that Beanville should recognize in its 2017 (1) government-wide statements and (2) governmental fund statements. Provide a brief justification or explanation for your responses. 1. The state in w
> For each of the following situations, indicate the amount of revenue that the government should recognize in an appropriate governmental fund as well as in its government-wide statement of activities in its fiscal year ending December 31, 2018. Briefly j
> Why may flexible budgets be more important to a government’s business‐type activities than to its governmental activities?
> What are the main sources of the government’s revenues, including those from both governmental and business-type activities?
> The Pleasant Valley School District, which leases its buses from a private transportation company, has determined that the direct costs of operating a bus (including rental fees, driver, and fuel) is $40,000 per year. The district currently operates 30 b
> What is the purpose and effect of reinstating year‐end encumbrances on the books at the beginning of the following year?
> In what way will budgetary entries and encumbrances affect amounts reported on year‐end balance sheets or operating statements?
> The variances reported in the “final” budget‐to‐actual comparisons incorporated in the financial statements of many governments may be of no value in revealing the reliability of budget estimates made at the start of the year. Why? How can you rationaliz
> Why may a government’s year‐end results, reported in accordance with generally accepted accounting principles, not be readily comparable with its legally adopted budget?
> A political official boasts that the year‐end excess of revenues over expenditures was significantly greater than was budgeted. Are “favorable” budget variances necessarily a sign of efficient and effective governmental management? Explain.
> Why do most governments and not‐for‐profits budget on a cash or near‐cash basis even though the cash basis does not capture the full economic costs of the activities in which they engage?
> Why may flexible budgets be more important to a government’s business‐type activities than to its governmental activities?
> Why is it important that governments and not‐for‐profits coordinate their processes for developing appropriations budgets with those for developing capital budgets?
> Generally accepted accounting principles require governments to include in their annual reports a comparison of actual results with the budget for each governmental fund for which an annual budget has been adopted. This information is generally presented
> The Disability Research Institute receives its funding mainly from government grants and private contributions. In turn, it supports research and related projects carried out by universities and other not-for‐ profits. Most of its government grants are r
> For each of the following organizations, propose at least one measure of outputs and two of outcomes. 1. The admissions office of a selective private college 2. The sales tax division of a city government 3. A private foundation that provides college sch
> Does the government encumber goods or services that have been ordered but have not yet been received? How, if at all, are encumbrances reflected on the governmental fund balance sheet? How, if at all, are they reflected on the government‐wide statement o
> Does the CAFR include budget‐to‐actual comparisons of nonmajor funds? If so, in what section?
> In which section of the Comprehensive Annual Financial Report (CAFR) are the budget‐to‐actual comparisons of the major funds? a. Which accounting basis did the City follow to prepare its annual operating budget? b. Are the actual amounts on a GAAP or a b
> Distinguish between nonspendable, restricted, committed, and assigned fund balance.
> Distinguish among the three categories of restrictiveness into which the net assets of not‐for‐profit organizations must be separated for purposes of external reporting. By whom must these restrictions be imposed for resources to be considered restricted
> What is a CAFR? What are its main components?
> In what way, if any, does the accounting equation as applied in governmental and not‐for‐profit accounting differ from that as applied in business accounting?
> From what two perspectives must the financial statements under the GASB No. 34 reporting model be prepared? How do the two differ from each other?
> What is permanent about a permanent fund?
> What are fiduciary funds? What are the two main types, and what is the distinction between them?
> The “object classification” budget of a police department includes the following expense categories: • Salaries • Employee benefits • Supplies • Equipment • Vehicle maintenance, gas, etc. • Dues and subscriptions Based on your lay knowledge of the operat
> As will be emphasized later in this text, depreciation is recorded in proprietary funds but not in governmental funds. What is the rationale for recording depreciation in proprietary funds?
> Distinguish between funds as the term is used in governmental as contrasted with business accounting
> Why are there generally no capital projects (work in progress or other long‐lived assets) in governments’ capital projects funds? Why are there generally no long‐term debts in debt service funds?
> Upon examining the balance sheet of a large city, you notice that the total assets of the general fund far exceed those of the combined total of the city’s ten separate special revenue funds. Moreover, you observe that there are no funds for public safet
> Define the seven key elements that comprise the financial statements.
> GASB Statement No. 34 has been widely criticized for mandating the preparation and presentation of government‐wide statements. Mainly, the critics contend that the benefits of the statements are not commensurate with the costs of preparing them. They arg
> A school district receives a grant from the federal government to support programs directed at special needs students. The grant is a matching grant in which each dollar spent by the school district on teacher salaries for special needs education will be
> This chapter has described the fund structure in governments. Do you think that it is necessary to display individual funds in a government’s annual report? If so, then do you think it is any less necessary to display individual funds in a not‐for‐profit
> The newly formed Buffalo School District engaged in the following transactions and other events during the year: 1. It levied and collected property taxes of $110 million. 2. It issued $30 million in long‐term bonds to construct a build
> See the balance sheet of a not‐for‐profit hospital presented on page 83. It is intended to display the hospital’s fund structure. Inasmuch as it does not conform to FASB standards, it is inappropriate for external reporting. 1. On what basis of accountin
> Select the best answer. 1. Which of the following is likely to be a line item in a fire department’s program budget but not its object classification budget? a. Administrative salaries b. Travel to conferences and training c. Safety inspections d. Acqui
> The balance sheet of the Hillcrest Home Care Service, a not‐for‐profit organization providing assistance to the elderly, is presented here: Hillcrest Home Care Service Balance Sheet as of December 31 (in thousands) Assets Current assets Cash and cash eq
> A newly formed not‐for‐profit advocacy organization, the Center for Participatory Democracy, requests your advice on setting up its financial accounting and reporting system. Meeting with the director, you learn the following: • Member dues can be expect
> Kendal County engaged in the following transactions. For each, prepare an appropriate journal entry and indicate the type of fund in which it would most likely be recorded: 1. It levied and collected $1million in taxes and dedicated to the repayment of o
> See the following balance sheet for the town of Paris governmental funds. In addition, you learn from other records that the town has capital assets with a book value (net of depreciation) of $1,450 million and has outstanding long‐term bonds of $1,315 m
> Bertram County maintains a fund accounting system. Nevertheless, its comptroller (who recently retired from a position in private industry) prepared the following balance sheet (in millions): The fund balance restricted for debt service represents entire
> The following balance sheet was adapted from the financial statements of the Williamsburg Regional Sewage Treatment Authority (dates have been changed). Fund Types The transactions of the authority are accounted for in the following governmental fund ty
> The Sherill Utility District was recently established. Its balance sheet, after one year, is presented below. Note the following additional information: • The general fund received all of its revenue, $150 million, from taxes. It had op
> Entrepreneurs Consultants, a state agency, was established to provide consulting services to small businesses. It maintains only a single general fund and accounts for its activities on a modified accrual basis. During its first month of operations, the
> Review the statistical section. a. What is the population of the entity being reported on? b. Who is the entity’s major employer? c. What types of information are included in the statistical section?
> Review the financial section. a. Which, if any, independent audit firm performed an audit of the CAFR? b. Did the entity receive an “unqualified” audit opinion? If not, why not? c. Does the report contain management’s discussion and analysis (MD&A)? If s
> What are the three main categories of SEA indicators?
> Review the introductory section of the CAFR. a. Was the entity’s annual report of the previous year awarded a “certificate of achievement for excellence in financial reporting” by the Government Finance Officers Association? What is the significance of t
> A city maintains the following funds: 1. General 2. Special revenue 3. Capital projects 4. Debt service 5. Enterprise 6. Internal service 7. Permanent (trust) 8. Agency For each of the following transactions, indicate the fund in which each transaction w
