The following is an excerpt from a note to the financial statements of the city of Dallas (dates changed): The city prepares its annual appropriated general fund, debt service fund, and proprietary operating funds budgets on a basis (budget basis) which differs from generally accepted accounting principles (GAAP basis) . . . The major differences between the budget and GAAP bases are that encumbrances are recorded as the equivalent of expenditures (budget) rather than a commitment of fund balance (GAAP) in the governmental funds. The city accounts for inventories on the purchases basis. One of the city’s departments, which is accounted for in the general fund, budgeted $195,000 in supplies expenditures for fiscal 2018. It began the 2018 fiscal year with $30,000 of supplies on hand. It also had $12,000 of supplies on order. During the year it ordered an additional $180,000 of supplies, received (and paid for in cash) $185,000 of supplies, and consumed $178,000 of supplies. 1. Prepare all journal entries, consistent with GAAP, including budgetary and encumbrance entries that the department should make in 2018. 2. Indicate the accounts and amounts related to supplies that the city would report on its year‐end statement of revenues, expenditures, and changes in fund balance and balance sheet. 3. By how much did the department over or underspend its supplies budget (on a budget basis)? 4. Comment on the extent to which the city’s statement provides a basis to: a. Assess the “true” economic costs associated with supplies b. Determine whether the city adhered to budgetary spending mandates 5. Suppose that in the last quarter of the year, department officials realized that the department was about to overspend its supplies budget. They therefore ceased placing new orders for supplies. However, they imposed no restrictions on the use of supplies and thereby allowed the supplies inventory to decline to near zero. a. What impact would these cost‐cutting measures have on supplies expenditures as reported in an actual‐to budget comparison (on a budget basis)? b. What impact would the year‐end measures have on reported supplies expenditures (per GAAP)? Would your response be different if the city accounted for supplies on the consumption basis?
> Preston Village engaged in the following transactions: 1. It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund. 2. It acquired the building for $20 million. 3. It recognized, as
> Columbus City was awarded a state reimbursement grant of $150,000 to assist its adult literacy program. The following were significant events relating to the grant: • The city, which is on a calendar year, was notified of the award in November 2017. • Du
> The fiscal year of Duchess County ends on December 31. Property taxes are due March 31 of the year in which they are levied. 1. Prepare journal entries (excluding budgetary and closing entries) to record the following property tax related transactions in
> The following information relates to Hudson City for its fiscal year ended December 31, 2017. • During the year, retailers in the city collected $1,700,000 in sales taxes owed to the city. As of December 31, retailers have remitted $1,1
> Select the best answer. 1. Under the modified accrual basis of accounting, revenues cannot be recognized a. Until cash has been collected b. Unless they will be collected within 60 days of year-end c. Until they are subject to accrual d. Until they are
> A school district is awarded a cash grant to conduct a teacher-training program. As part of the grant, the district is given, rent-free, both office space and training facilities in the building of the state education department. How, if at all, should t
> Going 70 mph in a 60-mph zone, you’ve just been caught in the infamous Goldwaithe Township speed trap. You pay your fine of $150. In the government-wide statement of activities, revenues must be associated with the specific programs (e.g., public safety)
> The city manager of Midfield summoned the city’s sanitation commissioner. He had compared the service efforts and accomplishments data for the sanitation department with those for Lowville, a nearby city of comparable size and population. Midfield fared
> The Lewiston School District receives a $200,000 grant from the Bates Foundation to upgrade its high school computer labs. Total cost of the upgrade is estimated at $450,000. Because the grant is restricted, it accounts for the grant in a special revenue
> The Hensley School District was notified by the state education department that it has been awarded a $2 million grant to implement a unique elementary school reading program. The district has met all eligibility requirements for the grant. As of the end
> You are the independent auditor of various governments. You have been asked for your advice on how the following transactions should be accounted for and reported. Characteristic of each transaction is ambiguity as to whether it is an exchange or a nonex
> A student comments: “A government destroys a recently acquired car, sells the remains for scrap, and its general fund surplus for the year increases. That’s ridiculous. Government accounting makes so much less sense than private-sector accounting.” Expla
> What are pass-through grants? Under what circumstances must a recipient government report them as both a revenue and an expenditure?
> A private citizen makes an unrestricted pledge of $5 million to a city’s museum. The city is confident that the donor will fulfill her pledge. However, the cash will not be received for at least two years. How will the amount of revenue recognized differ
> Explain the distinction between reimbursement grants and entitlements. How does this distinction affect the way each type of grant is accounted for?
> What is the earliest point in the sales tax collection process that revenue may be recognized? How can you justify recognizing revenue on the basis of this event?
> What is the earliest point in the sales tax collection process that revenue may be recognized? How can you justify recognizing revenue on the basis of this event?
> What is meant by “deferred inflow of resources?” Provide an example of when a government might credit such an account.
> The Granite Falls Detention Center is a boot camp for criminal offenders aged 18 to 25. “Campers” spend one year at the camp, during which time they take vocational courses (mainly in the construction trades), engage in vigorous physical exercise, and re
> What is the general rule for recognizing property taxes as revenues? How would property taxes be accounted for differently in the fund statements, as opposed to in the government-wide statements?
> What criteria must be met before revenues can be recognized on a modified accrual basis? What is the rationale for these criteria?
> What are the main categories of revenues per GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions?
> What is the difference between an exchange and a nonexchange transaction?
> What types of other financing sources and uses does the governmental entity report in the general fund? What effect do these items have on the net change in fund balance for the year?
> Does the entity report depreciation as an expense in its government‐wide statements? If not, why not?
> Explain the nature of any governmental‐fund balance sheet classifications related to expenditures.
> To and from which funds or component units have there been general fund transfers?
> On what basis does it account for insurance or other prepaid items in its governmental funds? How can you tell?
> During its fiscal year ending June 30, 2017, the Parkville Independent School District enters into a two-year lease for office space covering the period May 1, 2017, through April 30, 2019. Annual rent is $60,000. The lease specifies that the entire rent
> The Mount Eden Medical Center is considering establishing a screening program for a virulent form of cancer. If the program were established, the center would have to acquire equipment that would cost $8.2 million. Thereafter, the center would incur oper
> Prepare general fund journal entries to record the following cash transfers that a city made from its general fund to other funds. Be sure your entry reflects the nature of the transfer. 1. $4,000,000 to provide start‐up capital to a newly established in
> Lemon County permits employees to accumulate any sick leave that they do not take. If employees do not use accumulated sick leave, then they will be paid for those days upon retirement or termination (up to a maximum of 45 days). In 2018 employees earned
> In 2018, employees of Pecos River County earned $5 million in vacation pay. They were paid for $4.2 million but deferred taking the balance of their earned vacations until subsequent years. Also, employees were paid $0.7 million for vacation earned in pr
> In a recent year Ives Township acquired six police cars at a total cost of $200,000. The vehicles are expected to have a useful life of four years. 1. Prepare the journal entries that the township would make in its general fund in the year of acquisition
> The schedule that follows reports the beginning balances and activity during the year in a town’s supplies fund (a governmental fund). The government accounts for supplies on a purchases basis (in thousands). Fund balance (unassigned), January 1………………………
> The following schedule shows the amounts related to supplies that a city debited and credited to the indicated accounts during a year (not necessarily the year‐end balances), excluding closing entries. The organization records its budge
> The Boyd School District began a recent fiscal year with $3,000 of supplies in stock. During its fiscal year, it engaged in the following transactions relating to supplies: • It purchased supplies at a cost of $22,000. • It paid for $19,000 of the suppli
> A city prepares its budget on a cash basis. For each of the following indicate the amount (if any) of an expenditure/expense that the city would be recognize in (1) its budget, (2) its fund statements, and (3) its government‐wide statements. Provide a
> The Eaton School District engaged in the following transactions during its fiscal year ending August 31, 2018. • It established a purchasing department, which would be accounted for in a new internal service fund, to purchase supplies and distribute them
> Select the best answer. Assume that Nolanville’s fiscal year ends on December 31. 1. Nolanville’s payroll for one of its departments is $15,000 per week. It pays its employees on the Thursday of the week following that in which the wages and salaries ar
> A city is weighing the costs and benefits of a new convention center. The center would be accounted for in an enterprise fund. It would cost $20 million and would be funded from the proceeds of 20‐year revenue bonds. Officials estimate that the center wo
> On what basis does the government account for its inventories (purchases or consumption)? Does the City maintain a “fund balance‐nonspendable” amount for inventories?
> A state government provided several grants to school districts and local governments during its fiscal year ending August 31. 1. On August 1, 2018, it announced a $2 million grant to a local school district for the purchase of computers. The district can
> As indicated in Chapter 2, the GASB defines assets as “resources with present service capacity that the government presently controls.” It explains that present service capacity of an asset is its capability to enable the government to provide services a
> Highbridge County imposes a motor fuel tax to finance road maintenance. It therefore accounts for all road maintenance in a special revenue fund, the entire fund balance of which is legally restricted. The fund’s statement of revenues,
> The following information was abstracted from a note, headed “Interfund Transactions,” to the financial statements of Independence, Missouri. Interfund Charges for Support Services Interfund charges for support servi
> A town plans to borrow about $10 million and is considering three alternatives. A town official requests your guidance on the economic cost of each of the arrangements and advice as to how they would affect the town’s reported expenditures. 1. For each o
> The Mainor School District is about to establish a 30‐machine computer lab. It is considering six alternative means of acquiring and financing the machines: 1. Buy the machines outright; cost will be $60,000. 2. Buy the machines and finance them with a $
> A city is having fiscal problems in 2018. It expects to report a deficit in its general fund, the only fund that is statutorily required to be balanced. To eliminate the anticipated deficit, the city opts to “sell” its city hall—to itself—for $5 million.
> The following schedule indicates selected accounts from a city’s preclosing 2018 and postclosing 2017 general fund trial balances: All the amounts shown relate only to supplies. All purchases during the year were paid in cash. 1. Assume
> To enhance security in Riverside Park, a city is considering whether it should install a high‐tech security system. The system would not only reduce the cost of police patrols but would also deter crime. The city has received offers from two contractors
> The Allendale School District recently signed a contract with its teachers’ union. The contract provides that all teachers will receive a one‐semester sabbatical leave after seven continuous years of employment. The preamble to the contract provision str
> A city has adopted the following plan for compensated time off: • City employees are entitled to a specified number of days each year for holidays and vacation. The number depends on length of service (20 days for employees with fewer than 5 years of ser
> A city on the coast of Florida has incurred losses (including impairment of assets, clean‐up costs, additional public safety costs, etc.) of $50 million owing to a recent hurricane. This was the third time in as many years in which the city was hit by ma
> A city acquires $1 million of public safety emergency communication equipment by entering into a capital lease. The city divides its first rent payment of $135,868 between lease interest and lease principal as follows: Lease interest……………………………………………. $6
> A state’s department of human resources is responsible for providing certain training courses for various agencies within the state. The department does not actually conduct the training itself. Instead it contracts with outside consultants. The departme
> Per GASB standards if a government gives a cash advance to a grantee and the grantee has not yet satisfied all eligibility requirements, the government would offset its credit to cash with a debit to an asset. By contrast, if the grantee has satisfied al
> A government’s unassigned fund balance in the general fund at year‐end should be indicative of the amount that the government has available for appropriation in future years. Explain and provide an example to support your answer.
> A city’s electric utility transfers $40 million to its general fund. Of this amount, $30 million is a return of the general fund’s initial contribution of “start‐up capital.” The balance is a payment in lieu of property taxes that a private utility opera
> A school district accounts for its pension costs in a governmental fund. In a particular year the district’s actuary recommends that it contribute $18 million for the year. The district, however, had only budgeted $15 million and chooses to contribute on
> Governments are not required to accrue interest on long‐term debt in governmental funds even if the interest is applicable to a current period and will be due the first day of the following year. Explain and justify the standards that permit this practic
> A public school district recently converted its budget from an object to a program format. The district is organized into three instructional divisions: elementary school (kindergarten through grade 6); middle school (grades 7 and 8); and high school (gr
> Many accountants note that for most governments the reported “bottom line” of their financial statements (i.e., revenues less expenditures/expenses and other charges that affect fund balance/net position) will not greatly differ between their fund statem
> A government accounts for inventory on the purchases basis. Why must it offset its year‐end inventory balance with an addition to fund balance?
> A government accounts for inventory on the consumption basis. Why do some accountants believe that it should offset the year‐end inventory balance with a fund balance—nonspendable when no comparable fund balance is required for cash, taxes receivable, or
> A school district grants teachers a sabbatical leave every seven years. Yet, consistent with GAAP, it fails to accrue a liability for such leave over the period in which the leave is earned—not even in its government‐wide statements. How can you justify
> A government permits its employees to accumulate all unused vacation days and sick leave. Whereas (in accord with current standards) it may have to “book” a liability for the unused vacation days, it may not have to record an obligation for the unused si
> Under pressure to balance their budgets, governments at all levels have resorted to fiscal gimmicks, such as delaying the wages and salaries of government employees from the last day of the month to the first day of the following month. In the year of th
> A government expects to pay its electric bill relating to its current fiscal year sometime in the following year. An official of the government requests your advice as to whether the anticipated payment should be charged as an expenditure of the current
> What is the distinction between expenditures and expenses as the terms are used in governmental accounting?
> During 2018 Luling Township engaged in the following transactions related to modernizing the bridge over the Luling River. The township accounts for long‐term construction projects in a capital projects fund. • On July 1 it issued 10‐year, 4 percent bond
> Select the best answer. 1. Which of the following items is least likely to appear on the balance sheet of a capital projects fund? a. Cash b. Investments c. Construction in process d. Reserve for encumbrances 2. The fund balance of a debt service fund
> The Education Agency of one of the nation’s most populous states evaluates public elementary schools on the basis of the following inputs and outcomes: Outcomes • Total campus attendance • Average student scores on standardized tests in math, reading, an
> In what way do the GAO standards impose more rigorous continuing professional education requirements than those of the AICPA?
> Select the best answer. 1. A government opts to set aside $10 million of general‐fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources. a. The govern
> A debt service fund reports both routine principal and interest payments as well as an in-substance defeasance. The revenue and expenditure statement that follows is from an annual report of the City of Fort Worth, Texas. It was accompanied by the notes
> A hospital has outstanding $100 million of bonds that mature in 20 years (40 periods). The debt was issued at par and pays interest at a rate of 6 percent (3 percent per period). Prevailing rates on comparable bonds are now 4 percent (2 percent per perio
> Colgate County issued $1 million of 30‐year, 8 percent term bonds to finance improvements to its electric utility plant. The bonds, accounted for in an enterprise fund, were issued at par. After the bonds were outstanding for 10 years, interest rates fel
> The financial report of Montefiore Medical Center, which operates a major New York City hospital, included the following item in a summary of long‐term debt outstanding (dates changed): An explanatory note indicated the following: The p
> A city agrees to extend water and sewer lines to an outlying community. To cover the cost, the affected property owners agree to special assessments of $12 million. The assessments are to be paid over five years, with interest at the rate of 6 percent pe
> Charter City issued $100 million of 6 percent, 20‐year general obligation bonds on January 1, 2017. The bonds were sold to yield 6.2 percent and hence were issued at a discount of $2.27 million (i.e., at a price of $97.73 million). Interest on the bonds
> The accompanying combined statement of revenues, expenditures, and fund balance was drawn from the statements of Plant City, Florida, which, of course, included a general and other funds that are not shown. Suppose, however, that these were the only fund
> As stated in the previous problem, a government issued $8.5 million of special assessment bonds to finance a sewer‐extension project. To service the debt, it assessed property owners $8.5 million. Their obligations are payable over a period of five years
> Upon annexing a recently developed subdivision, a government undertakes to extend sewer lines to the area. The estimated cost is $10.0 million. The project is to be funded with $8.5 million in special assessment bonds and a $1.0 million reimbursement gra
> Vision for Kids, a clinic funded by the Community Health Plan, a not‐for‐profit agency, provides eye examinations, eyeglasses, and eye‐related medical care for children from low‐income families. Children are referred to the clinic by school nurses and te
> The balance sheet and a comparative statement (budget‐to‐actual) of revenues, expenditures, and changes in fund balance of Parkville’s general obligation debt service fund (date changed) is presented
> Durwin County issued $200 million in long‐term debt to fund major improvements to the county’s road and transportation systems. The debt is to be serviced from the proceeds of a specially dedicated property tax. The ac
> Crystal City established a capital projects fund to account for the construction of a new bridge. During the year the fund was established, the city issued bonds, signed (and encumbered) $6 million in contracts with various suppliers and contractors, and
> A city engages in an in‐substance defeasance of long‐term bonds and accordingly invests in, and sets aside, the long‐term securities necessary to make the required interest and principles payments on the debt to be retired. Should, and if so under what c
> A city levies a property tax that is restricted for future period payments of principal and interest on outstanding debt. The tax receipts are recorded in a debt service fund and are invested in interest‐and dividendearning securities. Hence, the amount
> Near the end of its fiscal year a school district issues $80 million of bonds to construct a new high school. By year‐end the district has received the proceeds of the bonds and invested them in short‐term securities. It has not yet incurred any construc
> What is meant by an in-substance defeasance, and how can a government use it to lower its interest costs? How must it recognize a gain or loss on defeasance if it accounts for the debt in a proprietary fund? How do the GASB standards pertaining to in‐sub
> Under what circumstances can a government refund outstanding debt and thereby take advantage of a decline in interest rates?
> What is arbitrage? Why does the Internal Revenue Service place strict limits on the amount of arbitrage that a municipality can earn?
> A government issues bonds at a discount. Where would the government report the discount on its (a) fund statements and (b) government‐wide statements?
> The following are selected measures of service efforts and accomplishments that might be appropriate for a university. For each, indicate whether it is an input, output, or outcome, and state the objective with which it would most likely be associated. I
> How should governments report their capital projects and debt service activities in their governmentwide statements?
> Special assessment debt may be, in economic substance and/or legal form, an obligation of the assessed property owners rather than a government. Should the government, therefore, report it in its statements as if it were its own debt? What are the curren
> At one time governments maintained a unique type of fund to account for special assessments. This fund recorded the construction in process, the long‐term debt, and the assessments receivable. Explain briefly how governments account for special assessmen
> It is sometimes said that in debt service funds the accounting for interest revenue is inconsistent with that for interest expenditure. Explain. What is the rationale for this seeming inconsistency?
