1. Which of the following best describes government-wide statements? a. combined on a full accrual basis b.

combined on a modified accrual basis c. consolidated on a full accrual basis (yes it's consolidated and interfund transfers are eliminated) d. consolidated on a modified accrual basis 2. How many government-wide statements is a major city (e.g., New York, Chicago) required to prepare? a. two b. three c. four d. six

3. The net assets section of a government-wide statement of net assets would typically not have a separate categ a. capital assets b. unrestricted assets c. restricted assets d. current assets 4. Which of the following funds would not be incorporated into the government-wide statements? a. enterprise funds b. permanent funds c. internal service funds d. fiduciary funds (yes fiduciary is not belong to government it's belong to trust on behalf its beneficiaries)

5. Which of the following funds is least likely to be separately reported in the governmental funds balance sheet a. a general fund b. a nonmajor special revenue fund c. a major capital projects fund d. a major permanent fund

6. Which of the following items is least likely to be reported on Midlake Countys governmental funds balance s a. the county courthouse (illustrations only reported a) b. amounts due the internal service fund c. amounts due from other governments d. amounts invested in federal securities

7. How should a fund balance amount resulting from a city councils formal action to acquire audiovisual equip sheet? a. nonspendable fund balance b. committed fund balance c. unassigned fund balance d. restricted fund balance 8. The year-end balance of inventory should be reported in a governmental funds statement as an asset and a. assigned fund balance b. nonspendable fund balance c. restricted fund balance d. unrestricted fund balance

9. Which of the following would not be shown as a revenue of the function public safety on Millburg Towns

a. a grant from the federal government to acquire radar equipment b. amounts charged to local funeral homes to provide police escorts c. an appropriation from the town council to pay police officers (appropriation never been in the wide statement d. fees charged to the surrounding county to provide services outside of township limits

10. Which of the following would most likely be reported among restricted net assets on a citys government-wi a. the balance in the citys debt service fund (debt service fund established to finance longterm debt never been b. the amount owed to city employees for services rendered since they received their last paychecks c. the actuarial liability of the citys pension fund d. the cost, less accumulated depreciation, of the citys highway system

4. In what key ways does the format of the government-wide statement of activities differ from that of a traditional income statement? Unlike a business income statement, the aim of the statement of activities is to show the net cost of each of the governments main functions and programs. The net cost is the amount of functional or program expenses that must be covered by taxes and other general revenues, in contrast to fees and charges of the function or program itself. Accordingly, the statement has several columns. The first shows the expenses of each function or program. Other columns show revenues that are directly attributable to them (the program revenues). The difference between the direct revenues and expenses is the net cost of the function or program the amount that must be funded by taxpayers or other sources. The funding sources are then

presented in a separate section (in a column below the net cost of all functions and programs). 5. What are the three categories of fund statements? The three categories of fund statements are governmental funds, proprietary funds, and fiduciary funds. Governmental-type funds These funds are used to account for general governmental activities (the day-to-day operating activities), and resources that are restricted as to use. The General Fund accounts for all activities for which no other fund is specified. In effect, it accounts for the dayto-day operating activities of government. Special Revenue Funds account for resources dedicated by law to a specific purpose. The other Governmental-type funds are the Capital Projects, Debt Service, and Permanent Funds. They use the current financial resources measurement focus and the modified accrual basis of accounting. Proprietary-type funds These funds are used to account for a governments business type activities, involving the sale of services or products that are paid for by user charges. Enterprise Funds are used to account for activities that provide services or products to the general public. Internal Service Funds provide for activities that sell services or products within the government. They use the economic resources measurement focus and the accrual basis of accounting. Fiduciary-type funds These funds are used to account for resources held by the government in a trustee or agency capacity and that therefore cannot be used to support the governments own programs. Pension Trust Funds account for pension benefits to government employees. Agency Funds account for resources held, generally for a short period of time, for others in an agency capacity. Other Fiduciary Funds are Investment Trust Funds and PrivatePurpose Trust Funds. These funds generally use the economic resources measurement focus and the accrual basis of accounting.

6. What is a committed fund balance in a governmental funds balance sheet? How does it differ from a restricted fund balance? Committed Fund Balance The net assets (assets minus liabilities) of a fund that can be used only for the specific purposes determined by the governments highest level of decision-making authority. Restricted Fund Balance The net assets (assets minus liabilities) of a fund that are constrained to specific purposes by their providers, constitutional provisions, or by enabling legislation. 7. What are internal service funds? Why are they classified differently in government-wide than in fund statements?

Internal service funds are used to account for activities in which one government department provides services to others on a cost-reimbursement basis. Internal service activities are operated on a business-like basis. Hence they are classified as proprietary funds and are reported as such on fund statements. However, because the internal service departments typically provide services to departments that are considered governmental (e.g., police, fire, and recreation), they are generally included in the governmental, rather than the business-type, activities column of the government-wide statements.

3-3 Even at this early stage of the course, it is possible to reconstruct journal entries from a balance sheet. The Sherill Utility District was recently established. Its balance sheet after one year is presented on the next page. Note the following additional information: a. The general fund received all of its revenue $150 millionfrom taxes (all collected). It had operating expenditures, excluding transfers to other funds, of $100 million (all paid for).

b. The general fund transferred $20 million to the debt service fund. Of this, $15 million was to repay the principal on bonds outstanding; $5 million was for interest. c. The district issued $130 million in bonds to finance construction of plant and equipment. Of this, it expended $40 million. 1. Prepare journal entries to summarize all transactions in which the district engaged. You need not make closing entries. Do not be concerned as to the specific titles of accounts to be debited or credited (e.g., whether a transfer from one fund to another should be called a transfer, an expense, or an expenditure, or whether proceeds from bonds should be called bond proceeds or revenues). 2. Comment on how the districts government wide (full accrual) statement of net assets would differ from the balance sheet presented. Sherill Utility District Balance Sheet as of End of Year 1 (in millions) General Fund

Capital Projects Fund Debt Service Fund Totals Assets: Cash $30 $ 30 Investments $90 $20 110 Total assets $30 $90 $20 $140 Liabilities and fund balances: Fund balances $30 $90 $20 $140

1. General fund Cash Revenues from taxes To record revenues Expenditures Cash To record expenditures Transfer to debt service fund Cash To record transfer to debt service fund Capital projects fund Cash Proceeds from bonds To record issue of bonds Expenditures for construction Cash To record amounts spent on construction Investments Cash To record the investment of the cash $ 40 $ 40 $130 $130 $100 $100 $150 $150

$ 20 $ 20

$ 90 $ 90

Debt service fund Cash Transfer from general fund To record transfer from general fund Investments Cash To record the investment of the cash 2. The government-wide statements would differ in that: the funds would be consolidated; there would be only one column the $40 million expended to construct plant and equipment would be reported as assets the $130 million of bonds issued would be reported as liabilities $ 20 $ 20 $ 20 $ 20

3-5 Consolidated balances are not substitutes for individual fund balance sheets. The combined governmental funds balance sheet of the town of Paris is presented on the facing page. Per schedules included in the notes to the financial statements, the town had $1,450 of capital assets (net of accumulated depreciation) and $1,315 in long-term liabilities associated with the capital assets. 1. Recast the balance sheets in the form of a single consolidated, full accrual balance sheet. 2. Put yourself in the place of an analyst. The town mayor presents you with the consolidated balance sheet. He asserts that the towns financial position is excellent, as measured by the exceedingly healthy fund balance. Based on the combined balance sheet that shows the individual fund types, why might you be skeptical of his claim? 3. Comment on why a consolidated balance sheet is no substitute for a combined balance sheet that reports upon major funds. Town of Paris Combined Balance Sheet General Fund Special Revenue

Fund Capital Projects Fund Debt Service Fund Permanent (Endowment) Fund Totals Assets: Cash $ 38 $ 20 $ 35 $340 $ 10 $ 443 Investments 105 60 480 136 960 1,741 Due from other funds 120 46 39 205 Total assets $143 $200 $561 $515 $970 $2,389 Liabilities and fund balances: Accounts payable $ 8 $ 8 Due to other funds 205 205 Fund balances (70) $200 $561 $515 $970 2,176 Total liabilities and fund balances $143 $200 $561 $515 $970 $2,389

1. Town of Paris Statement of Net Assets (in millions) Assets Cash Investments Capital assets (net of accumulated depreciation) Total assets Liabilities and Net Assets Accounts payable Bonds payable Net assets Invested in capital assets, net of related debt Unrestricted General Restricted Special revenues Restricted Capital projects Restricted Debt service Restricted Endowment (permanent funds) Total liabilities and net assets 2. $ 8 1,315

$ 443 1,741 1,450 $3,634

$ 135 (70) 200 561 515 970

2,311 $3,634

The unrestricted net assets those which can be used to meet normal operating expenditures appear rather small. Indeed, were it not for the addition of the net investment in capital assets (fixed assets less bonds payable) they would be negative. Moreover, the unrestricted general fund owes $205 an amount not shown on the consolidated statement of net assets to other funds. Thus, it appears that the town is borrowing from restricted funds to meet its operating costs. The largest fund balance, that of the permanent endowment fund, accounts for nearly half of the fund balances reported. By the very nature of a permanent fund, only the interest, not the principal, is available for expenditures. Consolidated, government-wide, statements of net assets usually do not offer enough detail to allow the user to distinguish between restricted and unrestricted resources. Hence, there is also a need for individual fund statements.

3.

3-6 Exploring Vero Beachs financial report Refer to the financial statements of the City of Vero Beach that are included in this chapter.

1. Per the government-wide statement of activities, how much did the city incur in expense for public safety? Of this amount, how much had to be covered from general tax and other unrestricted revenues? 2. Per the governmental funds statement of revenues, expenditures, and changes in fund balances, how much did the city incur in expenditures for public safety? How do you account for the difference between this amount and your response to question 1? 3. Per the government-wide statement of activities, what was the ending balance in net assets associated with governmental activities? Is this consistent with the government-wide statement of net assets? 4. How much was transferred (net) from businesstype to governmental activities during the year? 5. How much in taxes did the city direct to the support of business-type activities? 6. Vero Beachs statements include a schedule (Table 3-6) that reconciles its statement of revenues, expenditures, and changes in fund balances of governmental funds to the government-wide statement of activities. However, the citys statements do not include a corresponding reconciliation of the statement of revenues, expenses, and changes in fund net assets of proprietary funds to the government-wide statement of activities. Why not? 7. As noted in the text, government-wide statements are on a full accrual basis, so the statement of activities includes charges for depreciation. How much did Vero Beach charge for depreciation on capital assets used during the year for governmental activities? 8. How much of the citys governmental activities assets are classified as capital? How much of the citys governmental activities liabilities were used to finance those capital assets? 9. Almost 90% of the total amount of capital assets reported in the government-wide statement of net assets are devoted to business-type activities. What is the most likely explanation of why the proportion of assets directed to business-type activities is so much greater than that devoted to governmental activities?

1.

The city expended $8,094,139 on public safety. However, $157,792 thousand was covered by charges for services and $10,144 was covered by capital grants and contributions. Hence, $7,926,203 was left to be covered from general tax and other unrestricted revenues. Per the governmental funds statements, the city incurred $7,928,561 in public safety expenditures ($7,065,511from the general fund and $863,050 from other governmental

2.

funds). The difference between this and the $8,094,139 per the government-wide statement of activities is almost certainly attributable to the difference in the basis of accounting full accrual in the statement of activities (including depreciation expense); modified accrual in the funds statements. 3. The ending balance in net assets per the government-wide statement of activities was $41,740,631 an amount consistent with that reported on the government-wide statement of net assets. Per the statement of activities, a net amount of $1.8 million was transferred from businesstype activities to governmental activities ($3.5 million transferred to governmental activities less $1.7 million received from governmental activities). The city did not direct any taxes to business-type activities. This is not surprising since business-type activities are typically expected to be self-supporting. In the government-wide statements, governmental activities are accounted for on a full accrual basis; in the fund statements they are accounted for on a modified accrual basis. A reconciliation is required to account for the differences. By contrast, in both the government-wide and the fund statements, business-type activities are accounted for on a full accrual basis. Therefore, a reconciliation generally is not needed. Per the reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities (Table 36), the government incurred $1,675,647 in depreciation charges for governmental activities. Per the government-wide statement of net assets, $36,420,664 of the governmental activities assets are capital and $20,349,914 of net assets are invested in capital assets, net of related debt. Therefore, $16,070,750 of governmental activities liabilities ($36,420,664 less $20,349,914) are associated with the capital assets. It is common in many governments for the capital assets of business-type activities to far exceed those of the governmental activities mainly because business-type activities include the operation of utilities, which are capital intensive. For example, as is shown in the statement of net assets for proprietary funds, Vero Beach operates an electric system and a water and sewer system, which together account for almost two-thirds of the city's capital assets.

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