Professional Documents
Culture Documents
Enterprise and internal service funds are similar in the sense that their operations are like those of similar
business enterprises. They use full accrual accounting practices (including depreciation), have a capital
maintenance or profit objective, are financed through user charges, and have the same financial reporting
requirements. The primary difference between the two fund types is that an EF provides goods and services
to citizens and customers outside the government on a user charge basis, while an ISF provides services to
other departments and agencies within the same governmental unit (or occasionally to other governmental
units).
Typical operations of internal service funds include motor pools, centralized risk financing activities, data
processing services, printing shops, centralized purchasing, repair shops, and storage or warehouse
operations. Internal service funds may engage in almost any kind of operations that one would find in
private enterprise.
An EF (and also an ISF) is required to prepare a statement of net assets, a statement of revenues, expenses,
and changes in net assets (or fund equity), and a statement of cash flows for fair presentation in accordance
with GAAP. The government-wide statement of net assets and statement of activities both include
enterprise fund data.
In the fund financial statements, governments include internal service funds with the proprietary funds.
They are aggregated into a single column within the proprietary fund statement of net assets, the statement
of revenues, expenses, and changes in net assets, and the statement of cash flows. Within the governmentwide statements, governments report internal service funds with the governmental activities. The internal
service fund asset and liability accounts are generally included in the governmental activity column of the
statement of net assets. The statement of activities will include only those internal service fund transactions
involving entities other than the primary reporting entity. Governments add external internal service fund
revenues and expenditures to the statement of activities, but they exclude internal governmental
transactions. (See also Question 7.)
Internal service funds are never considered major funds and proprietary fund statements report internal
service funds in a single column with the enterprise funds. Major enterprise funds are reported in a single
column on the proprietary fund statement of net assets and statement of revenues, expenses, and changes in
net assets.
Because proprietary funds account for transactions in much the same manner as commercial business
organizations, the GASB allows some reference to FASB statements. GASB Statement No. 20,
Accounting and Financial Reporting for Proprietary Activities, governs which accounting and reporting
standards apply to proprietary activities.
It is important to differentiate between revenues generated by interfund transactions and transactions with
external parties because of the way that these transactions are reported on the government-wide statements.
The statement of activities will include only those internal service fund transactions involving entities other
than the primary reporting entity. To avoid double counting of interfund transactions, governments add
external service fund revenues and expenditures to the statement of activities, while they exclude internal
governmental transactions.
First, GASB Statement No. 34 makes the direct method mandatory for statement presentation. Second,
GASB Statement No. 9 requires separating financing activities into noncapital and capital related.
21-2
The fiduciary fund category includes trust funds (private-purpose, investment, and pension) and agency
funds. They are reported in the fund financial statements only in a statement of fiduciary net assets and a
statement of changes in fiduciary net assets.
10
Governmental units often provide the initial financing of an ISF through a contribution of cash or operating
facilities, expecting the ISF to be self-sustaining in future periods. Alternatively, the governmental unit
may provide a loan to the ISF to be repaid from future operating flows of the fund. A contribution is
classified as a nonreciprocal transfer, which flows through the statement of revenues, expenses, and
changes in fund net assets; whereas a loan is recorded as a long-term liability of the ISF in the statement of
net assets. A government records short-term interfund loans as due to Fund A and due from Fund B.
11
Private-purpose trust funds are fiduciary funds used to account for resources (other than investment pools
and employee benefits) that are held for the benefit of parties outside the governmental entity. Permanent
funds are governmental funds which report resources whose use is permanently restricted, but whose
earnings are expendable for the benefit of the government or its citizens.
12
The government-wide statement of net assets would need at least three columnsone for governmental
activities (including the general fund, special revenue funds, and internal service funds), one for businesstype activities (enterprise funds), and one for the component unit. Most governments also present optional
total and comparative total columns.
13
No. The required financial statements for a pension trust fund are a statement of plan net assets and a
statement of changes in plan net assets. Neither of these statements contains information as to the present
value of future benefits payable by the plan. Therefore, the statements provide no indication of whether the
plan is adequately funded. The statements are designed to reflect the current status of the planthe net
assets available to pay pension benefits and changes therein. To determine if the plan is adequately
financed, one must review the pension trust fund schedules, particularly the schedule of funding progress,
that must be included in a governments required supplementary information. In June of 2011 the GASB
issued exposures draft on new pension reporting standards. Please see the GASB website for the most
current guidance http://www.gasb.org/
14
15
If an enterprise fund issues debt that is backed by its revenue-generating activity (i.e., revenue-backed debt
instruments), the government must present certain detailed segment information in the notes to the
financial statements.
16
Since the government-wide statement of activities and statement of net assets report all items using the
accrual basis of accounting, conversion between the fund and government-wide statements is not
necessary. Also, recall that governments report internal service funds with the governmental activities in
the government-wide statements.
21-3
SOLUTIONS TO EXERCISES
Solution E21-1
1
2
3
4
5
b
c
d
c
d
Solution E21-4
1
2
3
4
5
b
a
a
a
c
Solution E21-2
[AICPA adapted]
d
1
d
2
d
3
c
4
a
5
Solution E21-3
c
d
c
b
c
1
2
3
4
5
Solution E21-5
[AICPA adapted]
d
1
d
2
b
3
b
4
a
5
c
6
Solution E21-6
City of Laramee Tax Collection Agency Fund
Statement of Fiduciary Net Assets
Tax Collection Agency Fund
at December 31, 2011
Assets
Taxes receivable
Total assets
Liabilities
Liability to Laramee
Liability to Bloomer County
Liability to Bloomer School District
Total liabilities
Total Net Assets
Taxing Units
City of Laramee
Bloomer County
Bloomer School District
$50,000
$50,000
$15,000
10,000
25,000
$50,000
0
Balance at
Year End
$15,000
10,000
25,000
$50,000
NOTE: This solution assumes that the collection fee is recognized when cash is collected.
21-4
Solution E21-7
1
Cash
3,000,000
Deferred operating grant revenue
To record receipt of grant.
3,000,000
Deferred grant revenue is reported as a liability in the balance sheet. Operating grant revenues are
reported as nonoperating revenues in the period qualifying costs are incurred.
2
Expenses Program A
1,200,000
Vouchers payable (or Cash)
To record expenses incurred for the program financed by the grant.
1,200,000
1,200,000
1,200,000
Cash
7,000,000
Deferred capital grant
To record receipt of capital grant.
7,000,000
Deferred capital grants are reported as a liability in the balance sheet. When qualifying costs are
incurred, the deferred capital grant liability is reduced and contributed capital from
intergovernmental grants, not revenues, is recognized.
4
Construction in progress
4,000,000
Cash
To record construction costs incurred on capital grant project.
4,000,000
Enterprise Fund
Capital Projects Fund and Debt Service Fund
Capital Projects Fund and Debt Service Fund
Private Purpose Trust Fund
Internal Service Fund
Enterprise Fund
Special Revenue Fund
General Fund
Agency Fund
Investment Trust Fund
21-5
Solution E21-9
1
Enterprise Fund
Cash
Operating Revenue
Agency Fund
Cash
Due to other governmental units
Capital Projects Fund
Cash
Other financing source proceeds from bond
issue
Other financing use nonreciprocal transfer to
Debt Service Fund
Cash
Debt Service Fund
Cash
Other financing source nonreciprocal
transfer from Capital Projects Fund
Enterprise Fund
Cash
Bonds payable
4,500
4,500
125,000
125,000
1,050,000
1,050,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
150,000
150,000
150,000
150,000
1,000,000
1,000,000
21-6
General Fund
Taxes Receivable current
Allowance for uncollectible taxes current
Revenue
50,000
50,000
50,000
50,000
5,000,000
50,000
4,950,000
* An entry recording grants receivable (debit) and deferred grant revenue (credit) is optional.
Solution E21-10
1. decrease in Net Assets Invested in Capital Assets, Net of Related Debt; increase in Unrestricted Net Assets
2. decrease in Net Assets Invested in Capital Assets, Net of Related Debt
3. There will be no effect on net assets, since the asset debit will be offset by the liability credit. Also the net asset
amount is offset by the related debt.
4. increase in Net Assets Invested in Capital Assets, Net of Related Debt; decrease in Unrestricted Net Assets
5. increase in Unrestricted Net Assets
6. decrease in Unrestricted Net Assets
SOLUTIONS TO PROBLEMS
Solution P21-1
1
Cash
Equipment
OFS - Nonreciprocal transfer from General Fund
OFS - Reciprocal transfer from General Fund
500,000
550,000
Equipment
Cash
200,000
345,000
Cash
300,000
550,000
500,000
200,000
345,000
12/31
Salaries expense
Payroll taxes
OFU - Transfer to General Fund for repayment
Other operating expenses
Cash
Depreciation Expense
Accum. Depr. - Equipment
300,000
180,000
37,800
50,000
120,000
387,800
20,000
20,000
21-7
Solution P21-2
1
Cash
OFS - Nonreciprocal transfer from General Fund
30,000,000
Building
25,250,000
30,000,000
Cash
3
25,250,000
Cash
5,000,000
Bonds payable
5,000,000
Accounts Receivable
Charges for services
4,500,000
Cash
4,400,000
4,500,000
Accounts Receivable
6
10
4,400,000
Building improvements
Cash
3,500,000
3,500,000
Salaries expense
Cash
700,000
Interest Expense
Interest Payable
Cash
400,000
700,000
100,000
300,000
Operating Expenses
Accounts Payable
Cash
1,100,000
Depreciation Expense
Accumulated Depreciation
1,050,000
100,000
1,000,000
1,050,000
Fiedler County Utility Plant
Adjusted Trial Balance
Cash
Accounts Receivable
Building
Accumulated Depreciation
Interest Payable
Accounts Payable
OFS - Nonreciprocal transfer from General Fund
Proceeds from Bond Issue
Charges for Services
Salaries Expense
Interest Expense
Operating Expenses
Depreciation Expense
$ 8,650,000
100,000
28,750,000
1,050,000
100,000
100,000
30,000,000
5,000,000
4,500,000
700,000
400,000
1,100,000
1,050,000
$40,750,000
$40,750,000
21-8
Solution P21-3
Douwe County Motor Pool Fund
Statement of Revenues, Expenses,
and Changes in Fund Net Assets
for the year ended June 30, 2012
Revenues
Revenue from billings
$120,000
Expenses
Supplies used
Salaries expense
Utilities expense
Depreciation expense
$68,000
25,000
9,000
16,000
Operating income
118,000
2,000
12,000
Net loss
(10,000)
92,000
$ 82,000
*Total net assets includes the contribution from the General Fund. Douwe appears to be keeping track of the
contribution in a separate account internally, but for financial statement purposes included with the account titled
net assets which perhaps is how Douwe kept internal records on all other changes in net assets other than the
general fund contribtion. Note in the statement of net assets below that total net assets is $82,000.
Douwe County Motor Pool Fund
Statement of Net Assets
On June 30, 2012
Current assets
Cash
Due from electric fund
Supplies on hand
$37,000
4,000
14,000
Noncurrent assets
Autos
Less: Accumulated depreciation
Total assets
$99,000
56,000
Liabilities
Accounts payable
Advance from general fund
Total liabilities
$11,000
5,000
Net Assets
Invested in capital assets, net of related debt
Unrestricted
Total net assets
$43,000
39,000
$55,000
43,000
$98,000
$16,000
$ 82,000
21-9
21-10
$127,000
$(69,000)
(25,000)
(9,000)
(103,000)
24,000
(12,000)
(19,000)
--(7,000)
44,000
$ 37,000
* Change in supplies (12,000 beginning + 70,000 [plug] 68,000 used = 14,000 ending); Cash paid is 70,000 less
change in accounts payable (11,000 10,000 = 1,000)
Reconciliation of Net Operating Income
to Net Cash Used by Operating Activities
Cash Flows from Operating Activities
Operating income
Adjustments for noncash expenses, revenues,
losses and gains included in income:
Depreciation
Change in due from general fund
Change in due from electric fund
Supplies on hand
Accounts payable
Total adjustments
Cash flows from operating activities
$ 2,000
16,000
8,000
(1,000)
(2,000)
1,000
22,000
$24,000
21-11
Solution P21-4
Summary Calculations for Principal Trust Fund
Cash
Investments
Building net
Dividends receivable
Held in trust for
student aid
Increase
$ 100,000
40,000
550,000
500,000
600,000
400,000
60,000
40,000
30,000
60,000
20,000
donated
rentals
bonds sold
donated bonds
stock purchases
donated
on stock
Rentals
Bond interest
Dividend income
Gain on bonds
Decrease
$600,000
Net
stock purchase
$ 90,000
500,000
bonds sold
600,000
20,000
Depreciation
380,000
60,000
20,000
Depreciation
130,000
Net Assets
Cash
Investments
Building less accumulated depreciation
Dividends receivable
Total assets
$ 90,000
600,000
380,000
60,000
$1,130,000
$1,000,000
130,000
$1,130,000
$100,000
500,000
400,000
$ 1,000,000
Investment earnings
Rental income
Dividend income
Gain on bonds
Bond interest
Depreciation expense
Total earnings
Total additions
40,000
60,000
20,000
30,000
(20,000)
130,000
1,130,000
Deductions
Total deductions
Change in net assets
Net assetsbeginning
Net assets -ending
0
1,130,000
0
$1,130,000
21-12
Solution P21-5
Duchy County Trust Fund
Statement of Changes in Fiduciary Net Assets
Trust Fund
for the year ended June 30, 2012
Additions
Contributions
Investment earnings
Interest*
Total Additions
$500,000
18,750
$518,750
Deductions
Distributions to homeless shelters
Total Deductions
$ 11,250
11,250
507,500
0
$507,500
$500,000
7,500
$ 507,500
Net Assets
Held in trust for endowment
Held in trust for homeless shelters
Total Net Assets
$ 500,000
7,500
$ 507,500
21-13
74,000
96,000
74,000
96,000
230,000
230,000
30,000
Cash
To record payment of utility charges.
5
30,000
5,000
8,000
5,000
8,000
262,000
84,000
32,000
Cash
376,000
378,000
Vouchers Payable
Cash
To record payment of vouchers.
276,000
84,000
16,000
98,000
98,000
21-14
CITY OF MERINGEN
Central Garage Fund
Closing Entries
June 30, 2012
Service Revenue
Materials and Supplies Expense
Salaries and Wage Expense
Utility Expense
Depreciation Expense Building
Depreciation Expense Machinery and
Equipment
Excess of Revenues over Expenses
To close revenue and expense accounts.
Excess of Revenues over Expenses
Retained Earnings
To close Excess of Revenues over
Expenses to Retained Earnings.
378,000
96,000
230,000
30,000
5,000
8,000
9,000
9,000
9,000
21-15
Solution P21-7
Caleb County Enterprise Fund
Statement of Cash Flows
for the Year Ended . . .
Cash Flows from Operating Activities
Cash received from customers
Less: Cash paid to suppliers
$3,276,500
(2,694,500)
(479,300)
(819,200)
(716,500)
217,000
(515,000)
(298,000)
750,000
522,000
1,272,000
(165,000)
(165,000)
92,500
$714,525
$807,025