Essentials of Accounting for Governmental and Not-for-Profit Organizations 10th Edition_9 pdf

Apago PDF Enhancer 254 Chapter 8 c. Look at the Statement of Net Assets, especially the net asset section. At- tempt to prove the Net Assets Invested in Capital Assets, Net of Related Debt figure from the information in the statement or the notes. List the individual items of net assets that are restricted; this might require ex- amination of the notes to the financial statements. d. Look at the Statement of Activities. List the net expenses (revenues) for governmental activities, business-type activities, and component units. List the change in net assets for governmental activities, business-type activities, and component units. Attempt to find from the notes the com- ponent units that are discretely presented. e. Look throughout the annual report for disclosures related to capital as- sets. This would include the notes to the financial statements, any sched- ules, and information in the Management’s Discussion and Analysis (MD&A). Summarize what is included. What depreciation method is used? Are lives of major classes of capital assets disclosed? f. Look throughout the annual report for disclosures related to long-term debt. This would include the notes to the financial statements, any sched- ules in the financial and statistical sections, and the MD&A. Summarize what is included. Are the schedules listed in this chapter included? What is the debt limit and margin? What is the direct debt per capita? The direct and overlapping debt per capita? 8–2. Identify the types of nonexchange revenues that are most likely to result in differences in the timing of recognition between the accrual and modified accrual bases of accounting. 8–3. The government-wide Statement of Net Assets separately displays govern- mental activities and business activities. Why are internal service funds most commonly displayed as governmental activities? 8–4. Answer the following questions with regard to infrastructure: a. What is infrastructure? b. What are the two methods that might be used to record infrastructure expense from year to year? How is the accounting different under the two methods? c. What conditions must exist in order to use the modified approach to record and report infrastructure? d. What are the disclosure requirements if the modified approach is used? 8–5. Under the reporting model required by GASB Statement 34, fund state- ments are required for governmental, proprietary, and fiduciary funds. Government-wide statements include the Statement of Net Assets and Statement of Activities. Answer the following questions related to the re- porting model: 1. What is the measurement focus and basis of accounting for: governmen- tal fund statements; proprietary fund statements; fiduciary fund state- ments; and government-wide statements? cop2705X_Ch08_220-266.indd 254cop2705X_Ch08_220-266.indd 254 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer Government-wide Statements, Fixed Assets, Long-Term Debt 255 2. Indicate differences between fund financial statements and government- wide statements with regard to: component units; fiduciary funds; and location of internal service funds. 3. Indicate what should be included in the Statement of Net Assets catego- ries: Invested in Capital Assets, Net of Related Debt; Restricted; and Unrestricted. 8–6. List some of the major adjustments required when converting from fund financial statements to government-wide statements. 8–7. The following information is available for the preparation of the government- wide financial statements for the City of Southern Springs as of April 30, 2012: Cash and cash equivalents, governmental activities $1,880,000 Cash and cash equivalents, business-type activities 850,000 Receivables, governmental activities 459,000 Receivables, business-type activities 1,330,000 Inventories, business-type activities 520,000 Capital assets, net, governmental activities 12,500,000 Capital assets, net, business-type activities 10,340,000 Accounts payable, governmental activities 650,000 Accounts payable, business-type activities 559,000 General obligation bonds, governmental activities 5,000,000 Revenue bonds, business-type activities 3,210,000 Long-term liability for compensated absences, governmental activities 350,000 From the preceding information, prepare (in good form) a Statement of Net Assets for the City of Southern Springs as of April 30, 2012. Assume that outstanding bonds were issued to acquire capital assets and restricted net assets total $554,000 for governmental activities and $215,000 for business- type activities. Include a Total column. 8–8. The following information is available for the preparation of the government- wide financial statements for the City of Northern Pines for the year ended June 30, 2012: Expenses: General government $10,300,000 Public safety 23,900,000 Public works 11,290,000 Health and sanitation 6,210,000 Culture and recreation 4,198,000 Interest on long-term debt, governmental type 721,000 Water and sewer system 9,550,000 Parking system 419,000 cop2705X_Ch08_220-266.indd 255cop2705X_Ch08_220-266.indd 255 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer 256 Chapter 8 Revenues: Charges for services, general government 1,110,000 Charges for services, public safety 210,000 Operating grant, public safety 798,000 Charges for services, health and sanitation 2,555,000 Operating grant, health and sanitation 1,210,000 Charges for services, culture and recreation 2,198,000 Charges for services, water and sewer 11,578,000 Charges for services, parking system 398,000 Property taxes 27,112,000 Sales taxes 20,698,000 Investment earnings, business-type 319,000 Special item—gain on sale of unused land, governmental type 1,250,000 Transfer from business-type activities to governmental activities 700,000 Net assets, July 1, 2011, governmental activities 13,222,000 Net assets, July 1, 2011, business-type activities 22,333,000 From the previous information, prepare, in good form, a Statement of Activi- ties for the City of Northern Pines for the year ended June 30, 2012. North- ern Pines has no component units. 8–9. The City of Grinders Switch maintains its books so as to prepare fund ac- counting statements and records worksheet adjustments in order to prepare government-wide statements. You are to prepare, in journal form, worksheet adjustments for each of the following situations. 1. General fixed assets as of the beginning of the year, which had not been recorded, were as follows: Land $ 7,250,000 Buildings 32,355,000 Improvements Other Than Buildings 16,111,000 Equipment 11,554,000 Accumulated Depreciation, Capital Assets 14,167,000 2. During the year, expenditures for capital outlays amounted to $6,113,000. Of that amount, $4,321,000 was for buildings; the remainder was for improvements other than buildings. 3. The capital outlay expenditures outlined in (2) were completed at the end of the year (and will begin to be depreciated next year). For pur- poses of financial statement presentation, all capital assets are depreci- ated using the straight-line method, with no estimated salvage value. Estimated lives are as follows: buildings, 40 years; improvements other than buildings, 20 years; and equipment, 10 years. cop2705X_Ch08_220-266.indd 256cop2705X_Ch08_220-266.indd 256 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer Government-wide Statements, Fixed Assets, Long-Term Debt 257 4. In the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances, the City reported proceeds from the sale of land in the amount of $600,000. The land originally cost $535,000. 5. At the beginning of the year, general obligation bonds were outstanding in the amount of $4,000,000. Unamortized bond premium amounted to $40,000. Note: This entry is not covered in the text, but is similar to entry 9 in the chapter. 6. During the year, debt service expenditures for the year amounted to: interest, $580,000; principal, $400,000. For purposes of government- wide statements, $4,000 of the bond premium should be amortized. No adjustment is necessary for interest accrual. 7. At year-end, additional general obligation bonds were issued in the amount of $1,200,000, at par. 8–10. The City of South Pittsburgh maintains its books so as to prepare fund ac- counting statements and records worksheet adjustments in order to prepare government-wide statements. You are to prepare, in journal form, worksheet adjustments for each of the following situations: 1. Deferred property taxes of $89,000 at the end of the previous fiscal year were recognized as property tax revenue in the current year’s Statement of Revenues, Expenditures, and Changes in Fund Balance. 2. The City levied property taxes for the current fiscal year in the amount of $10,000,000. When making the entries, it was estimated that 2 percent of the taxes would not be collected. At year-end, $600,000 of the taxes had not been collected. It was estimated that $300,000 of that amount would be collected during the 60-day period after the end of the fiscal year and that $100,000 would be collected after that time. The City had recognized the maximum of property taxes allowable under modified accrual accounting. 3. In addition to the expenditures recognized under modified accrual ac- counting, the City computed that $250,000 should be accrued for com- pensated absences and charged to public safety. 4. The City’s actuary estimated that the annual required contribution (ARC) under the City’s public safety employees pension plan is $229,000 for the current year. The City, however, only provided $207,000 to the pen- sion plan during the current year. 5. In the Statement of Revenues, Expenditures, and Changes in Fund Bal- ances, General Fund transfers out included $500,000 to a debt service fund, $600,000 to a special revenue fund, and $900,000 to an enterprise fund. 8–11. The City of Southern Pines maintains its books so as to prepare fund ac- counting statements and records worksheet adjustments in order to prepare government-wide statements. As such, the City’s internal service fund, a motor pool fund, is included in the proprietary funds statements. Prepare cop2705X_Ch08_220-266.indd 257cop2705X_Ch08_220-266.indd 257 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer 258 Chapter 8 necessary adjustments in order to incorporate the internal service fund in the government-wide statements as a part of governmental activities. 1. Balance sheet asset accounts include: Cash, $150,000; Investments, $125,000; Due from the General Fund, $15,000; Inventories, $325,000; and Capital Assets (net), $1,340,000. Liability accounts include: Accounts Payable, $50,000; Long-Term Advance from Enterprise Fund, $800,000. 2. The only transaction in the internal service fund that is external to the government is interest revenue in the amount of $5,300. 3. Exclusive of the interest revenue, the internal service fund reported net income in the amount of $36,000. An examination of the records indi- cates that services were provided as follows: one-third to general gov- ernment, one-third to public safety, and one-third to public works. 8–12. Presented on the following pages are partial financial statements for the City of Shenandoah, including: Fiscal year 2012: A. Total Governmental Funds: Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balances B. Internal Service Fund: Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Fiscal year 2011: A. Total Governmental Funds: Balance Sheet B. Government-wide—Governmental Activities: Statement of Net Assets CITY OF SHENANDOAH Balance Sheet Governmental Funds December 31, 2012 and 2011 December 31, 2012 December 31, 2011 Total Total Governmental Governmental Funds Funds Assets Cash and cash equivalents $1,372,900 $1,029,675 Investments 136,450 102,338 Receivables: Taxes 97,522 73,142 Interest 28,768 31,325 Due from state government 513,000 384,750 Total assets 2,148,640 1,621,230 cop2705X_Ch08_220-266.indd 258cop2705X_Ch08_220-266.indd 258 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer Government-wide Statements, Fixed Assets, Long-Term Debt 259 Liabilities Accounts payable 74,600 55,950 Due to other funds 10,200 10,400 Deferred property taxes 50,000 27,000 Total liabilities 134,800 93,350 Fund balances Reserved for: Encumbrances 259,300 124,248 Debt service 1,009,450 807,560 Unreserved, reported in: —— General Fund 438,390 350,712 Other Funds 306,700 245,360 Total fund balances 2,013,840 1,527,880 Total liabilities and fund balances $2,148,640 $1,621,230 CITY OF SHENANDOAH Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds For the Year Ended December 31, 2012 Total Governmental Funds Revenues Property taxes $6,469,000 Sales taxes 3,115,000 Interest 32,000 Licenses and permits 800,000 Intergovernmental 1,763,000 Miscellaneous 270,000 Total revenues 12,449,000 Expenditures Current General government 1,692,300 Public safety 3,258,700 Landfill operations 2,337,400 Cultural and recreational 2,605,600 Capital outlay 4,914,150 Debt service Principal 400,000 Interest 508,000 Total expenditures 15,716,150 Revenues over (under) expenditures (3,267,150) (Continued) cop2705X_Ch08_220-266.indd 259cop2705X_Ch08_220-266.indd 259 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer 260 Chapter 8 Other financing sources (uses) Proceeds of bonds 4,000,000 Premium on bonds 50,000 Transfers from other funds 137,450 Transfers (to) other funds (137,450) 4,050,000 Excess of revenues and other sources over (under) expenditures and other uses 782,850 Fund balance—beginning of year 1,230,990 Fund balance—end of year $2,013,840 CITY OF SHENANDOAH Statement of Net Assets Proprietary Funds December 31, 2012 December 31, 2012 Governmental Activities: Internal Service Fund Current assets Cash and cash equivalents $37,000 Receivables: Due from General Fund 10,200 Due from Enterprise Fund 11,000 Inventories 15,000 Total current assets 73,200 Noncurrent assets Land 25,000 Buildings 44,000 Accumulated depreciation buildings (13,200) Equipment 21,000 Accumulated depreciation equipment (12,600) 64,200 Total assets $137,400 Liabilities Accounts payable $18,400 Total current liabilities 18,400 Noncurrent liabilities Advance from Enterprise Fund 10,000 Total noncurrent liabilities 10,000 Total liabilities 28,400 cop2705X_Ch08_220-266.indd 260cop2705X_Ch08_220-266.indd 260 2/1/10 5:53:27 PM2/1/10 5:53:27 PM Apago PDF Enhancer Government-wide Statements, Fixed Assets, Long-Term Debt 261 Net assets Invested in capital assets net of related debt $54,200 Unrestricted 54,800 Total net assets $109,000 CITY OF SHENANDOAH Statement of Revenues, Expenses, and Changes in Net Assets Proprietary Funds For the Year Ended December 31, 2012 Governmental Activities: Internal Service Fund Revenues Charges for sales and services $371,200 Total revenues 371,200 Operating expenses Cost of sales and services 358,600 Administration 10,300 Depreciation 4,300 Total expenditures 373,200 Operating (loss) (2,000) Nonoperating income Investment income 5,000 5,000 Change in net assets 3,000 Net assets—beginning of year 106,000 Net assets—end of year $109,000 CITY OF SHENANDOAH Statement of Net Assets Government-wide Statements December 31, 2011 December 31, 2011 Governmental Activities Current assets Cash and cash equivalents $1,230,000 Investments 95,500 Receivables (net) Taxes receivable 69,500 Due from business activities 23,000 Due from state government 156,000 Total current assets 1,574,000 (Continued) cop2705X_Ch08_220-266.indd 261cop2705X_Ch08_220-266.indd 261 2/1/10 5:53:28 PM2/1/10 5:53:28 PM Apago PDF Enhancer 262 Chapter 8 Noncurrent assets Land 7,230,000 Buildings 25,600,000 Accumulated depreciation buildings (13,000,000) Infrastructure 24,500,000 Accumulated depreciation buildings (9,000,000) Equipment 6,370,000 Accumulated depreciation equipment (3,100,000) Total capital assets 38,600,000 Total assets $40,174,000 Liabilities Accrued interest on bonds $180,000 Accounts payable 96,500 Total current liabilities 276,500 Noncurrent liabilities General obligation bonds payable 6,000,000 Accrued costs for landfill closure and postclosure care 29,500 Total noncurrent liabilities 6,029,500 Total liabilities 6,306,000 Net assets Invested in capital assets net of related debt 32,600,000 Unrestricted 1,268,000 Total net assets $33,868,000 Additional Information 1. $445,600 of the capital assets purchased in fiscal year 2012 was equip- ment. All remaining capital acquisitions were for a new building. 2. Depreciation of general fixed assets: buildings $1,100,000, infrastruc- ture $975,000, and equipment $537,500. 3. The City had $6,000,000 of 6 percent general obligation bonds (issued at par) outstanding at December 31, 2011. In addition, the City issued $4,000,000 of 8 percent bonds on January 2, 2012 (sold at a premium). Interest payments on both bond issues are due on January 1 and July 1. Principal payments are made on January 1. Interest and principal pay- ments for the current year include: 6 percent General 8 percent General Obligation Bonds Obligation Bonds Interest Payment—January 1 $180,000 —— Interest Payment—July 1 168,000 $160,000 Principal Payment—January 1 $400,000 —— cop2705X_Ch08_220-266.indd 262cop2705X_Ch08_220-266.indd 262 2/1/10 5:53:28 PM2/1/10 5:53:28 PM Apago PDF Enhancer Government-wide Statements, Fixed Assets, Long-Term Debt 263 The January interest payments are accrued for purposes of the government- wide statements but not the fund-basis statements. The bond premium is to be amortized in the amount of $2,500 per year. 4. Property taxes expected to be collected more than 60 days after year-end are deferred in the fund basis statements. 5. At the end of 2012, the accumulated liability for landfill closure and post-closure care costs is estimated to be $37,000. Landfill operations are reported in the General Fund—Public Works. 6. The internal service fund serves several departments of the General Fund, all within the category of “General Government.” The internal service fund was created at the end of 2011 and had no capital assets or long-term liabilities at the end of 2011. Prepare all worksheet journal entries necessary for fiscal year 2012 to con- vert the governmental fund basis amounts to the economic resources mea- surement focus and accrual basis required for the governmental activities sections of the government-wide statements. Excel-Based Problems 8–13. The fund-basis financial statements of Jefferson County have been com- pleted for the year 2012 and appear in the first tab of the Excel spreadsheet provided with this exercise. The following information is also available: a. Capital Assets • Capital assets purchased in previous years through governmental type funds totaled $752,000 (net of accumulated depreciation) as of January 1, 2012. • Depreciation on capital assets used in governmental-type activities amounted to $79,500 for 2012. • No capital assets were sold or disposed of in 2012 and all purchases are properly reflected in the fund-basis statements as capital expenditures. b. Long-term Debt • There was no outstanding long-term debt associated with governmental-type funds as of January 1, 2012. • April 1, 2012, 6 percent bonds with a face value of $700,000 were issued in the amount of $720,000. Bond payments are made on October 1 and April 1 of each year. Interest is based on an annual rate of 6 percent and principal payments are $17,500 each. The first payment (interest and principal) was made on October 1. • Amortization of the bond premium for the current year is $1,000. c. Deferred Revenues • Deferred revenues (comprised solely of property taxes) are expected to be collected more than 60 days after year-end. The balance of deferred taxes at the end of 2011 was $18,200. cop2705X_Ch08_220-266.indd 263cop2705X_Ch08_220-266.indd 263 2/1/10 5:53:28 PM2/1/10 5:53:28 PM [...]... facilities such as dormitories, bookstores, and food service operations GASB requirements for business-type activities call for accrual accounting for debt, including accrual of interest and amortization of debt discount and premium Colleges often issue tuition discounts and other forms of financial aid Some of this financial aid comes from institutional funds, and some comes from the outside, including... appropriations, and grants from individuals and businesses Responding to GASB Statement 35, the National Association of College and Business Officers issued Advisory Report 00–5, Accounting and Reporting Scholarship Discounts and Allowances to Tuition and Other Fee Revenues by Public Higher Education Public institutions are to report all tuition and fee revenue net of any scholarship discounts and allowances... set of services or programs for example, fire protection, library services, mosquito abatement, and drainage.” Governmental health care entities, public school systems, other not-forprofit entities (e.g., museums), and public colleges and universities may be considered special-purpose entities for financial reporting purposes Chapter 2 of this text provides an introduction to financial reporting for. .. Revenues, Expenditures, and Changes in Fund Balances Statement of Net Assets (proprietary funds) Statement of Revenues, Expenses, and Changes in Fund Net Assets Statement of Cash Flows Entities engaged in more than one governmental activity ✓ ✓ ✓ ✓ ✓ Statement of Net Assets (government-wide) Statement of Activities Balance Sheet (governmental funds) Statement of Revenues, Expenditures, and Changes in Fund... engaged in a single governmental activity ✓ ✓* ✓* ✓ ✓ Governmental Funds Balance Sheet/Statement of Net Assets Statement of Governmental Fund Revenues, Expenditures, and Changes in Fund Balances/Statement of Activities Entities engaged in only business-type activities ✓ ✓ ✓ ✓ Statement of Net Assets (proprietary funds) Statement of Revenues, Expenses, and Changes in Fund Net Assets Statement of Cash Flows... 2/1/10 5:57:33 PM Accounting for Special-Purpose Entities, Including Public Colleges and Universities 275 dormitories, student centers, food service activities, and athletics Debt for academic facilities may be issued for the institution but is often issued as state general obligation debt Accounting and Financial Reporting for Public Institutions of Higher Education Colleges and universities that choose... Discussion and Analysis (MD&A) Statement of Net Assets (or Balance Sheet) Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to the Financial Statements Required Supplementary Information Other Than MD&A The basic requirements for the statements are the same as outlined for proprietary funds in Chapter 6 of this text However, due to the scope and importance of public... separate coverage is given Prior to the adoption of Statement 35, public colleges used a form of fund accounting Fund groups included: current unrestricted, current restricted, loan, endowment and similar, annuity and life income, plant, and agency Many institutions continue to use some form of fund accounting to manage their operations However, fund accounting is not illustrated in this text, which... requirements; a separate tab is provided in Excel for each of these steps 1 Prepare the journal entries necessary to convert the governmental fund financial statements to the accrual basis of accounting 2 Post the journal entries to the conversion worksheet provided 3 Prepare a government-wide Statement of Activities and Statement of Net Assets for the year 2012 All of the governmental fund revenues are “general... service of others (Mahatma Gandhi, 1869–1948) Apago PDF Enhancer Learning Objectives • Describe characteristics of special-purpose entities and identify the required financial statements of varying types of special-purpose entities • Prepare combined fund-basis/government-wide financial statements for a special-purpose entity engaged in a single governmental activity • Apply the accrual basis of accounting . (to) other funds (25, 395 ) —— (25, 395 ) 25, 395 —— Total (25, 395 ) 25, 395 —— Excess of revenues and other sources over (under) expenditures and other uses 96 ,93 4 (95 4) 95 ,98 0 Change in net assets. assets— Beginning of year 121, 590 2,212 123,802 190 , 297 Fund balance / net assets— End of year $218,524 $1,258 $2 19, 782 $ 298 ,061 cop2705X_Ch 09_ 267- 299 .indd 272cop2705X_Ch 09_ 267- 299 .indd 272 2/1/10. these cop2705X_Ch 09_ 267- 299 .indd 271cop2705X_Ch 09_ 267- 299 .indd 271 2/1/10 5:57:33 PM2/1/10 5:57:33 PM Apago PDF Enhancer 272 Chapter 9 ILLUSTRATION 9 3 Governmental Funds Statement of Revenues, Expenditures,