Solution manual advanced accounting 11th by beams chapter21

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 21 AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS — PROPRIETARY AND FIDUCIARY FUND Answers to Questions 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 requires separating financing activities into noncapital and capital related © 2011 Pearson Education, Inc publishing as Prentice Hall 21-2 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 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 columns—one 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 plan—the 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 government’s 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 The accounting equation for an agency fund is Assets = Liabilities 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 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-3 SOLUTIONS TO EXERCISES Solution E21-1 b c d c d Solution E21-4 b a a a c Solution E21-2 [AICPA adapted] d d d c a Solution E21-3 c d c b c Solution E21-5 [AICPA adapted] d d b b a c 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 Schedule of Taxes Receivable Amounts Certified for Collection Collections $ 60,000 $ 45,000 40,000 30,000 75,000 100,000 $200,000 $150,000 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 © 2011 Pearson Education, Inc publishing as Prentice Hall 21-4 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Solution E21-7 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 Expenses — Program A 1,200,000 Vouchers payable (or Cash) To record expenses incurred for the program financed by the grant 1,200,000 Deferred operating grant revenues Revenues — operating grant To record revenues earned on the grant 1,200,000 1,200,000 Nonoperating revenues of $1,200,000 should be reported in the enterprise fund’s statement of revenues, expenses, and changes in retained earnings (fund equity) 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 Construction in progress 4,000,000 Cash To record construction costs incurred on capital grant project 4,000,000 Deferred capital grant 4,000,000 Contributed capital–capital grants 4,000,000 To record increase in contributed capital as a result of incurring qualifying costs under capital grant The increase in contributed capital of $4,000,000 is reported as an addition to contributed capital It does not affect income or retained earnings Solution E21-8 10 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 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-5 Solution E21-9 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 Private Purpose Trust Fund Cash Contributions Investments Cash Internal Service Fund Cash Other financing source – Nonreciprocal transfer from General Fund General Fund Other financing use - Nonreciprocal transfer to Internal Service Fund Cash 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 © 2011 Pearson Education, Inc publishing as Prentice Hall 1,000,000 21-6 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Solution E21-9 (continued) Special Revenue Fund* Cash Other Financing Source – Reciprocal transfer from General Fund General Fund Other Financing Use - Reciprocal transfer to Special Revenue – Highway Beautification Cash 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 decrease in Net Assets Invested in Capital Assets, Net of Related Debt; increase in Unrestricted Net Assets decrease in Net Assets Invested in Capital Assets, Net of Related Debt 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 increase in Net Assets Invested in Capital Assets, Net of Related Debt; decrease in Unrestricted Net Assets increase in Unrestricted Net Assets decrease in Unrestricted Net Assets SOLUTIONS TO PROBLEMS Solution P21-1 Cash Equipment OFS - Nonreciprocal transfer from General Fund OFS - Reciprocal transfer from General Fund 500,000 550,000 Equipment Cash 200,000 Due from Various Funds Service Revenue 345,000 Cash 300,000 550,000 500,000 200,000 345,000 Due from Various Funds 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 © 2011 Pearson Education, Inc publishing as Prentice Hall 20,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-7 Solution P21-2 Cash OFS - Nonreciprocal transfer from General Fund 30,000,000 Building 25,250,000 30,000,000 Cash 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 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 © 2011 Pearson Education, Inc publishing as Prentice Hall 21-8 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 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 Operating transfers out 12,000 Net loss (10,000) Net assets June 30, 2011* 92,000 Net assets June 30, 2012* $ 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 © 2011 Pearson Education, Inc publishing as Prentice Hall $ 82,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-9 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-10 Solution P21-3 (continued) Douwe County Motor Pool Fund Statement of Cash Flows for the Year Ended June 30, 2012 Cash Flows from Operating Activities Cash received from users (plug) Less: Cash paid to suppliers* Cash paid for salaries Cash paid for utilities Net cash provided by operating activities Cash Flows from Noncapital Financing Activities Operating transfers to general fund Cash from Capital and Related Financing Activities Purchase of automobiles $127,000 $(69,000) (25,000) (9,000) (103,000) 24,000 (12,000) (19,000) Cash Flows from Investing Activities Decrease in cash for 2012 Add: Cash and cash equivalents June 30, 2011 Cash and cash equivalents June 30, 2012 (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 © 2011 Pearson Education, Inc publishing as Prentice Hall 22,000 $24,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com21-11 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 Student Aid Principal Trust Fund Statement of Fiduciary Net Assets at December 31, 2011 Assets Net Assets Cash Investments Building — less accumulated depreciation Dividends receivable Total assets $ 90,000 600,000 380,000 60,000 $1,130,000 Held in trust for endowment Held in trust for student aid Total Net Assets $1,000,000 130,000 $1,130,000 Student Aid Earnings Trust Fund Statement of Changes in Fiduciary Net Assets For the Year ending December 31, 2011 Additions Contributions: Cash Investments Buildings Total contributions $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 assets—beginning Net assets -ending 1,130,000 $1,130,000 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 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 Changes in Net Assets Net Assets — beginning of the year Net assets — end of the year 507,500 $507,500 * $500,000 x 4.5% x 6/12 = $11,250 received Mar $500,000 x 4.5% x 4/12 = $7,500 accrued through Jun 30 Duchy County Trust Fund Statement of Fiduciary Net Assets at June 30, 2012 Assets Investments Interest receivable Total assets $500,000 7,500 $ 507,500 Net Assets Held in trust for endowment Held in trust for homeless shelters Total Net Assets © 2011 Pearson Education, Inc publishing as Prentice Hall $ 500,000 7,500 $ 507,500 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com21-13 Solution P21-6 [AICPA adapted] CITY OF MERINGEN Central Garage Fund Journal Entries July 1, 2011 to June 30, 2012 Inventory of Materials and Supplies Vouchers Payable To record purchases on account 74,000 Materials and Supplies Expense Inventory of Materials and Supplies To record ending inventory and materials and supplies used 96,000 Salaries and Wages Expense Cash To record salaries and wage expense paid Utility Expense 74,000 96,000 230,000 230,000 30,000 Cash To record payment of utility charges Depreciation Expense — Building Depreciation Expense — Machinery and Equipment Accumulated Depreciation — Buildings Accumulated Depreciation — Machinery and Equipment To record depreciation 30,000 5,000 8,000 5,000 8,000 Due from General Fund Due from Water and Sewer Fund Due from Special Revenue Fund Service Revenue To record billings to departments for services 262,000 84,000 32,000 Cash 376,000 378,000 Due from General Fund Due from Water and Sewer Fund Due from Special Revenue Fund To record collection of receivables Vouchers Payable Cash To record payment of vouchers 276,000 84,000 16,000 98,000 98,000 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-14 Solution P21-6 (continued) 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 © 2011 Pearson Education, Inc publishing as Prentice Hall 9,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com21-15 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) Cash paid for salaries (479,300) Cash paid for operations (819,200) Net cash provided by operating activities (716,500) Cash Flows from Noncapital Financing Activities Property Taxes Received Long-term debt repayment 217,000 (515,000) Net cash provided by noncapital financing activities Cash from Capital and Related Financing Activities (298,000) Capital grant proceeds 750,000 Proceeds from sale of asset 522,000 Net cash provided by capital and related financing activities Cash Flows from Investing Activities Purchase of equity investments Net cash provided by investing activities Increase in cash 1,272,000 (165,000) (165,000) 92,500 Add: Cash and cash equivalents, beginning $714,525 Cash and cash equivalents, ending $807,025 © 2011 Pearson Education, Inc publishing as Prentice Hall ... slides, ebooks, solution manual and testbank on www.downloadslide.com 21-3 SOLUTIONS TO EXERCISES Solution E21-1 b c d c d Solution E21-4 b a a a c Solution E21-2 [AICPA adapted] d d d c a Solution. .. more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-9 © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank... Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 21-5 Solution E21-9 Enterprise Fund Cash Operating Revenue Agency Fund