Chapter 2 Fund Accounting

TRUE/FALSE (CHAPTER 2) 1. 2. 3. . ". #. %. &. +. Fund accounting promotes control and accountability over restricted resources. The basis of accounting determines when transactions and events are recognized. If an entity adopts a full accrual basis of accounting, its measurement focus will automatically be on all economic resources. ! government may report some of its funds on a full accrual basis. Funds divide a government into functional departments. $eneral funds are established to account for resources legally restricted for specified purposes. Fiduciary activities only benefit parties other than the government itself. The Financial !ccounting 'tandards (oard re)uires all nongovernmental not*for*profit entities to use fund accounting. In addition to preparing fund financial statements, governments should also prepare consolidated financial statements to provide information on the financial position and operating results of the government as a single economic entity.

1,. Fiduciary activities should be reported in fund statements, but should be e-cluded from the government*wide statements. 11. !t first glance, the government*wide statement of activities bears little resemblance to the income statement of a business. 12. In accounting for costs incurred on a ma.or construction pro.ect in a capital pro.ects fund, the construction outlays are reported as e-penditures, not capital assets.

$ranof Test (an/ 0hapter 2

1age 1

MULTIPLE CH ICE (CHAPTER 2) 1. 2hat is the primary reason that governmental entities use fund accounting3 a4 Fund accounting is re)uired by law. b4 Fund accounting is re)uired by $!!1. c4 Fund accounting promotes control and accountability over restricted resources. d4 Fund accounting promotes better control over operating activities. 2. (asis of accounting determines which of the following3 a4 2hen transactions and events are recognized. b4 2hat transactions and events will be reported. c4 2here transactions and events will be reported. d4 2hy transactions and events will be reported. 3. ! fund is a4 ! separate legal entity. b4 ! separate fiscal and accounting entity. c4 ! separate self*balancing set of accounts for inventory purposes. d4 5one of the above. . 2hich of the following funds is a fiduciary fund3 a4 1ermanent fund. b4 !gency fund. c4 0apital pro.ect fund. d4 6ebt service fund. ". 2hen a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that e-cludes long*lived assets and liabilities in its governmental fund types7 a4 It is in violation of the law. b4 It is in violation of $!!1. c4 It has reported in accordance with $!!1 standards for the governmental fund financial statements re)uired by the new $!'( reporting model. d4 It has the ability to better measure the results of operations. #. ! city receives a donation from a citizen who specifies that the principal must be invested and the earnings must be used to support operations of a city*owned recreational facility. The principal of this gift should be accounted for in which of the following funds3 a4 Trust fund. b4 'pecial revenue fund. c4 1ermanent fund. d4 Internal service fund.

$ranof Test (an/ 0hapter 2

1age 2

%. 2hich of the following is 58T a governmental fund3 a4 0ity 9all 6ebt 'ervice Fund. b4 0ity :tilities ;nterprise Fund. c4 $asoline Ta- 'pecial <evenue Fund. d4 0ity 9all 0apital 1ro.ect Fund. &. 2hich of the following accounts would you least e-pect to see in a debt service fund3 a4 1rincipal payments. b4 Interest charges. c4 Interest earned. d4 8utstanding balance of the debt being serviced. +. 2hich of the following funds is a proprietary fund3 a4 Internal service fund. b4 'pecial revenue fund. c4 0apital pro.ect fund. d4 1ermanent fund. 1,. 2hich of the following funds is a governmental fund3 a4 ;nterprise fund. b4 6ebt service fund. c4 Internal service fund. d4 !gency fund. 11. 2hich of the following activities conducted by a city*owned .unior college should be accounted for in an agency fund3 a4 <eceipt of tuition payments. b4 <eceipt of revenues belonging to the student accounting club. c4 <eceipt of state monies appropriated for general operations. d4 <eceipt of donations in support of the university=s athletic program. 12. 2hich of the following transactions should the 0ity of 9ighland account for in a trust fund3 a4 $eneral fund contributions received by the 0ity pension plan. b4 $reens fees received from golfers at the 0ity*owned golf course. c4 $rants received from the Federal government to purchase buses to be used for public transit. d4 1roceeds of bonds issued to construct a new city hall building. 13. The state collects a gasoline ta- that must be used to support highway construction and maintenance. The gasoline ta- revenue should be accounted for in which of the following funds3 a4 $eneral fund. b4 'pecial revenue fund. c4 6ebt service fund. d4 Internal service fund.

$ranof Test (an/ 0hapter 2

1age 3

1 . The 0ity of 'an >ose built a new city hall and financed construction by issuing bonds due in installments over the ne-t 3, years. The bond principal and interest will be paid by a special ta- levied on property in the 0ity. The revenue received from this special ta- should be accounted for in which of the following funds3 a4 $eneral fund. b4 Internal service fund. c4 0apital pro.ect fund. d4 6ebt service fund. 1". <iverside $olf 0ourse is a 0ity*owned golf course that collects greens fees in amounts sufficient to cover its e-penses. <iverside $olf 0ourse should be accounted for in which of the following funds3 a4 Internal service fund. b4 ;nterprise fund. c4 $eneral fund. d4 'pecial revenue fund. 1#. To fulfill the printing needs of its various departments and agencies, the 0ity has established a 0entral 1rint 'hop, which bills the various departments and agencies of the city for printing services rendered. The 0entral 1rint 'hop should be accounted for in which of the following funds. a4 Internal service fund. b4 ;nterprise fund. c4 $eneral fund. d4 'pecial revenue fund. 1%. 2hich of the following sections is 58T re)uired in the 0omprehensive !nnual Financial <eport of a 0ity3 a4 Financial section. b4 Introductory section. c4 'tatistical section. d4 9istorical section. 1&. The (asic Financial 'tatements of a city do not include which of the following3 a4 $overnment*wide 'tatement of 5et !ssets. b4 $overnment*wide 'tatement of !ctivities. c4 $overnment*wide 'tatement of 0ash Flows. d4 'eparate balance sheets for governmental and proprietary funds. 1+. 2hich of the following funds is accounted for on the modified accrual basis of accounting3 a4 $eneral fund. b4 Internal service fund. c4 1roprietary fund. d4 1ension trust fund. 2,. 2hich of the following assets would 58T be found in the fund balance sheet of the $eneral Fund of the 0ity of 9arrison3 a4 0ash. b4 0apital assets. c4 6ue from 'pecial <evenue Fund. d4 6ue from 'tate. $ranof Test (an/ 0hapter 2 1age

21. 2hich of the following liabilities would 58T be found in the fund balance sheet of the $eneral Fund of the 0ity of ?armadu/e3 a4 !ccounts payable. b4 6ue to 'pecial <evenue Fund. c4 6eferred revenue. d4 (onds payable, due in " years. 22. For which of the following entities is fund accounting mandated3 a4 !merican 9ospital !ssociation. b4 0ity of 5ew @or/. c4 $race Autheran 0hurch. d4 :nited 2ay. 23. The focus of the 'tatement of !ctivities of the 0ity of 2est 9ills is on which of the following3 a4 6etermining the total e-penses by natural classification. b4 6etermining the total e-penses by function. c4 6etermining the total revenues by function. d4 6etermining the net cost of functions. 2 . 2hich of the following statements is 58T re)uired in the financial reports of a not*for*profit entity3 a4 'tatement of 1osition. b4 'tatement of <estricted Funds. c4 'tatement of !ctivities. d4 'tatement of 0ash Flows. 2". The primary focus of the 'tatement of !ctivities of a not*for*profit organization is on determining the net increaseBdecrease in which of the following3 a4 :nrestricted 5et !ssets. b4 Temporarily <estricted 5et !ssets. c4 1ermanent 5et !ssets. d4 5et !ssets of the entity ta/en as a whole. 2#. :nder the $!'( 'tatement 5o. 3 reporting model for governmental entities, which of the following is re)uired3 a4 8nly one set of financial statements, prepared on the full accrual basis of accounting. b4 8nly one set of financial statements, prepared on the modified accrual basis of accounting. c4 Two sets of financial statements, one that views the government as a collection of separate funds and reports using the current financial resources measurement focus and modified accrual basis of accounting for governmental funds and one that views the government as a whole by combining all governmental activities in one column and all business*type activities in another column using the full accrual basis of accounting for both columns. d4 Two sets of financial statements, one that views the government as a whole using the current financial resources measurement focus and modified accrual basis of accounting and one that views the government by function and combines all governmental activities in one column and all business*type activities in another column using the full accrual basis of accounting for both columns. $ranof Test (an/ 0hapter 2 1age "

2%. :nder the $!'( 'tatement 5o. 3 reporting model for governmental entities, the government*wide 'tatement of 5et !ssets will display which of the following3 a4 !ssets, Aiabilities, and 5et !ssets. b4 !ssets, Aiabilities, and Fund (alances. c4 !ssets, Aiabilities, and Fund ;)uity. d4 !ssets, Aiabilities, and 8wner=s ;)uity. 2&. :nder the $!'( 'tatement 5o. 3 reporting model for governmental entities, the focus of the government*wide 'tatement of !ctivities is on which of the following3 a4 1rogram revenues and general revenues. b4 1rogram revenues and e-penses. c4 5et income. d4 The net cost of each of the government=s main functions and programs. ! not*for*profit entity 'tatement of 5et !ssets will 58T report which of the following3 a4 5et assets invested in capital assets net of related debt. b4 0apital assets. c4 Temporarily restricted net assets. d4 1ermanently restricted net assets. 2hich of the following funds of 0hessie 0ity would be consolidated to form the governmental activities column in the 0ity=s government*wide financial statements3 a4 Its general fund, special revenue fund, and agency fund. b4 Its general fund, debt service fund, and capital pro.ects fund. c4 Its general fund, enterprise fund, and fiduciary fund. d4 Its enterprise fund and internal service fund. 2hich fund type would all governments normally include in their fund financial statements3 a4 0apital pro.ects funds b4 'pecial revenue funds c4 $eneral fund d4 Fiduciary funds :nder the $!'( 'tatement 5o. 3 reporting model for governmental entities, fund financial statements include separate sets of financial statements for7 a4 ;ach ma.or function of the government. b4 $overnmental funds, proprietary funds, and fiduciary funds. c4 $overnmental funds, enterprise funds, and internal service funds. d4 $overnmental funds, special revenue funds, and debt service funds.

2+.

3,.

31.

32.

$ranof Test (an/ 0hapter 2

1age #

33.

2hen a fa- machine purchased by a governmental unit is received, it should be recorded in the general fund as aCn4 a4;-pense b4;ncumbrance c4;-penditure d4$eneral 0apital !sset 2hich of the following is not included in the financial section of the 0omprehensive !nnual Financial <eport3 a4 <e)uired supplementary information b4 Aetter of transmittal c4 Financial 'tatements d4 5otes to the statements 6uring the current fiscal year, ?ountain Diew 0ity=s water utility, an enterprise fund, rendered billings for water supplied to the general fund. 2hich of the following accounts should be debited by the general fund3 a4 Transfer*out to enterprise fund b4 6ue to water utility enterprise fund c4 !ppropriations d4 ;-penditures

3 .

3".

$ranof Test (an/ 0hapter 2

1age %

PR !LEMS (CHAPTER 2) 1. !ssume that the 0ity of Ft. 'mith maintains its boo/s and records in a manner that facilitates the preparation of the fund financial statements. For each of the following events indicate in which fundCs4 of the 0ity of Ft. 'mith the event would be recorded and .ustify your fund selection. a. The 0ity collected property ta-es levied for the general operations of the 0ity. b. The 0ity collected property ta-es levied to pay principal and interest on bonds issued several years in the past to construct a new fire station. c. The 0ity collected property ta-es levied on a specific area of the 0ity for the purposes of providing more fre)uent snow removal than is en.oyed by the rest of the 0ity. d. The 0ity sold bonds to finance the construction of a new 0ity 9all. e. The 0ity sold bonds to finance ma.or renovations at the city*owned electric utility. f. The 0ity purchased a street sweeping machine. 2. !ssume that the 0ity of !mber maintains its boo/s and records in a manner that facilitates the preparation of the fund financial statements. !mber 0ity maintains a general fund, a capital pro.ects fund, and a special revenue fund. 6uring the current fiscal year, the 0ity engaged in the following transactions. <ecord all transactions. (e sure to clearly indicate the fund in which the entry is made. a. b. c. d. e. The 0ity sold bonds, face value E2# million, at par to finance the construction of a new 0ity 9all. The 0ity purchased two new police cars at a total cost of E",,,,,. The 0ity collected E&,,,, in ta-es dedicated for the eradication of no-ious weeds. The 0ity spent E#,,,, on pesticides for no-ious weeds. The 0ity ac)uired a new tractor for E&,,,,,. The 0ity paid E2,,,,, in cash and signed a note that is due in three years.

3. !ssume that (lac/foot 0ounty maintains its boo/s and records in a manner that facilitates the preparation of the fund financial statements. (lac/foot 0ounty engaged in the following transactions during the current month. 1repare .ournal entries in the general fund to record these events. a. b. c. d. e. f. 1aid salaries to 0ounty employees, E1,,,,,,. (orrowed E3",,,, on a three*year note from a local ban/ to use to buy a 0ounty car. 1urchased the 0ounty car for E3",,,,. ?ade a E%,,,, payment on outstanding accounts payable. 0ollected E3,",,,,,, of the current property ta- levy. <eceived a E",,,,, grant from the 'tate to support general government activities.

$ranof Test (an/ 0hapter 2

1age &

. Fayla Township issued the following bonds during the year7 Ten*year bonds to ac)uire e)uipment for a data processing service reported in an internal service fund (onds to construct a new police station (onds to increase the capacity of the water treatment plant reported in an enterprise fund a. The amount of debt reported in the Township=s general fund is7 1. E, 2. E+,,,,,,,, 3. E11,,,,,,,, . E1",&,,,,,,

E2,,,,,,,, E+,,,,,,,, E ,&,,,,,,

b. The Township should report depreciation e-pense related to the new capital assets in these funds7 1. The general fund 2. The enterprise fund 3. The enterprise and internal service funds . The capital pro.ects fund c. The bonds issued to construct the new police stations should be reported as7 1. 6ebt proceeds in the general fund 2. Aong*term debt in the debt service fund 3. 6ebt proceeds in the capital pro.ects fund . 5one of the above d. In accordance with bond covenants, the Township sets aside E1,,,,,,,, to help assure that it is able to meet its first payment of principal and interest on the police station debt due one year from the date the bonds were issued. The amount of liability that the Township should report in its debt service fund is7 1. E, 2. E1,,,,,,,, 3. E+,,,,,,,, . E&,,,,,,,,

$ranof Test (an/ 0hapter 2

1age +

". ! newly established 0hessie Foundation engaged in the following transactions7 1. ! donor made a E1,,,,,,,, pledge, giving the organization a legally enforceable +,*day note for the full amount. 2. The same donor paid E",,,,,, of the amount pledged. 3. The Foundation purchased a building for E+,,,,,,, paying E+,,,,, in cash and giving a ten*year mortgage for the balance. The building has a 2"*year useful life. The organization charges a half*year=s depreciation for all assets in the year they are ac)uired. . The organization hired five employees. !t year*end, these employees had earned E1,,,,, in salaries and wages for which they had not been paid. The Foundation accounts for its activities in a single fund. a. 1repare .ournal entries to record the transactions, ma/ing the following alternative assumptions as to the organization=s measurement focus7 0ash only 0ash plus other current financial resources Ccash plus short*term receivables less short*term payables4 !ll economic resources b. (ased on your entries, prepare appropriate operating statements and balance sheets for the organization. #. Faterah 0ity maintains the following funds7 1. 2. 3. . ". #. %. &. $eneral 'pecial revenue 0apital pro.ects 6ebt service ;nterprise Investment trust 1ermanent !gency For each of the following transactions, indicate which fund would most li/ely be used to report the transaction7 a. The 0ity collects E1 million of ta-es for an independent fire district located within the 0ity. b. The 0ity spends E1.2 million on street maintenance using the proceeds of a city gas ta- dedicated for road and highway maintenance and improvements. c. The 0ity receives a be)uest of E1." million. The donor=s 2ill, re)uires that the principal amount be invested in perpetuity and that the earnings on the investment be used to maintain a city par/ to be renamed for the donor. d. The 0ity collects water and sewer fees of E .2 million. e. The 0ity pays E million to a contractor for wor/ on the new bridge. f. The 0ity receives E1.3 million to invest on behalf of the 0ounty. g. The 0ity pays its police officers wages of E32",,,,. h. The 0ity pays E2.2 million in (ond Interest on its general obligation debt.

$ranof Test (an/ 0hapter 2

1age 1,

%. The $eneva 9ousing !uthority, a governmental entity, accounts for its activities on a modified accrual basis of accounting. In the current period, it reports the following transactions7 The !uthority issues E2." million in long*term bonds. The !uthority purchases acres of land for E",,,,,, in cash. It sells one of these acres of land for E12",,,, in cash. It made a E32",,,, payment on the debt, consisting of E%",,,, of interest and E2",,,,, in principal. It lost a lawsuit filed by one of its renters and was ordered to pay E1 million in damages over " years. It made its first cash payment of E2,,,,,,. 1. 1repare .ournal entries to record each of these transactions in the general fund. 2. (ased on your entries, prepare a balance sheet and statement of revenues, e-penditures, and changes in fund balance for the general fund. 3. 0omment on how these statements capture the !uthority=s economic resources and obligations. . 0omment on the e-tent to which the statement of revenues, e-penditures, and changes in fund balances captures the !uthority=s costs of services. ". 2hen the !uthority prepares $!!1 financial statements based on $!'( 'tatement 5o. 3 , what assets and liabilities would be added in the !uthority=s government*wide 'tatement of 5et !ssets3 2hat gains and losses would be added in its government*wide 'tatement of !ctivities3 &. The newly established ;nvironmental 0ouncil Ca not*for*profit organization4 uses two funds for internal reporting purposes. The general fund is used to record day*to*day operating transactions. ! building fund is used to accumulate resources for a new building to house the 0ouncil=s operations. (oth funds are reported using the accrual basis of accounting. In its first year, the 0ouncil engaged in the following transactions7 1. It received cash contributions of E",,,,,,, E1,,,,,, of which donors stipulate must be used for the new building. 2. It incurred operating payroll costs of E2,,,,,,, of which E1&,,,,, is paid in cash. 3. It earned E1,,,, in interest Cpaid in cash4 on investments restricted to the ac)uisition of the new building. . It transferred E2",,,, from its general fund to the building fund. ". It paid E1",,,, in fees Caccounted for as e-penses4 for architectural drawings for the proposed building. a. 1repare .ournal entries to record the transactions. (e sure to indicate the fund in which the entry would be made. b. 1repare a statement of revenues, e-penses and other changes in fund balances and a balance sheet. :se a two*column format, one column for each of the 0ouncil=s two funds.

$ranof Test (an/ 0hapter 2

1age 11

ESSA"S (CHAPTER 2) 1. 2hy do governments and not*for*profit entities use fund accounting3 2. $overnments use the modified accrual basis of accounting and a current financial resources measurement focus when presenting the governmental fund financial statements but they use the accrual basis of accounting and the flow of economic resources for the government*wide financial statements. 2hat is a basis of accounting3 2hat is measurement focus3 9ow does the selection of one affect the selection of the other3 3. For what purposes do governmental entities use agency funds3 2hat are the distinguishing characteristics of agency funds3 . The (asic Financial 'tatements for !mmon 0ity contains the following statements. For each statement identify the appropriate measurement focus and basis of accounting. a.4 b.4 c.4 d.4 $overnment*wide 'tatement of 5et !ssets $overnment*wide 'tatement of !ctivities (alance 'heetG$overnmental Funds 'tatement of <evenues, ;-penditures, and 0hanges in Fund (alanceG$overnmental Funds e.4 'tatement of 5et !ssetsG1roprietary Funds f.4 'tatement of <evenues, ;-penses, and 0hanges in Fund 5et !ssetsG1roprietary Funds ". The activities of an internal service fund are presented on the 'tatement of <evenues, ;-penses, and 0hanges in Fund 5et !ssets in the fund financial statements. 2hy3 #. 2hat are the three categories of restrictions that must be used to report the resources of not* for*profit organizations3 2ho must impose the restrictions in order for them to be reported3 %. 2hy are long*term debts generally not reported in a government=s debt service funds3 &. 2hat are fiduciary funds3 2hy don=t governments incorporate Cconsolidate4 these funds into their government*wide financial statements3 +. The 0ity of 8rlando maintains funds for debt service, capital pro.ects and special revenues. It does not, however, maintain funds for police, recreation, and general administration. 2hy do you suppose it does not maintain a separate fund for each of its functional areas3 1,. $!'( 3 mandates that the government reconcile total governmental fund balances per the fund balance sheet with net assets of governmental activities per the government*wide statements. 2hat are li/ely to be the two largest reconciling items for most ma.or cities3 2hy3

$ranof Test (an/ 0hapter 2

1age 12

A#S$ERS T 1. True 2. True 3. True . True ". False #. False %. True &. False +. True 1,. True 11. True 12. True

TRUE/FALSE (CHAPTER 2)

$ranof Test (an/ 0hapter 2

1age 13

A#S$ERS T 1. 2. 3. . ". #. %. &. +. 1,. 11. 12. 13. 1 . 1". 1#. 1%. 1&. 1+. 2,. 21. 22. 23. 2 . 2". 2#. 2%. 2&. 2+. 3,. 31. 32. 33. 3 . 3". c a b b c c b d a b b a b d b a d c a b d b d b d c a d a b c b c b d

MULTIPLE CH ICE (CHAPTER 2)

$ranof Test (an/ 0hapter 2

1age 1

A#S$ERS T 1roblem 1

PR !LEMS (CHAPTER 2)

a. $eneral Fund. The general fund is used to account for the general activities of a governmental entity. b. 6ebt 'ervice Fund. The debt service fund is used to account for payments of principal and interest on debt incurred to finance general government activities. c. 'pecial <evenue Fund. The proceeds may only be used for snow removal. (y accounting for these proceeds in a special revenue fund and accounting for the e-penditures of the proceeds the entity can demonstrate that it used these resources for the purpose re)uired. d. 0apital 1ro.ect Fund. ! new 0ity 9all is a general government asset. The 0apital 1ro.ect Fund is used to account for the resources held for the purpose of construction andBor ac)uisition of ma.or capital facilities. It is also used to account for the construction andBor ac)uisition of those assets. e. ;nterprise Fund. 5ormally, governments use enterprise funds to account for activities for which there comparable activities in the private sector. If the electric utility is accounted for in an enterprise fund, all fi-ed assets and all long*term debt associated with those activities will be accounted for in the enterprise fund. f. $eneral Fund. The general fund is used to account for the general activities of a government. 9owever, only the cost Ce-penditure4 of the machine would be reported in this fund. The machine Ca capital asset4 is reported only in the government*wide financial statements. 1roblem 2 a. 0!1IT!A 1<8>;0T' F:56 0ash (ond proceeds b. $;5;<!A F:56 Dehicle e-penditure 0ash c. '1;0I!A <;D;5:; F:56 0ash Ta- revenue d. '1;0I!A <;D;5:; F:56 ;-penditures for weeds 0ash e. $;5;<!A F:56 Tractor e-penditure 1roceeds of note 0ash E2# million E2# million E ",,,,, E ",,,,, E &,,,, E &,,,, E #,,,, E #,,,, E&,,,,, E #,,,,, 2,,,,,

$ranof Test (an/ 0hapter 2

1age 1"

1roblem 3 a. ;-penditures*salaries 0ash b. 0ash 1roceeds of notes c. !utomobile e-penditure 0ash d. !ccounts payable 0ash e. 0ash Ta- revenue or 1roperty ta- receivable f. 0ash $rant revenue E1,,,,,, E1,,,,,, E 3",,,, E 3",,,, E 3",,,, E 3",,,, E %,,,, E %,,,, E3,",,,,,, E3,",,,,,, E ",,,,, E ",,,,,

1roblem a. b. c. d. 1 3 3 1

$ranof Test (an/ 0hapter 2

1age 1#

1roblem "

a.

Focus on cash
C14

5o entry necessary G no cash involved. C24 0ash 0ontribution revenues To record the partial collection of the note C34 (uilding ac)uisition e-penditure 0ash To record the cash paid to acquire the building C 4 5o entry necessary G no cash involved Focus on cash plus current financial resources C14 5ote receivable 0ontribution revenue To record the note received C24 0ash 5ote receivable To record the partial collection of the note C34 (uilding ac)uisition e-penditure E +,,,,, 0ash E +,,,,, To record the cash paid to acquire the building (No recognition is given to the long-term note or to the building, a long-term asset.) C 4 2age e-penditure 2ages payable To record the wages earned by employees, but not yet paid. E 1,,,,, E 1,,,,, E ",,,,,, E ",,,,,, E1,,,,,,,, E1,,,,,,,, E +,,,,, E +,,,,, E ",,,,,, E ",,,,,,

$ranof Test (an/ 0hapter 2

1age 1%

Focus on all economic resources C14 5ote receivable 0ontribution revenue To record the note received C24 0ash 5ote receivable To record the partial collection of the note C34 (uilding 0ash ?ortgage note payable To record the acquisition of the building 6epreciation e-pense !ccumulated depreciation To record depreciation on the building C 4 2age e-pense 2ages payable To record the wages earned by employees, but not yet paid b. 'tatements of <evenues and ;-penditures 0urrent Financial <esources E1,,,,,,,, +,,,,, 1,,,,, 1,,,,,, E +,,,,,, !ll ;conomic <esources E1,,,,,,,, E 1&,,,, 1,,,,, 2&,,,, E +%2,,,, E 1,,,,, E 1,,,,, E +,,,,,, E +,,,,, &1,,,,, E 1&,,,, E 1&,,,, E ",,,,,, E ",,,,,, E1,,,,,,,, E1,,,,,,,,

0ash 0ontribution revenue (uilding ac)uisition e-penditure Cor depreciation e-pense4 2age e-penditureBe-pense Total e-pendituresBe-penses ;-cess of revenues over e-pendituresBe-penses E",,,,,, +,,,,, , +,,,,, E 1,,,,,

$ranof Test (an/ 0hapter 2

1age 1&

(alance 'heets 0urrent Financial <esources E 1,,,,, ",,,,,, E +1,,,,, E 1,,,,, E 1,,,,, 1,,,,, !ll ;conomic <esources E 1,,,,, ",,,,,, &&2,,,, E1,%+2,,,, E 1,,,,, &1,,,,, +%2,,,, E1,%+2,,,,

0ash !ssets 0ash 5ote receivable (uilding Cless accumulated depreciation4 Total assets Aiabilities and Fund (alance 2ages payable ?ortgage note payable Fund balance Total liabilities and fund balance E 1,,,,, E 1,,,,,

+,,,,,, E +1,,,,,

$ranof Test (an/ 0hapter 2

1age 1+

1roblem # a. b. c. d. e. f. g. h. & 2 % " 3 # 1

1roblem % 1. >ournal entries in !uthority=s general fund C14 0ash 1roceeds from borrowing To record the issuance of bonds C24 ;-penditure for land 0ash To record the purchase of land C34 0ash 1roceeds from sale of land To record sale of land C 4 <epayment of bonds Ce-penditure4 0ash To record repayment of bonds C"4 Aegal claims Ce-penditure4 0ash To record payment of judgment E 2,,,,,, E 2,,,,,, E 32",,,, E 32",,,, E 12",,,, E 12",,,, E ",,,,,, E ",,,,,, E2,",,,,,, E2,",,,,,,

$ranof Test (an/ 0hapter 2

1age 2,

2.

?odified accrual statements $eneva 9ousing !uthority (alance 'heet

0ash Fund (alance

E1.#,,,,,, E1,#,,,,,, $eneva 9ousing !uthority 'tatement of <evenues, ;-penditures and 0hanges in Fund (alance

evenues and other financing sources (ond proceeds 1roceeds from sale of land Total revenues and other financing sources !"penditures and other financing uses <epayment of bonds !c)uisition of land Aegal claims Total e-penditures and other financing uses ;-cess of revenues and other financing sources over e-penditures and other financing uses 3.

E2,",,,,,, 12",,,, 2,#2",,,, 32",,,, ",,,,,, 2,,,,,, 1,,2",,,, E1,#,,,,,,

The governmental fund balance is not intended to report economic resources. <ather it reports current financial resourcesGcurrent financial resources available to meet current obligations. 8nly the government*wide statements measure all economic resources Gincluding capital assets and long*term obligations. The governmental fund statement of revenues, e-penditures and other financing sources does not measure the cost of services Ce.g., it recognizes borrowings as an increase in fund balance and the full cost of ac)uiring capital assets as a decrease4. It is not designed to do so. Instead it is designed to report on flows of current financial resources. In its $!!1 government*wide 'tatement of 5et !ssets, the !uthority would report its capital assets Cland4 and long*term liabilities Clong*term debt and claims and .udgments4. In the 'tatement of !ctivities, the !uthority would report a gain on the sale of land and a loss related to the renter=s lawsuit. The government*wide statements are prepared using the accrual basis of accounting and therefore measure all economic resources, not .ust current financial resources.

".

$ranof Test (an/ 0hapter 2

1age 21

1roblem & a. >ournal entries C14 0ash 0ontribution revenues To record contribution revenue (general fund) 0ash 0ontribution revenues To record contribution revenue (building fund4 C24 8perating e-penditures 0ash 'alaries payable To record payroll e"penditures (general fund) C34 0ash Interest revenue To record interest revenue (building fund) C 4 Transfer to building fund 0ash To record transfer-out to building fund (general fund) 0ash Transfer*in from general fund To record transfer-in from general fund (building fund) C"4 ;-penditures for architectural services 0ash To record fees paid to architect (building fund) E 1",,,, E 1",,,, E 2",,,, E 2",,,, E 2",,,, E 2",,,, E 1,,,, E 1,,,, E2,,,,,, E1&,,,,, 2,,,,, E1,,,,,, E1,,,,,, E ,,,,,, E ,,,,,,

$ranof Test (an/ 0hapter 2

1age 22

b.

Financial 'tatements ;nvironmental 0ouncil 'tatement of <evenues, ;-penses and 8ther 0hanges in Fund (alance $eneral Fund (uilding Fund E1,,,,,, 1,,,, 1,1,,,, 1",,,, 2,,,,,, C2",,,,4 E1%",,,, &#,,,, 2",,,, E 111,,,,

<evenues 0ontribution revenue Interest Total revenues ;-penditures 8perating e-penditures !rchitecture services ;-cess of revenues over e-penditures Transfers from Cto4 other funds Increase in fund balance

E ,,,,,, ,,,,,, 2,,,,,,

;nvironmental 0ouncil (alance 'heet $eneral Fund !ssets 0ash Aiabilities and fund balance 'alaries payable Fund balance Total liabilities and fund balance E 1+",,,, E 2,,,,, 1%",,,, E1+",,,, (uilding Fund E111,,,,

E111,,,, E111,,,,

$ranof Test (an/ 0hapter 2

1age 23

A#S$ERS T

ESSA"S (CHAPTER 2)

1. $overnmental and not*for*profit entities use fund accounting to demonstrate accountability. (y segregating the assets, entities are able to demonstrate clearly that the assets were used for the intended purposes. (y segregating certain activities, governments can better control the revenues and e-pendituresBe-penses of these activities. It would not be uncommon for governments and not*for*profit entities to segregate assets whose use is restricted by outside donors, nor would it be uncommon for these entities to segregate the revenues and e-penses of activities that are supposed to be self*supporting. 2. (asis of accounting determines 29;5 transactions and events are recognized. ?easurement focus determines 29!T is being reported upon. If an entity selects the cash basis of accounting, its measurement focus will necessarily be upon the flow of cash. If an entity selects full accrual accounting its measurement focus will, of course, be upon flow of economic resources. !n entity must first decide 29!T assets and liabilities it wants to display and choose a basis of accounting that will then enable the entity to display those assets and liabilities. 3. !gency funds are used to account for assets that the governmental entity holds temporarily on behalf of other governments, private organizations, or individuals. !gency funds are mechanisms for segregating, on financial reports, assets held for others to demonstrate accountability and stewardship. (ecause agency funds are merely lists of assets held for others, with a corresponding obligation to those parties, agency funds have no operating accounts and no e)uity accounts. !ssets H liabilities is the accounting e)uation. . a.4 b.4 c.4 d.4 e.4 f.4 ;conomic <esourcesI !ccrual ;conomic <esourcesI !ccrual 0urrent Financial <esourcesI ?odified !ccrual 0urrent Financial <esourcesI ?odified !ccrual ;conomic <esourcesI !ccrual ;conomic <esourcesI !ccrual

". The activities of an internal service fund are presented on the 'tatement of <evenues, ;-penses, and 0hanges in Fund 5et !ssets because they are part of the proprietary fund category. 1roprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting to provide information about the full cost of the activities reported in those funds. #. Temporarily restricted, permanently restricted, and unrestricted resources. Temporarily restricted resources are those that must be used for a specific purpose Cfor e-ample, to support donor*designated programs or activities4 or cannot be spent until some time in the future Cfor e-ample, when a donor ma/es good on a pledge4. 1ermanently restricted resources are typically endowments, only the income from which can be spent. :nrestricted funds, of course, are not sub.ect to restrictions. The restrictions are based only on donor mandates. <estrictions imposed by other parties Cfor e-ample, creditors4 are not ta/en into account for purposes of resource classification.

$ranof Test (an/ 0hapter 2

1age 2

%. There are generally no long*term debts reported in the debt service fund because these funds are maintained on the modified accrual basis of accounting to account only for the current financial resources that will be used to pay the interest and principal on long*term debts. These resources are set apart from other resources because they can only be used for their specified purposes. The principal and interest payments on the long*term debt that are currently due and payable are reported in the debt service fund that will service the long*term debt. &. Fiduciary funds are used to account for resources held by the government as either a trustee Ca party that administers property for a beneficiary4 or an agent Cone who acts on behalf of another4. $overnments do not incorporate Cconsolidate4 fiduciary funds into their government*wide financial statements because they benefit only outsiders and a government cannot e-pect to have use of their resources. +. Funds are not maintained for organizational units. They are established only for resources that are restricted. Typically the resources for the /ey functional areas are provided by unrestricted ta- revenues. 1,. Aong*lived assets and long*term liabilities. These are recorded on the government*wide statements but not the fund statements as the former are on a full accrual basis but the latter are on a modified accrual basis.

$ranof Test (an/ 0hapter 2

1age 2"