ACCT567 Case Study I (Week 2)

The General Fund of Middleville has presented you with the following trial balance
as of June 30, 2011.
Debits
Credits
Cash
Taxes Receivable- Delinquent
Estimated Uncollectible Taxes- Delinquent

$ 40,000
142,000

9,100
Interest and Penalties Receivable
Vouchers Payable

32,000

24,000
Budgetary Fund Balance-Reserve for Encumbrances
10,200
Fund Balance

_________

170,700
$ 214,000
$214,000
The information that is being presented to you pertains to the transactions for the
city of Middleville for the fiscal year ended June 30, 2012.
1. The following budget was adopted by the city council:
Estimated Revenues:
Property Taxes
Fines and Penalties
Licenses and Permits
Federal Grant
Appropriations and Other Financing Uses
Public Safety
General Government
Public Works
Parks and Recreation
Transfers Out

$ 650,000
44,000
150,000
85,000
929,000
402,000
263,000
102,000
92,000
34,000
893,000

2. Encumbrances outstanding at the end of the year were re-opened.

3. Property taxes of $ 660,000 were levied. It is estimated that 2.5% of the
property taxes levied are expected to be uncollectible/
4. Purchase orders issued for the 2012 fiscal year were as follows:
Public Safety, $ 395,000; General Government, $ 259,000; Public Works, $
100,000; Parks and Recreation, $ 98,000.
5. Cash collected for the Federal Grant from the Federal Government, $ 94,000.
6. Cash collected and transferred in as follows:
Fines and Penalties
43,000
Licenses and Permits
164,000

7. Cash collected on property taxes were as follows: Current taxes, $559,000,

Delinquent Taxes, $ 41,000 and $ 22,000 of interest and penalties were
collected.

8. Purchase orders issued in 2012 in the following amounts were filled in at the
following amounts:
Estimated
Actual
Public Safety
$ 395,000
$ 393,600
General Government
$ 259,000
$ 258,200
Public Works
$ 100,000
$ 99,400
Parks and Recreation
$ 98,000
$ 97,500
----------------------------$ 852,000
$ 848,700
9. Vouchers paid amounted to $ 840,000 and the transfer out to the Debt
Service Fund, $34,000.
10.Please reclassify the Taxes Receivable Current and Estimated Uncollectible
Taxes- Change from Current to Delinquent.
Instructions:
a. Prepare journal entries for the fiscal year ending 2012.
b. Prepare closing entries.
c. Prepare a General Fund Statement of Revenues, Expenditures, and Changes
in Fund Balance for the year ended June 30, 2012.
d. Prepare a General Fund Balance Sheet as of June 30, 2012.
Grading Rubric for Case Study 1:
Category
Documentation &
Formatting

Points
10

Organization and
Cohesiveness

15

30%

Content

25

50%

Total

50

100%

20%

Description
Project will be done
in Excel and will
contain formulas to
receive maximum
credit.
Calculations for all
parts should be
organized and
correctly labeled.
A quality case
study will have all
required work
completed and will
be correct.
A quality project
will meet or exceed

all of the above

requirements.
Users of governmental financial reports require substantially different information
than users of business financial reports. GASB white paper identifies key differences
between financial reporting for governments and for-profit business entities.
According to a white paper released on March 16, 2006 by the Governmental
Accounting Standards Board (GASB), individuals and organizations who are
interested in the financial performance of state and local governments have
substantially different information needs than those who follow the financial
performance of for-profit entities.
These different and more diverse needs result from basic environmental differences
between governments and businesses. According to the paper, the primary purpose
of governments is to enhance or maintain the well-being of citizens by providing
services in accordance with public policy goals. In contrast, for-profit business
enterprises focus primarily on wealth creation, interacting principally with those
segments of society that fulfill their mission of generating a financial return on
investment for shareholders.
The white paper cites several other crucial differences that generate user demand
for unique information:
Governments serve a broader group of stakeholders, including taxpayers, citizens,
elected representatives, oversight groups, bondholders, and others in the financial
community.
Most government revenues are raised through involuntary taxes rather than a
willing exchange of comparable value between two parties in a typical business
transaction.
Monitoring actual compliance with budgeted public policy priorities is central to
government public accountability reporting.
Governments exist longer than for-profit businesses and are not typically subject to
bankruptcy and dissolution. These significant differences, coupled with the sizable
role that state and local governments play in the U.S. economy, are the primary
reasons why separate accounting and financial reporting standards for governments
are necessary, said Robert E. Denham, chairman of the Financial Accounting
Foundation Board of Trustees. The information such standards foster protects the
interests of citizens and other key stakeholders by enhancing their ability to hold
governments accountable and make better political, social, and economic
decisions.
According to Federal data presented in this new white paper, revenue collected by
state and local governments totaled $1.8 trillion or 20 percent of the 2002 U.S.
gross domestic product, while state and local governments account for 12 percent
of total U.S. employment.
The standards that guide financial reporting for state and local governments reflect
the unique environment of government, including different organizational purposes
and special legal powers, said Robert Atmore, GASB Chairman. They also
effectively address public accountability issues inherently related to the unique
aspects of the government environment.
The Trustees of the Financial Accounting Foundation (FAF) are responsible for the
oversight, administration, and finances of both the Financial Accounting Standards
Board (FASB) and its counterpart for state and local government, the Governmental
Accounting Standards Board (GASB).

The GASB is the independent, not-for-profit organization formed in 1984 that

establishes and improves financial accounting and reporting standards for state and
local governments. Its seven members are drawn from the Boards diverse
constituency, including preparers and auditors of government financial statements,
users of those statements and members of the academic community.
On August 18, 2016, the Financial Accounting Standards Board (FASB) issued an
Accounting Standards Update (ASU) that simplifies and improves how a not-forprofit organization classifies its net assets, as well as the information it presents in
financial statements and notes about its liquidity, financial performance, and cash
flows.
The Financial Accounting Standards Board (FASB) issued an Accounting Standards
Update (ASU) that simplifies and improves how a not-for-profit organization
classifies its net assets, as well as the information it presents in financial statements
and notes about its liquidity, financial performance, and cash flows.
The ASU requires improved presentation and disclosures to help not-for-profits
provide more relevant information about their resources (and the changes in those
resources) to donors, grantors, creditors, and other users. These include qualitative
and quantitative requirements in the following areas:
Net Asset Classes; Investment Return; Expenses; Liquidity and Availability of
Resources; Presentation of Operating Cash Flows. In addition, FASB held a webcast
providing an overview of the ASU that covered: The purpose and scope of the ASU;
Key changes to the financial statement reporting model for not-for-profit entities;
Transition and effective date; Audience question-and-answer session.
http://gasb.org/cs/ContentServer?c=GASBContent.
https://www.ifebp.org/news/regulatoryupdates/Pages/FASB-ASU-NotforProfitWebcast.aspx
QUESTION 1: In your own words state the primary uses the GASB believes external
users have for financial reports of state and local governments. For contrast, state
the uses the FASB believes external users have for the financial reports of not-forprofit organizations.
GASB white paper cites several crucial differences that generate user demand for
unique information:
Governments serve a broader group of stakeholders, including taxpayers, citizens,
elected representatives, oversight groups, bondholders, and others in the financial
community.
Most government revenues are raised through involuntary taxes rather than a
willing exchange of comparable value between two parties in a typical business
transaction.
Monitoring actual compliance with budgeted public policy priorities is central to
government public accountability reporting. Governments also exist longer than forprofit businesses and are not typically subject to bankruptcy and dissolution.
External users of governmental financial reports, GASB believes, need to compare
actual results with the legally adopted budget; assess financial condition and the
results of financial operations; assist in determining compliance with finance-related
laws, rules, and regulations; assist in evaluating efficiency and effectiveness.

FASB believes that financial reports of not-for-profit organizations should provide

information useful in making resource allocation decisions; useful in assessing
services and ability to provide services; useful in assessing management
stewardship and performance; and about economic resources, obligations, net
resources, and changes in net assets. On August 16, 2016, FASB issued a new ASU
that believes that financial reports of not-for-profit organizations should provide
information useful in making resource allocation decisions; useful in assessing
services and ability to provide services; useful in assessing management
stewardship and performance; and about economic resources, obligations, net
resources, and changes in net assets.
QUESTION 2: Describe the difference between a comprehensive annual financial
report (CAFR) and GASB general purpose external financial reporting for state and
local governments.
CAFR is more inclusive than the general purpose external financial information
described in GASB 34. The CAFR presents three types of information: introductory
material from the entitys management, such as transmittal letters, organizational
charts, and awards; financial statements, including financial information required by
GASB 34; and statistical information, such as demographic information about entity
and summaries of taxes and property-assessed values over time. By contrast, GASB
34 requires management discussion and analysis (MD & A); government-wide
financial statements; fund financial
The financial aspects of the entity are majorly covered in the financial section of the
report. This report contains information on the assets and liabilities of the
government entity in addition to revenues (income) and expenses (on which money
was spent during the period).
The basic objective of general purpose external financial reporting is to meet the
financial information requirements of various stakeholders. Such information can be
obtained from basic financial statements or CAFR. GASB provides the standards on
the basis of which financial statements are required to be prepared for external
financial reporting purposes. It is on the basis of information presented in
accordance with these standards, that the performance of a government entity can
be ascertained and evaluated by the users of financial statements.
The primary difference between a general-purpose and a CAFR is a plan for a
specific fiscal period (often a year) primarily showing where tax income is to be
allocated. The CAFR contains the results of the period (year) with previous years
accumulations. A CAFR shows the total of all financial accounting that a generalpurpose budget reports does not. The CAFR contains a section that provides a
comparison of period budget and actual.
General Purpose Budgets contain both the spending categories of specified units of
government, such as school districts, social services, transportation, courts, police,
fire, and park services; along with estimates of revenues expected to occur during
the year, such as investment return; due from other funds, overrides of money from
the previous year, and tax payments. They are usually more limited to the expected
costs of running the aforementioned government operations through tax income as
opposed to describing the status of any government fixed assets and investment
wealth.
A CAFR is a report of the complete overall financial results not just for the year but
what has accumulated since the inception of that local government of both those

"specific groupings" of government agencies that appear in the current fiscal year
General Purpose Budget and all other agencies and departments.