Solution Manual Advanced Accounting 9E by Hoyle Chapter 17 PDF

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CHAPTER 17
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS,
PART II
Chapter Outline
I. Government entities sometimes obtain property by lease rather than by purchase.

A. Leases are recorded as either capital leases or operating leases based upon the
criteria first established by FASB Statement 13.
B. Based on this standard, a lease that meets any one of the following criteria is a capital
lease:
a. The lease transfers ownership of the property to the lessee by the end of the lease
term.
b. The lease contains an option to purchase the leased property at a bargain price.
c. The lease term is equal to or greater than 75 percent of the economic life
of the leased property.
d. The present value of minimum lease payments equals or exceeds 90 percent of
the fair value of the leased property.
C. For a state or local government, a capital lease is recorded as follows:
a. In the government-wide financial statements, the lease is reported as an asset and
liability at the present value of the minimum leases payments and then
depreciation (on the asset) and interest (on the liability) are recognized in the same
manner as used by for-profit organizations.
b. In the fund-based financial statements for government funds, the present value of
the minimum lease payments is recorded as an expenditure and an other financing
source with later interest and principal payments recorded as expenditures. No
depreciation is recognized because the asset is not recognized.
II. Governments often establish solid waste landfills. They can be recorded within the
proprietary funds, if a user fee is assessed, or as part of the general fund if the landfill is
open to the public without a charge.
A. A landfill can eventually create a large liability for the government because of closure
costs and post-closure maintenance and monitoring.
B. On government-wide financial statements, recognition of this liability is based on accrual
accounting and the economic resource measurement focus. Thus, the liability is
recognized as the available space becomes filled. If the landfill is recorded as an
Enterprise Fund, this same reporting is appropriate for fund-based financial statements.
C. If the landfill is reported within the General Fund, the liability is only reported on the
fund-based statements when there is a claim to current financial resources.
III. Governments incur a liability for compensated absences earned by government employees
such as school teachers and police officers.
A. Government-wide financial statements require recognition of the liability and expense
as incurred based on accrual accounting and the economic resource measurement
focus.
B. Fund-based financial statements record a liability only if the claim is to be paid from
current financial resources.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e 17-1
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IV. Works of Art and Historical Treasures

A. Artworks, historical treasures, and similar assets should be capitalized at cost (or fair
value at the date of donation) in government-wide financial statements.
B. An expense rather than an asset can be recorded if the item does not generate
economic benefits and meets the following criteria.
a. Held for public exhibition, education, or research in furtherance of public service,
rather than financial gain.
b. Protected, kept unencumbered, cared for, and preserved.
c. Subject to the policy that revenues generated from sales of items in the collection
be used to add to the collection.
C. If capitalized, depreciation is not required if this type of asset is considered to be
inexhaustible.
V. Infrastructure Assets and Depreciation

A. Newly-acquired infrastructure assets (such as roads, bridges, and sidewalks) should be
capitalized at historical cost in the government-wide financial statements and recorded
as an expenditure in the fund-based financial statements.
B. Major general infrastructure assets put into service since 1980 must also be capitalized
although an estimation of current book value may be necessary.
C. Depreciation of all capital assets other than land and inexhaustible artworks is required
so that infrastructure items are also subject to depreciation.
D. However, the “modified approach” allows the expensing of maintenance costs in lieu of
depreciation for infrastructure assets if certain criteria are met.
a. A minimum acceptable condition level is established for a network of infrastructure
assets and documentation is provided to show that this minimum level has been
maintained.
b. An asset management system must be in place to monitor the particular system of
assets.
VI. The comprehensive annual financial report (CAFR) includes general purpose external
financial statements. These statements are divided into three distinct sections.
A. Management’s discussion and analysis (MD&A) which provides a broad range of
information to help decision-makers evaluate the operations and financial position of
the government entities.
B. Financial statements
a. Government-wide financial statements.
b. Fund-based financial statements.
c. Notes to the financial statements.
C. Required supplementary information.
VII. For governmental accounting, a primary government such as a city or town is a reporting
entity that normally produces a comprehensive annual financial report (CAFR).
A. In addition, a special purpose government (such as a school board or water
commission) qualifies as a reporting entity if it meets the following three criteria:
a. It has a separately elected governing body.
b. It is legally independent
c. It is fiscally independent of any other state and local governments
B. Component units that meet either of the following two criteria should be reported within
the CAFR of the reporting government even though they are independent operations.

17-2 Solutions Manual
a. It must be fiscally dependent upon the primary organization or

b. The primary government must appoint a voting majority of the governing board and
either be able to impose its will on the component organization or the component
organization provides a financial benefit or imposes a financial burden on the
primary government.
C. Once identified, component units can be discretely presented in a separate column to
the right of the government-wide statements or blended with the primary government as
if it made up a part of the primary organization.
VIII. Public colleges are required to meet GASB standards, whereas private colleges are
required to meet FASB standards.
A. Private colleges generally depend more on tuition and usually have greater
endowments.
B. Governments provide the major support for public colleges.
C. GASB No. 35 requires the application of GASB No. 34 to public colleges. However,
many of these schools assume that they function solely as an Enterprise Fund (open to
the public for a user charge). Thus, these schools are allowed to produce fund-based
financial statements without need for government-wide statements.
Learning Objectives
Having completed Chapter Seventeen of the textbook, “Accounting for State and Local
Governments (Part Two),” students should be able to fulfill each of the following learning
objectives:
1. Understand how leases are classified as either capital or operating and their subsequent
recording in the government-wide and fund-based financial statements.
2. Explain the reason for the difference in the classification of the operation of solid waste
landfills as either a proprietary fund or a general fund.
3. Understand how a landfill can generate a large liability for a government and the difference
in the recognition and the subsequent recording of this liability in the government-wide
financial statements and the fund-based financial statements.
4. Understand how governments incur a liability for compensated absences earned by

government employees and the difference in their subsequent recording in the government-
wide financial statements and the fund-based financial statements.
5. Explain the capitalization rules for art, historical treasures, and similar assets and their
subsequent recording in the government-wide and in the fund-based financial statements.
6. Describe when an exception to the required capitalization and depreciation rules for art,
historical treasures, or similar assets is justified.
7. Understand the accounting that is required for a government’s infrastructure assets such as
bridges and sidwalks.

8. Explain the criteria for the “modified approach” that allows expensing of maintenance costs
in lieu of depreciation for infrastructure assets.
9. Describe the three distinct sections of the general purpose external financial statements.
10. Be able to explain when an operation (such as a school system) that is not a primary
government (such as a city or state) is still viewed as a reporting entity for government
accounting purposes.
11. Explain the criteria that must be met to be reported as a component unit and the difference
in reporting between a unit that is discretely presented and one that is shown as a blended
unit.
12. Describe the two government-wide financial statements.
13. Describe the traditional fund-based financial statements, especially for the governmental
funds and for the proprietary funds.
14. Explain the method by which governmental accounting rules are applied to public colleges
and universities.
Answer to Discussion Question
Is It Part of the County?
In financial accounting for a for-profit organization, the boundary for the reporting entity and its
various activities (or subsidiaries) is relatively easy to determine. GAAP provides the basis for
inclusion in the consolidated financial statements, which includes all entities over which a
company has control.
In accounting for state and local governments, the distinction is not so clear. What constitutes a
reporting entity? Obviously, a primary government such as a city or county is a reporting entity.
What about other governmental operations and activities that exist separate from a primary
government? When do those operations qualify as special purpose governments and when
should they be viewed as component units to be reported by a primary government?
A special purpose government is a reporting entity. It has a separately elected governing body,
it is legally independent, and it is fiscally independent. Fiscal independence constitutes setting
its own budget, levying taxes, and/or issuing bonds without outside approval. Here, the
industrial development commission is not fiscally independent of Harland County. Harland
County has the ability to impose its will on the separate organization by its right to approve the
commission’s budget. Therefore, the industrial development commission is not a special
purpose government.
Is the industrial development commission a component unit? Component units are not always
easy to determine. An activity is classified as a component unit if it is fiscally dependent on the
primary government. Because the commission’s budget must be approved by the county
government, the commission would appear to qualify as a component unit for Harland County.

Can the commission also be a component unit of the state? There is not fiscal dependence but
a component unit does exist if the primary government appoints a voting majority of the board
and (a) the primary government can impose its will on that board or (b) the separate
organization provides a financial benefit for the primary government or imposes a financial
burden. The state does appoint 15 out of 20 of the board members. appointment of that
number of board members does indicate state control. However, there is no evidence or
information here that indicates that the state can impose its will on the board or that the
separate organization provides a financial benefit or imposes a financial burden on the state.
Therefore, unless other information becomes available indicating that one these requirements is
present, the industrial commission is not a component unit of the state. However, because of
the appointment of the majority of the board, the commission is a related organization to the
state. In that case, the state must disclose the nature of the relationship in its financial
statements.
Answers to Questions
1. State and local governments apply FASB Statement Number 13, “Accounting for Leases,”
to determine whether a lease is a capital lease or an operating lease. A lease that meets
any one of the following criteria is held to be a capital lease:
a. The lease transfers ownership of the property to the lessee by the end of the lease term.
b. The lease contains an option to purchase the leased property at a bargain price.
c. The lease term is equal to or greater than 75 percent of the estimated economic life of
the leased property.
d. The present value of rental or other minimum lease payments equals or exceeds 90
percent of the fair value of the leased property.
2. Within the government-wide financial statements, the accounting for capitalized leases is the
same as for-profit enterprises. The asset and liability are initially recorded at the present
value of the minimum lease payments. Accrual accounting and the economic resource
measurement basis are appropriately followed. The equipment would be increased along
with the liability obligation. Subsequently, both depreciation expense and interest expense
must be recognized. The entries in the fund-based financial statements are the same if a
proprietary fund is involved.
The recording of a capital lease in one of the governmental funds within the fund-based
statements involves the following three steps:
a. The initial entry reports the present value of the liability as an other financing
resource.
b. The present value is also recorded as an expenditure consistent with the current
financial resources approach being used.
c. When each payment is made, the debt and interest are both recorded as
expenditures.
3. In government-wide financial statements, the lease payment is treated the same as it is in

for-profit organizations: part of the payment is considered interest and the rest is payment
of the lease obligation.
In fund-based financial statements, the recording is the same if a proprietary fund is

involved. However, the recording of a capital lease payment in the governmental funds
involves the recording of the debt and interest payments as expenditures.

4. Solid waste landfills can be a significant source of liability for local governments. The federal
government has strict rules on groundwater monitoring and post-closure activities. This legal
obligations can involve large payments over an extended period of time even after the
landfill is closed.
5. Government-wide financial statements recognize expenses on the accrual and economic

resource measurement basis. Therefore, seven percent of the expected landfill closure
liability cost would be accrued during the current year as an expense and to report the
proper liability.
In the fund-based financial statements, the entry is the same as above if an Enterprise Fund
is involved.
In the fund-based statements, if the landfill is recorded in the General Fund, the only charge
to expenditures is a current payment, if it is made. Thus, the eventual liability is ignored
unless it will be paid from current financial resources.
6. Government-wide financial statements recognize expenses on the accrual and economic

resource measurement basis. At the end of the first year, 11 percent is multiplied times the
expected closing and other related costs and that figure is recognized as both an expense
and a liability. At the end of the second year, 24 percent is multiplied times the expected
costs (which may have changed since the end of year one) and the liability to be reported is
raised to this new amount. It is the change in the liability that creates the amount of
expense to be reported for the second year.
For fund-based financial statements, assuming the landfill is reported in the General Fund,
no recording is made unless (a) an actual payment is made because of the eventual closure
or (b) some part of that liability represents a claim to current financial resources in this
period.
7. The amount accrued, $2,000 in this case, should be recorded on the government-wide
financial statements as an expense at the end of 2008 along with the related liability. As a
governmental fund transaction, the fund-based financial statements only include an amount
as a liability at the end of 2008 if it is to be paid early enough in 2009 to require the use of
current financial resources held at the end of 2008 (which does not appear to be the case).
8. Because of the accrual recorded on the government-wide financial statements at the end of
2008, the actual payment simply reduces both cash and the liability balance.
On the fund-based financial statements, assuming no accrual was reported in 2008, the
payment in 2009 is a reduction in cash along with an Expenditure balance. If the amount is
paid with proprietary funds, it is treated the same as in government-wide statements.
9. Governments should capitalize donated works of art, historical treasures, and similar assets
at the fair value at the date of the gift. However, if there is no charge for admission to see
the art, it is difficult to consider it an asset because it generates no economic benefit. Thus,
the artwork does not have to be capitalized if all of the following criteria are met:

a. Held for public exhibition, education, or research in furtherance of public service, rather
than financial gain.
b. Protected, kept unencumbered, cared for, and preserved.
c. Subject to an organizational policy that requires the proceeds from sales of collection
items to be used to acquire other items for collections.
If capitalized, depreciation is only required if the asset is exhaustible. This means that the
asset is used up by display, education, or research. Otherwise, depreciation is not required.
10. A revenue still must be reported because of the donation. If the government chooses not to
record the qualifying asset in the government-wide financial statements, an expense must
be reported in place of the asset whether purchased or received as a gift. If the item is
received by donation, the revenue portion of the entry is required.
11. The modified approach is an alternative to depreciating infrastructure assets. This approach
allows the government to expense all maintenance costs rather than record depreciation but
only if certain guidelines are met. The government must accumulate certain information
about particular infrastructure assets within either a network or subsystem of a network. The
government must establish a minimum acceptable level for the network or subsystem of the
network and maintain documentation that this level is being maintained. An asset
management system must be in place to monitor and provide records of the infrastructure
assets.The ongoing condition must be assessed and an annual estimation made of the cost
of maintaining and preserving the infrastructure to meet the established condition levels.
Governments must determine whether this amount of work should be carried out simply to
avoid the recording of depreciation.
12. Depreciation of infrastructure assets is not recorded but all maintenance is expensed. Also,
in applying the modified approach, certain disclosures are required on the government-wide
financial statements. This includes disclosure that the government is accumulating certain
information about particular infrastructure assets within either a network or subsystem of a
network. The disclosure must include specific information about the minimum acceptable
level for the network or subsystem of the network and that this level is being maintained and
monitored by an asset management system.
13. A Management’s Discussion and Analysis (MD&A) similar to profit-making financial

statements is now required for state and local governments.The MD&A is presented before
the financial statements and provides the following information:
(1) A brief discussion of the financial statements and information provided and their
relationships to each other.
(2) Condensed financial information at least including
a. Total capital and other assets
b. Total long-term and other liabilities
c. Total net assets, including amounts invested, in capital assets net of debt, restricted
and unrestricted amounts.
d. Program revenues, by major source.
e. General revenues, by major source.
f. Total revenues.
g. Program expenses, by function.
h. Total expenses

i. Excess or deficiency before contributions to term and permanent fund principal,

special and extraordinary items, and transfers.
j. Contributions
k. Special and extraordinary items
l. Transfers
m. Change in net assets
n. Ending net assets
(3) Overall financial position and results of operations
(4) Balances and transactions analyses with explanation of significant changes
(5) Analysis of significant variations between original and final budget amounts
(6) Description of significant capital asset and long-term debt activity
(7) Information about the modified approach for infrastructure assets
(8) Any known facts, decisions, or conditions that are expected to significantly impact on
financial position or results of operations.
14. The Comprehensive Annual Financial Report (CAFR) includes three sections
a. Introductory Section
1. Letter of transmittal
2. Organizational chart
3. List of principal officers
b. Financial Section
1. MD&A (Management’s Discussion & Analysis)
2. General purpose financial statements
3. Auditor’s report
4. Other required supplementary information
c. Statistical Section
15. A general purpose government is a traditional government such as a city, county, or state.
A special purpose government (such as school system) can also be a primary government
for reporting purposes if certain requirements are met.
Classification as a special purpose government requires meeting three criteria:

a. It has a separately elected governing body.
b. It is legally independent. It can sue and be sued and buy, sell, and lease property.
c. It is fiscally independent of other state and local governments. It can determine its own
budget, levy and set tax rates, and issue bonded debt without outside approval.
16. Classification as a component unit requires meeting one of two criteria:

a. The activity is fiscally dependent on a state or local government. It cannot determine its
own budget, levy and set tax rates, and issue bonded debt without outside approval.
or
b. An outside primary government appoints a voting majority of the governing board of the
activity. The primary organization must also be able to do one or more of the following:
impose its will on the board of the component organization, or provide a financial benefit
to the component organization, or the component organization provides a financial
benefit to the primary government.

17. If blended, component units are included in the primary government as if they were part of
the government. The component unit is legally separate but so intertwined and substantially
the same as the primary government so that inclusion is necessary for appropriate
presentation.
A discretely presented component unit is shown separately on the far right side of the
government-wide financial statements because the organization is not substantially the
same as the government and can stand alone.
18. The two government-wide financial statements are the Statement of Net Assets and the
Statement of Activities.
The Statement of Net Assets includes:

a. All assets and long-term liabilities.
b. Capital assets net of accumulated depreciation including newly acquired infrastructure
assets.
c. The primary government is divided into governmental or business-type activities.
d. The internal balances reflect inter-activity transactions between governmental and
business-type activities.
e. Discretely presented component units are shown to the far right of the statement.
The Statement of Activities includes:

a. Expenses by function.
b. Interest expense on long-term debt.
c. Related program revenues including charges for services, operating grants and
contributions, and capital grants and contributions.
d. Net expenses and revenues for each function.
e. Net expenses and revenues for each category of the government.
f. General revenues for governmental activities, business-type revenues, or component
units.
g. Special items that are significant transactions or other events within the control of
management that are either unusual or infrequent in nature.
h. Transfers between governmental and business-type activities.
19. The two fund-based financial statements for government funds are the Balance Sheet and
the Statement of Revenues, Expenditures, and Changes in Fund Balance. The Balance
Sheet measures current financial resources and uses modified accrual accounting and
includes:
a. Separate columns for the general fund and other major funds.
b. Non-major funds are combined and reported as “other governmental funds.”
c. Totals for government funds.
d. Fund Balance Reserved shows financial resources encumbered or reserved for other
purposes.
The Statement of Revenues, Expenditures, and Changes in Fund Balance includes:

a. The general fund and each major fund in separate columns, with all minor funds in
another column.
b. Revenues.
c. Expenditures.

d. Other financing sources and uses.

e. Special items.
f. A reconciliation between the ending change in fund balances and the ending change in
net assets for governmental activities.
20. Program revenues are those revenues derived from a specific program (such as parks and
recreation) or from outsiders seeking to contribute to the cost of the function. They include
charges rendered for services, operating grants and contributions, and capital grants and
contributions.
General revenues are those from the population as a whole including property taxes, sales
taxes, unrestricted grants, and investment income. They are not traced to any individual
program.
This distinction is important because program revenues are matched with expenses for each
activity providing a net expense or revenue figure for each.
21. The net expenses and revenues format allows the users of a government’s financial
statements to determine the relative financial burden (or benefit) that each of its reporting
functions has on its taxpayers. In other words, the users of the statement can determine
what it costs for the government to provide benefits such as public safety.
22. On government-wide financial statements, internal service funds are combined with the
governmental activities (or business-type activities if more appropriate). Their placement is
based on the identity of the functions that they primarily serve. If an internal service fund is
mainly used to serve one or more governmental funds, then it should be included with the
governmental activities.
23. Fiduciary funds are not reported on government-wide financial statements because these
resources must be used for a purpose outside of the primary government.
24. From a reporting perspective, the FASB sets accounting standards for private colleges while
the GASB sets standards for public universities. Operationally, public universities receive
signficant funding from a government (usually a state government), whereas private
universities rely more on tuition charges. Because of the ability to generate funding from
the government, public colleges generally have smaller endowments.
25. Many public colleges and universities make the assumption that they are solely an
Enterprise Fund because they are open to the public but have a user charge (tuition and
other fees). For proprietary funds, government-wide financial statements and fund-based
financial statements are quite similar. Consequently, the authoritative guidelines allow such
schools to produce only fund-based financial statements and avoid the redundancy of also
creating government-wide statements.
Answers to Problems
1. A

2. D ($49,000 expenditure on the first day of the capital lease and then
$70,000 more in the form of payments made over the life of the lease)
3. B
4. D
5. A
6. D
7. C
8. C
9. A
10. C
11. B
12. C
13. A
14. B
15. A
16. D
17. B
18. B
19. A
20. C
21. A
22. C
23. A

24. A
25. C
26. C
27. The lease signed by the Enterprise Fund will be accounted for in the same
way on the government-wide financial statements (as a business-type
activity) and the fund-based financial statements (as a Proprietary Fund).
Leased Asset (present value) $28,750

Depreciation Expense (6 year life) 4,792
Accumulated Depreciation 4,792
Interest Expense (10 percent of $28,750) 2,875
Reduction in Liability ($6,000
payment less 2,875 interest) 3,125
Liability ($28,750 less $3,125) 25,625
The lease signed by the General Fund will be accounted for in the following
manner for the government-wide financial statements (as a governmental
activity).
Leased Asset (present value) $33,350

Depreciation Expense (5 year life) 6,670
Interest Expense (10 percent of $33,350) 3,335
Reduction in Liability ($8,000
payment less 3,335 interest) 4,665
Liability ($33,350 less $4,665) 28,685
This same lease will be accounted for in the following manner on the fund-
based financial statements (as a General Fund).
Initial Recording:
—Expenditures $33,350
—Other Financing Sources 33,350
Payment of $8,000:
—Expenditures-Interest 3,335
---Expenditures-Principal 4,665
28. a.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
January 1, 2008

Assets—Capital Lease 49,600

Capital Lease Obligation 49,600
December 31, 2008

Interest Expense ($49,600 x 12%) 5,952
Cash 12,000
Depreciation Expense—Governmental 1,900

Accumulated Depreciation (10-year life) 1,900
Depreciation Expense—Business-type 7,650

b.
FUND-BASED FINANCIAL STATEMENTS
Enterprise Fund
January 1, 2008
Assets—Capital Lease 30,600
December 31, 2008

Cash 9,000
Depreciation Expense 7,650

Accumulated Depreciation—
Capital Lease (4-year life) 7,650
General Fund
Expenditures—Leased Assets 19,000
Other Financing Sources—
Capital Lease 19,000
Expenditures—Interest ($19,000 x 12%) 2,280

Expenditures—Principal 720
Cash 3,000
29. a.
January 1, 2008
Truck—Capital Lease 87,800
Cash 22,000

December 31, 2008

Cash 22,000

December 31, 2009 (obligation is now $49,064 or $65,800 less $16,736)

Cash 22,000

b.
General Fund
January 1, 2008
Expenditures—Leased Asset 87,800
Other Financing Sources—Capital Lease 87,800
Expenditures—Lease Obligation 22,000

Cash 22,000
December 31, 2008

Expenditures—Interest 5,264
Cash 22,000
December 31, 2009

Cash 22,000
c.
Proprietary Fund (should be same as handling in government-wide
statements)
January 1, 2008
Truck—Capital Lease 87,800

Cash 22,000
December 31, 2008

Cash 22,000

December 31, 2009

Cash 22,000

30. a.
Accounted for as an Enterprise Fund (within the Business-type Activities)
December 31, 2008

Expense—Landfill Closure (3% of $1.9 million) 57,000
Landfill Closure Liability 57,000

Cash 50,000
December 31, 2009

Expense—Landfill Closure
(9% of $2.1 million less $57,000) 132,000

Cash 50,000
b.
GOVERNMENT-WIDE FINANCIAL STATEMENTS (same as above)

Accounted for as a General Fund (within the Governmental Activities)
December 31, 2008

Expense—Landfill Closure 57,000

Cash 50,000
December 31, 2009


Cash 50,000
c.
FUND-BASED FINANCIAL STATEMENTS (same as above)
Accounted for as an Enterprise Fund (within the Proprietary Funds)
December 31, 2008


Cash 50,000
December 31, 2009


Cash 50,000
d.
Accounted for as a General Fund (within the Governmental Funds)
December 31, 2008

Expenditures—Landfill Closure 50,000
Cash 50,000
December 31, 2009

Expenditures—Landfill Closure 50,000
Cash 50,000

31. a. GOVERNMENT-WIDE FINANCIAL STATEMENTS

December 31, 2008
Expense—Landfill Closure 1,296,000
Landfill Closure Liability 1,296,000
b. FUND-BASED FINANCIAL STATEMENTS

December 31, 2008
Despite the huge eventual liability, there is nothing recognized at the end
of 2008 because there is not a claim to any current financial resources.
32. a. GOVERNMENT-WIDE FINANCIAL STATEMENTS

December 31, 2008
Expenses—Compensated Absences 1,200
Liability—Compensated Absences 1,200
January 2009
Cash 1,200
b. FUND-BASED FINANCIAL STATEMENTS

December 31, 2008—This vacation is taken early enough in the following
year to necessitate the use of current financial resources.
Expenditures—Compensated Absences 1,200

January 2009
Cash 1,200
c. December 31, 2008—It is assumed that this vacation is taken late enough
in the following year so as not to affect current financial resources.
Therefore, there is no entry in 2008. There is not a claim that will require
current financial resources.
Late in 2009
Expenditures—Compensated Absences 1,200
Cash 1,200

33. a. GOVERNMENT—WIDE FINANCIAL STATEMENTS

Museum Piece—Artwork 300,000
Revenue—Donation 300,000
b.
Accumulated Depreciation—Museum Piece (30,000)
Book Value 270,000
Revenue—Donation 300,000
c.
Revenue – Donation 300,000
Expense – Artwork 300,000
34. a. GOVERNMENT-WIDE FINANCIAL STATEMENTS (Business-type Activities)
December 31, 2008

Cash 60,000

b. FUND-BASED FINANCIAL STATEMENTS (General Fund)
December 31, 2008

Expenditures—Artwork 60,000
Cash 60,000
35. GOVERNMENT-WIDE FINANCIAL STATEMENTS
One possibility: Infrastructure assets with depreciation recorded

Infrastructure Assets—Street Lights 100,000
Cash 100,000
Subsequent Entries
Accumulated Depreciation

—Infrastructure Assets 10,000
Maintenance Expense—Infrastructure Assets 6,300

Cash 6,300
(if this work extends the life of the assets beyond the original expectation,
the debit here would be to Accumulated Depreciation.)

Cash 9,000
Second possibility: Infrastructure assets using the modified approach

Cash 100,000
Subsequent Entries
Maintenance Expense—Infrastructure Assets 6,300
Cash 6,300

Cash 9,000
36. a. The major criterion for inclusion in a government’s comprehensive annual

financial report is financial accountability.
b. An activity is viewed as a special purpose government if it meets the
following criteria:
1. Has a separately elected governing board
2. Is legally separate
3. Is fiscally independent of other governments
c. Legal separation is usually demonstrated by having corporate powers such
as the right to buy and sell property as well as the right to sue and be sued.
Corporate powers depends on state law so that determination of legal
separation may differ from one state to another.
d. The fiscal independence of a government is indicated by having authority
to do specific actions:
1. Determine and modify its budget without having to get the approval
of another government
2. Levy taxes and set rate fees without having to get the approval of
another government
3. Issue bonded debt without having to get the approval of another
government
e. A component unit is any activity that is legally separate from a primary
government but so closely tied to that government that some inclusion in
the government’s CAFR is warranted. The account balances of the
component unit are included along with the financial statements of the

primary government. However, these reported figures must be discretely

presented separate from the balances of the primary government. The
financial information for the components is usually reported to the right of
the primary government. All component units may be shown individually,
combined into a single column, or combined into separate columns for
governmental and proprietary operations. As indicated in (g) below,
blending is also a possible way of reporting a component unit.
f. One of the criteria for identifying a component unit includes the primary
government’s ability to impose its will on the component unit. A primary
government is assumed to have this ability if it can (1) remove an
appointed board member at will, (2) modify or approve budgets, (3)
override decisions of the board, or (4) hire as well as dismiss the
individuals in charge of the day-to-day activities of the component unit.
g. Normally, as indicated above, the financial position and operations of a

component unit are shown separately from the primary government.
However, if the component unit is sufficiently intertwined with the primary
government it is included within the government figures. This inclusion is
referred to as blending.
h. A primary government may appoint a voting majority of an activity’s board

but have no financial accountability. In such cases, the activity is neither a
part of the primary government nor a component unit. However, because
a majority of the board is appointed by the primary government, the activity
is considered a related organization. Consequently, the identity of the
activity and its relationship must be spelled out in the notes to the financial
statements of the primary government.
37. Enterprise Fund

1/1/08 Cash 90,000
Other Financial Sources—
Capital Contribution 90,000
2/1/08 Cash 130,000
Notes Payable 130,000
3/1/08 No Journal Entry
4/1/08 Truck 110,000
Cash 110,000
5/1/08 Cash 20,000
Deferred Revenue 20,000
6/1/08 Prepaid Rent 12,000
Cash 12,000
7/1/08 Accounts Receivable 13,000
Revenues--Services 13,000
Cash 11,000
Accounts Receivable 11,000

8/1/08 Interest Expense

(130,000 x 12% x 6/12) 7,800
Notes Payable 2,200
Cash 10,000
9/1/08 Salaries Expense 18,000

Cash 18,000
Revenue--Grant 18,000
10/1/08 Maintenance Expense 1,000
Cash 1,000
11/1/08 Salaries Expense 10,000
Cash 10,000
Revenue—Grant 2,000
12/31/08 Accounts Receivable 19,000
Revenues--Services 19,000
Cash 3,000
Accounts Receivable 3,000
ADJUSTING ENTRIES
12/31/08 Interest Expense
(127,800 x 12% x 5/12) 6,390
Interest Payable 6,390
12/31/08 Depreciation Expense
(110,000 x 1/10 x 9/12) 8,250
12/31/08 Rent Expense 7,000
Prepaid Rent 7,000
(to record expiration of rent at $1,000 a month)

38. a. CITY OF WILLIAMSON

STATEMENT OF ACTIVITIES
For Year Ended December 31, 2008
Net (Expense) Revenue and
Program Revenues Changes in Net Assets
Operating Capital
Charges for Grants and Grants and Governmental Business-type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total
Governmental activities
General Government $149,000 $ 5,000 $14,000 ($130,000) $130,000)
Public Safety 90,000 3,000 ( 87,000) (87,000)
Health and Sanitation 70,000 42,000 (28,000) (28,000)
Interest on Debt 16,000 _______ (16,000) (16,000)
Total governmental activities $325,000 $50,000 $14,000 ($261,000) $261,000
General Revenues:
Property taxes $401,000 $401,000
Franchise taxes 42,000 42,000
Investments (gain) 13,000 13,000
Total general revenues $456,000 $456,000

Change in net assets 195,000 195,000
Net assets—beginning 0 0
Net assets—ending $195,000 $195,000

38. a. (continued)
Computations:
General Governmental [$66,000 + 11,000 + 21,000 + 8,000 + 4,000 (salaries
payable) + 13,000 (compensated absences) + 14,000 (art work) + 12,000
(depreciation on building: $120,000/10 years)] = $149,000
Public Safety [$39,000 + 18,000 + 5,000 + 9,000 (expired insurance) + 12,000
(supplies used) + 7,000 (salaries payable)] = $90,000
Health and Sanitation [$22,000 + 3,000 + 9,000 + 12,000 + 8,000 (salaries
payable) + 16,000 (depreciation on equipment: $80,000/5 years)] = $70,000

38. a. (continued)
CITY OF WILLIAMSON
STATEMENT OF NET ASSETS
December 31, 2008
Governmental Business-type
Activities Activities Total
Assets
Cash and cash equivalents $ 62,000 $ 62,000
Prepaid expenses 2,000 2,000
Investments 103,000 103,000
Receivables (net) 81,000 81,000
Inventories 3,000 3,000
Capital assets (net) 172,000 172,000
Total assets 423,000 $423,000
Liabilities
Salaries payable 19,000 19,000
Compensating absences
liabilities 13,000 13,000
Noncurrent liabilities 196,000 196,000
$228,000 $228,000
Net assets
Invested in capital assets,
net of related debt (24,000) (24,000)
Unrestricted (deficit) 219,000 219,000
Total net assets $195,000 $195,000

38. (continued)
b.
CITY OF WILLIAMSON
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND
BALANCES
Governmental Funds
Revenues: General Fund Total Government Funds

Property Taxes $401,000 $401,000
Franchise Taxes 42,000 42,000
Charges for Services 50,000 50,000
Investments (Gain) 13,000 13,000
$506,000 $506,000
Expenditures:
General Government $110,000 $110,000
Public Safety 90,000 90,000
Health and Sanitation 54,000 54,000
Debt Service:
Principal Payment on Debt 4,000 4,000
Interest on Debt 16,000 16,000
Capital outlay 200,000 200,000

Total expenditures $474,000 $474,000
Excess (Deficiency) of
Revenues over Expenses 32,000 32,000
Other Financing Sources:
Proceeds from Long-term Note 200,000 200,000
Total Other Sources 200,000 200,000
Net Changes in Fund Balance 232,000 232,000

Fund Balances (Beginning) -0- -0-
Fund Balances (Ending) $232,000 $232,000

38. b. (continued)
CITY OF WILLIAMSON
BALANCE SHEET
Governmental Funds
December 31, 2008
Total
General Fund Governmental Funds
Assets
Cash and cash equivalents $ 62,000 $ 62,000
Prepaid expenses 2,000 2,000
Receivables, net 81,000 81,000
Total assets $251,000 $251,000
Liabilities
Salaries payable 19,000 19,000
Total Liabilities $19,000 $19,000
Fund Balances
—Reserved for encumbrances 12,000 12,000
—Reserved for inventories 3,000 3,000
—Reserved for prepaid expenses 2,000 2,000
—Unreserved 215,000 215,000
Total Fund Balances 232,000 232,000
Total Liabilities
and Fund Balances $251,000 $251,000

39. a. CITY OF BERNARD

STATEMENT OF ACTIVITIES
Net (Expense) Revenue and
Program Revenues Changes in Net Assets
Charges for Grants and Governmental

Functions/Programs Expenses Services Contributions Activities Total
Governmental activities:
General Government $180,000 $15,000 ($165,000) ($165,000)
Public Safety 158,000 8,000 ( 150,000) ( 150,000)
Public Works 159,500 12,000 (147,500) (147,500)
Health and Sanitation 37,000 31,000 $25,000 19,000 19,000
Interest on Debt 42,000 ______ _______ (42,000) (42,000)
Total Governmental
activities $576,500 $66,000 $25,000 ($485,500) ($485,500)
General Revenues:
Property Taxes $630,000 $630,000
Sales Taxes 99,000 99,000
Dividend Income 20,000 20,000
Gain on Sale of Investments 14,000 14,000
Gain on Value of Investments 5,000 5,000
Total general revenues $768,000 $768,000
Change in net assets:

Change During 2008 $ 282,500 $ 282,500
Net assets—beginning 120,000 120,000
Net assets—ending $402,500 $402,500

39. a. (continued)
Computations:
General Governmental [$90,000 + 9,000 + 25,000 + 12,000 + 14,000 (salaries
payable) + 30,000 depreciation] = 180,000
Public Safety [$94,000 + 16,000 + 12,000 + 10,000 + 17,000 (salaries
payable) + 9,000 depreciation] = $158,000
Public Works [$69,000 + 13,000 + 9,000 + 5,000 (salaries payable) +
14,000 supplies expense + 39,000 landfill closing costs + 10,500 depreciation] =
$159,500
Health and Sanitation [$22,000 + 4,000 + 4,000 + 7,000] = 37,000
Landfill [260,000 x 15%] = $39,000
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2009

39. a. (continued)
CITY OF BERNARD
STATEMENT OF NET ASSETS
December 31, 2008
Governmental
Activities Totals
Assets
Current Assets:
Cash and Cash
Equivalents $139,000 $139,000
Prepaid Insurance 6,000 6,000
Receivables (net) 120,000 120,000
Total Current Assets 387,000 387,000
Capital Assets:
Building (net of depreciation) $240,000 $240,000
Building (net of depreciation) 199,500 199,500
Equipment (net of depreciation) 81,000 81,000
Truck (capital lease) $64,000 $64,000
Total Assets $971,500 $971,500
Liabilities
Current Liabilities:
Wages Payable $36,000 $36,000
Noncurrent Liabilities:
Lease Obligation Payable $64,000 $64,000
Closure Liability Landfill 39,000 39,000
Long-term Notes Payable 430,000 430,000
Total Liabilities 569,000 569,000
Net assets
Invested in capital assets,
net of related debt 154,500 154,500
Unrestricted (deficit) 248,000 248,000
Total Net Assets $402,500 $402,500

39. (continued)
b.
CITY OF BERNARD
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND
BALANCES
Governmental Funds
General Fund
Revenues:
Property taxes $630,000
Sales taxes 99,000
Dividend income 20,000
Charges for services 66,000
Grant 25,000
Investments (realized gain) 14,000
Investments (unrealized gain) 5,000
Total $859,000
Expenditures:
Current:
General governmental $150,000
Public safety 149,000
Public works 122,000
Health and sanitation 37,000
Debt Service:
Principal payment on debt 10,000
Interest on debt 42,000
Capital Outlay:
Building 210,000
Equipment 90,000
Truck—leased 64,000
Total expenditures $874,000
Excess (deficiency) of revenues
over expenses) $(15,000)
Other Financing Sources:
Proceeds from long-term note 200,000
Capitalized lease—truck 64,000
Total other financing sources 264,000
Net changes in fund balance 249,000
Fund balance—beginning 90,000
Fund balance—ending—unrestricted
and unreserved $339,000*

39. b. (continued)
*The fund balance shown here is $339,000. Of that amount, $31,000 is reserved
for encumbrances, leaving $308,000 as an unreserved amount. Two additional
fund balance amounts will be added to the balance sheet: one for supplies and
one for prepaid expenses.
CITY OF BERNARD
BALANCE SHEET
Governmental Funds
December 31, 2008
General Fund
ASSETS
Cash and cash equivalents $139,000
Investments 116,000
Receivables, net 120,000
Supplies 6,000
Prepaid Insurance 6,000
Total Assets $387,000
LIABILITIES AND FUND BALANCES

Liabilities:
Salaries Payable $ 36,000
Fund Balances:
Restricted
Supplies 6,000
Prepaid Insurance 6,000 12,000
Unrestricted
Reserved for encumbrances
Equipment $24,000
Supplies 7,000 31,000
Unrestricted, unreserved $308,000 339,000
Total Fund Balance $351,000
Total Liabilities and Fund Balance $387,000

40. One way to accumulate the information for the government-wide financial
statements is to prepare the journal entries for the listed transactions.
a.
The transfer is within the governmental activities and is not recorded.
Governmental Activities—Parks and Recreation

Land 20,000
Cash 20,000
b.
Cash 110,000
Bonds Payable 110,000
c.
Governmental Activities—General
Cash 510,000
Property Tax Receivable 90,000
General Revenues—Property Taxes 600,000
d.
Building 80,000
Cash 80,000
e.
Sidewalk 10,000
Cash 10,000
f.
Cash 8,000
Program Revenues—Park 8,000
g.
Business-Type Activities—Civic Auditorium
Parking Deck 200,000
Cash 20,000

40. (continued)
h.
Governmental Activities—Education
Cash 100,000
Deferred Revenues 100,000
Expenses—School Lunches 37,000

Cash 37,000

Program Revenues—Operating Grant 37,000
i.
Cash 5,400
Receivables—School Fees 600
Program Revenues—School Fees 6,000
j.
Supplies 22,000
Cash 22,000
Expenses—Supplies 17,000
Supplies 17,000
k.
Expenses—Art 80,000
Program Revenues—Capital Gift 80,000
l.
Governmental Activities—General
Transfers 20,000
Cash 20,000

Cash 20,000
Transfers 20,000
m.
No entry

40. (continued)
n.
School Bus 102,000
Cash 102,000
o.
Expenses—Salaries 270,000
Expenses—Vacations 23,000
Cash 240,000
Salary Payable 30,000
Vacations Payable 23,000
p.
Cash 42,000
q.
Cash 110,000
Rent Receivable 20,000
Program Revenues—Rent 130,000
r.
Expenses—Maintenance 9,000
Cash 9,000
s.
Expenses—Interest 9,000
Bonds Payable 5,000
Cash 14,000
t.

40. (continued)
Also:
Depreciation Entries:
(School Building—$1,000,000/20)
Expenses—Depreciation 50,000

(Building—$80,000/10 x ½)

($600,000/30)
(School Bus—$102,000/5 x 3/12)
Business-Type Activities—Parking Deck

($200,000/20 x ½)

40. (continued)
City of Pfeiffer
Statement of Activities
Government-Wide Financial Statements
Year ending December 31, 2008
Program Grants Net (Expenses)/Revenues Component

Expenses Revenues and Gifts Governmental Business-Type Total Unit
Governmental Activities
—Education $482,100 $ 6,000 $117,000 $(359,100) $(359,100)
—Parks and Recreation 22,000 8,000 ( 14,000) ( 14,000)
Total for
Governmental
Activities $504,100 $14,000 $117,000 $(373,100) $(373,100)
Business-Type Activities
—Civic Auditorium 88,000 130,000 $42,000 42,000
Total for Primary

Government $592,100 $144,000 $117,000 $(373,100) $42,000 $(331,100)
Component Unit:
—Museum $ 42,000 $50,000 $8,000
General Revenues
—Property Taxes 600,000 600,000
Transfers (20,000) 20,000 -0-
Total General Revenues and Transfers $580,000 $20,000 $600,000 -0-
Change in Net Assets $206,900 $62,000 $268,900 $8,000
Net Assets, Beginning of Year 1,123,000 662,000 1,785,000 106,000
Net Assets, End of Year $1,329,900 $724,000 $2,053,900 $114,000

40. (continued)
City of Pfeiffer
Statement of Net Assets
Government-Wide Financial Statements
December 31, 2008
Governmental Business-Type Component

Activities Activities Total Unit
Assets:
—Cash $302,400 $130,000 $432,400 $24,000
—Property Tax Receivables 90,000 -0- 90,000 -0-
—Receivables-School Fees 600 -0- 600 -0-
—Rent Receivable -0- 20,000 20,000 -0-
—Supplies 5,000 -0- 5,000 -0-
—Land 20,000 -0- 20,000 -0-
—Sidewalk 10,000 -0- 10,000 -0-
—School Bus 96,900 -0- 96,900 -0-
—Parking Deck (net) -0- 195,000 195,000 -0-
—Buildings (net) 1,026,000 580,000 1,606,000 300,000
Total Assets $1,550,900 $925,000 $2,475,900 $324,000
Liabilities:
—Salary Payable $30,000 $3,000 $33,000 -0-
—Vacation Payable 23,000 5,000 28,000 -0-
—Interest Payable -0- 13,000 13,000 -0-
—Deferred Revenues 63,000 -0- 63,000 -0-
—Bonds and Notes Payable 105,000 180,000 285,000 $210,000
Total Liabilities $221,000 $201,000 $422,000 $210,000
Net Assets:
—Capital Assets, less
related debt $1,047,900 $582,000 $1,629,900 $ 90,000
—Unrestricted 282,000 142,000 424,000 24,000
Total Net Assets $1,329,900 $724,000 $2,053,900 $ 114,000

41. One way to accumulate the information for the fund-based financial
statements is to prepare the journal entries for the listed transactions.
a.
General Fund
Other Financing Uses—Transfer 70,000
Cash 70,000
Capital Projects Fund

Cash 70,000
Other Financing Sources—Transfer 70,000
Expenditures—Land 20,000
Cash 20,000
b.
Cash 110,000
Other Financing Sources—Bond 110,000
c.
General Fund
Cash 510,000
Property Tax Receivable 90,000
Revenues—Property Taxes 560,000
d.
Expenditures—Building 80,000
Cash 80,000
e.
Expenditures—Sidewalk 10,000
Cash 10,000
f.
General Fund
Cash 8,000
Revenues—Park 8,000

41. (continued)
g.
Enterprise Fund
Parking Deck 200,000
Cash 20,000
h.
Special Revenue Fund
Cash 100,000
Expenditures—School Lunches 37,000

Cash 37,000

Revenues—Operating Grant 37,000
i.
General Fund
Cash 5,400
Receivables—School Fees 600
Revenues—School Fees 6,000
j.
General Fund
Expenditures—Supplies 22,000
Cash 22,000
k.
No entry because there is no impact on current financial resources.
l.
General Fund
Other Financing Uses—Transfer 20,000
Cash 20,000
Enterprise Fund
Cash 20,000
Other Financing Sources—Contribution 20,000

41. (continued)
m.
General Fund
Encumbrances 99,000
Fund Balance—Reserved For Encumbrances 99,000
n.
General Fund
Fund Balance—Reserved for
Encumbrances 99,000
Encumbrances 99,000
Expenditures—School Bus 102,000

Cash 102,000
o.
General Fund
Expenditures—Salaries 270,000
Cash 240,000
p.
Enterprise Fund
Cash 42,000
q.
Enterprise Fund
Cash 110,000
Rent Receivable 20,000
Program Revenues—Rent 130,000
r.
General Fund
Expenditures—Maintenance 9,000
Cash 9,000

41. (continued)
s.
General Fund (no mention is made of using a separate Debt Service Fund)
Expenditures—Bonds Payable 5,000
Cash 14,000
t.
Enterprise Fund
Also:
Recognition of remaining supplies (from J above)
General Fund
Supplies 5,000
Fund Balance—Reserved for Supplies 5,000
Depreciation Entries
Business-Type Activities—Civic Auditorium ($600,000/30)

Business-Type Activities—Parking Deck ($200,000/20 x ½)


41. (continued)
City of Pfeiffer
Statement of Revenues, Expenditures, and Changes in Fund Balance
Fund-Based Financial Statements – Governmental Funds
Year ending December 31, 2008
Total
General Special Capital Projects Governmental
Fund Revenue Funds Funds Funds
Revenues
-Property Taxes $560,000 -0- -0- $560,000
-Park 8,000 -0- -0- 8,000
-Operating Grant -0- $ 37,000 -0- 37,000
-School Fees 6,000 -0- -0- 6,000
Total Revenues $574,000 $ 37,000 -0- $611,000
Expenditures
-Land -0- -0- 20,000 20,000
-Buildings -0- -0- 80,000 80,000
-Sidewalk -0- -0- 10,000 10,000
-School Lunches -0- 37,000 -0- 37,000
-Supplies 22,000 -0- -0- 22,000
-School Bus 102,000 -0- -0- 102,000
-Salaries 270,000 -0- -0- 270,000
-Maintenance 9,000 -0- -0- 9,000
-Interest 9,000 -0- -0- 9,000
-Bond Payment 5,000 -0- -0- 5,000
Total Expenditures $417,000 $37,000 $110,000 $564,000
Excess (deficiency) of
revenues over
expenditures $157,000 -0- $(110,000) $ 47,000
Other Financing
Sources (Uses)
-Other Financing
Sources -0- -0- $180,000 $180,000
-Other Financing
Uses $(90,000) -0- -0- (90,000)
Total Other
Financing
Sources (Uses) $(90,000) -0- $180,000 $ 90,000
Change in Fund
Balance $ 67,000 -0- $ 70,000 $137,000
Fund Balance –
Beginning 123,000 -0- -0- 123,000
Fund Balance –
Ending $190,000 -0- $70,000 $260,000

41. (continued)
City of Pfeiffer
Balance Sheet
Fund-Based Financial Statements - Governmental Funds
December 31, 2008
Total
General Special Capital Projects Governmental
Fund Revenue Funds Funds Funds
Assets
-Cash $169,400 $63,000 $70,000 $302,400
-Property Tax
Receivable 90,000 -0- -0- 90,000
-Receivables –
School Fees 600 -0- -0- 600
-Supplies 5,000 -0- -0- 5,000
Total Assets $265,000 $63,000 $70,000 $398,000
Liabilities
-Salary Payable $ 30,000 -0- -0- $ 30,000
-Deferred Revenues 40,000 $63,000 -0- 103,000
Total Liabilities $ 70,000 $63,000 -0- $133,000
Fund Balances
-Reserved for
Supplies $ 5,000 -0- -0- $ 5,000
-Unreserved 190,000 -0- $70,000 260,000
Total Fund
Balances $195,000 -0- $70,000 $265,000
Total Liabilities
And Fund
Balances $265,000 $63,000 $70,000 $398,000

41. (continued)
City of Pfeiffer
Statement of Revenues, Expenses, and Changes in Fund Net Assets
Fund-Based Financial Statements—Proprietary Funds
Year Ending December 31, 2008
Enterprise Fund (Civic Auditorium)

Operating Revenues
—Rent Revenues $130,000
Operating Expenses
—Salaries $ 45,000
—Vacations 5,000
—Depreciation 25,000
Total Operating Expenses $ 75,000
Operating Income $ 55,000
Non-operating Expenses
—Interest Expense $ 13,000
Income Before Capital Contribution $ 42,000
Capital Contribution 20,000
Change in Net Assets $ 62,000
Total Net Assets—Beginning 662,000
Total Net Assets—Ending $724,000

41. (continued)
City of Pfeiffer
Statement of Net Assets
Fund-Based Financial Statements—Proprietary Funds
December 31, 2008
Enterprise Fund (Civic Auditorium)

Assets
Current Assets
—Cash $130,000
—Rent Receivable 20,000
Total Current Assets $150,000
Noncurrent Assets
—Parking Deck (net) $195,000
—Buildings (net) 580,000
Total Noncurrent Assets $775,000
Total Assets $925,000
Liabilities
Current Liabilities
—Salary Payable $ 3,000
—Vacation Payable 5,000
—Interest Payable 13,000
Total Current Liabilities $ 21,000
Noncurrent Liabilities
—Notes Payable $180,000
Total Liabilities $201,000
Net Assets
—Invested in Capital Assets,
less related debt $582,000
—Unrestricted 142,000
Total Net Assets $724,000

42.
a. False – A pension trust fund is one of the fiduciary funds because the
money cannot be used by officials for the benefit of the government.
Fiduciary funds do not appear in the government-wide financial statements
although separate statements are presented as part of the fund-based
financial statements.
b. True – The permanent funds are included within the governmental funds
because the income generated from the amount being held is to be used by
the government. Although the principal cannot be utilized by government
officials, the income can.
c. True – A commitment of current financial resources was made when this

order was placed. Thus, an encumbrance should have been recognized at
that time. However, the actual amount of the obligation proved to be
slightly higher. When the liability was incurred, the original encumbrance
should have been removed and an expenditure recorded for the amount of
current resources that is actually required.
d. True – The expense to be recognized each year is the adjustment required

to establish the proper liability. At the end of Year One, that liability should
be $96,000 or 12 percent of $800,000. At the end of the second year, the
liability has grown to $172,000 (20 percent of $860,000). Increasing the
liability from $96,000 to $172,000 necessitates an expense of $76,000. Even
though the question relates to the fund-based financial statements, the
Enterprise Funds do accrue expenses as incurred in much the same way
as a for-profit business.
e. True – The expense to be recognized each year is the adjustment required

in the liability. At the end of Year One, that liability should be $99,000 or
11 percent of $900,000. At the end of the second year, the liability has
grown to $170,000 (20 percent of $850,000). Increasing the liability from
$99,000 to $170,000 necessitates an expense of $71,000. Even though the
question relates to the General Fund, government-wide financial
statements always accrue expenses as incurred.
f. False – In the governmental funds, a capitalized lease is recorded based

on the present value of the future cash flows. Thus, the initial recording is
an expenditure of $39,000.
g. False – An Agency Fund is used when passing money through the

government to a specified recipient. Thus, the only two accounts typically
found in an Agency Fund are cash (or similar monetary assets) and the
liability to indicate where that cash is destined.

h. True – The asset is capitalized at $39,000, the present value of the future
cash flows. Over a six-year life, depreciation expense of $6,500 should be
recognized each year. A related liability of $29,000 should also be
recorded (after the first payment is removed). With an interest rate of 10
percent being used, interest expense of $2,900 should be recognized in
the first year. Total expenses to be reported are $9,400 ($6,500 plus
$2,900).
43.
a. This gift did not involve a current financial resource and should not have
been recorded in the fund-based financial statements. There is no
indication that it was recorded there. The recording of the asset and
depreciation would have been made in the government-wide statements.
Thus, the increase in the fund balance of $30,000 was correct and should
not be changed.
b. Apparently, in the government-wide financial statements, a $15,000

revenue was reported along with an asset of the same value. Depreciation
recognized for the first year would have been $500 ($15,000 capitalized
amount over a 30-year life) so that a net increase in the net assets should
have been $14,500. If the allowed alternative had been followed as
officials wished, both revenues and expenses would have been increased
by $15,000 for no net effect. Consequently, removing the $14,500 increase
that was reported changes the net expense figure from $130,000 to
$144,500.
c. The government officials wanted to use the alternative which was to

record an expense rather than an asset. If no entry was made by the art
museum, there was no change created in the net asset figure. Had the
appropriate entry been made, both revenues and expenses would have
risen by $15,000, but then, no net effect would have resulted. The
revenues and expenses are both understated but the net asset figure is
not affected either way. Although the individual totals are wrong, the
increase in net assets stays at $140,000
44.
a. On the government-wide statements, an expense of $20,000 was reported.
Instead, an asset and liability of $62,000 should have been reported.
Depreciation on the asset (over a five-year period) would have been
$12,400 and interest expense would have been $6,200 (10 percent of
$62,000). Thus, total expenses should have been reported as $18,600.
The reported expenses ($20,000) were $1,400 too high. Removing that
amount of expense causes the increase in net assets to rise from $140,000
to $141,400.

b. A $62,000 expenditure should have been recorded on the first day of the
year because of the capitalized lease. In addition, a $62,000 ―other
financing source‖ should have been recorded. Another $20,000
expenditure was properly reported on the last day of the year to record the
payment. Because both the initial expenditure ($62,000) and the other
financing source ($62,000) were left out, the net effect of the omission is
zero. Thus, the $30,000 increase in the fund balance as shown for the
General Fund is correct.
45. The revenue of $30,000 and the expense of $42,000 were not included in the
primary government figures for the government-wide statements. They were
discretely presented and should have been blended.
Adding these two figures to primary government-wide totals reduces the

overall increase in net assets by $12,000 ($30,000 minus $42,000) from
$140,000 to $128,000.
46.
a. In fund-based statements, for the General Fund, only the amount of this
liability that will be paid in the next 60 days (2 months) is viewed as a
claim against current financial resources. That amount would be $10,000
(2/12 of $60,000). That expenditure must be recorded at the end of Year
Four and reduces the increase in the General Fund fund balance by this
$10,000 from $30,000 to $20,000.
b. For the government-wide financial statements, the entire $60,000 liability

should be recorded in Year Four based on standard accrual accounting.
The related expense reduces the increase in net assets by $60,000 from
$140,000 to $80,000.
47.
a. Apparently, the amounts recorded this year (in the parks) was in the wrong
fund; the landfill should have continued to be reported as an Enterprise
Fund. By itself, that does not have any net impact on the net assets
reported for the entire government on the government-wide statements.
The amounts are simply in the wrong columns. However, the clean-up
liability has not been reported for the current year. An additional 8 percent
was filled in the current year so that the liability should have increased by
$16,000 (8 percent of $200,000). That reduces the increase in net assets
from $140,000 to $124,000.
b. The revenues ($4,000) and expenses ($15,000) for the current year must
now be moved to the Enterprise Funds ($11,000 net reduction). In
addition, the $16,000 clean-up liability computed in (a) above should be
recorded so that the overall decrease in net assets in connection with the

landfill is $27,000. For the Enterprise Funds, the net increase is net assets
is not $60,000 but rather $33,000.
c. The revenues and expenditures have been correctly reported this year
within the General Fund. In addition, there is no indication that the clean-
up costs will require any current financial resources so that no reporting
is needed in the fund-based statements. The increase in the fund balance
of the General Fund of $30,000 appears to be correct.
48.
a. The modified approach only applies to infrastructure assets and not to
machines and the like. Thus, $4,000 in depreciation expense has been
incorrectly omitted. Including the recording of depreciation reduces the
increase in net assets from $140,000 to $136,000.
b. The depreciation expense discussed in (a) above increases the net

expenses for education from $710,000 to $714,000.
49.
a. False – Assuming that the next payment is not due until July 1, Year Two,
it is not a claim to current financial resources. Therefore, no liability
should be reported on the fund-based financial statements.
b. False – The original liability of $78,000 should be reported and

immediately reduced by $20,000 to $58,000. However, interest for the last
six months of Year One should be accrued ($58,000 x 10 percent x 6/12
year or $2,900) to raise the liability to $60,900.
c. True – Interest for the last six months of Year One should be accrued
($58,000 x 10 percent x 6/12 year) or $2,900.
d. False – On the fund-based financial statements, the expenditure total

equals the $78,000 present value of the cash flows plus the first $20,000
payment.
e. True – The asset is initially capitalized at $78,000. At the end of the first
year, depreciation of $7,800 should be recognized ($78,000 x 1/5 x 6/12)
which reduces the net leased asset to $70,200.
f. False – On the fund-based financial statements, the expenditure total

equals the $78,000 present value of the future cash flows.
g. False – There are four separate criteria for a capitalized lease. One of
those is that the life of the lease is 75 percent or more of the life of the
asset. If the car has an eight-year life, the five year lease is only 62.5% of

the life of the asset. However, the lease contract could well meet any of
the other three criteria and capitalization would still be necessary.
h. False – Payments totaling $100,000 are being made and the car will be
used up. So, the total expense has to be $100,000 on the government-
wide statements no matter how the reporting is done. For fund-based
statements, the present value of the future cash flows is recognized and
then the eventual payments are also recognized as expenditures. This
total will be more than $100,000 (but is offset somewhat by the reporting
of an other financing source).
50.
a. False – The handling in the government-wide financial statements will be
the same whether the landfill is reported as a General Fund or as an
Enterprise Fund.
b. False – Assuming the city has a December 31 year-end, no claim to current

financial resources exists at that time.
c. False – The Enterprise Fund should report a liability equal to 26 percent of

$2 million less the amount of cash that has already been paid.
d. True – In most all cases, Enterprise Funds are reported the same in the
government-wide financial statements and the fund-based financial
statements.
e. True – The liability is $2 million times 26 percent or $520,000. However,

payments of $100,000 have already been made so the liability is now only
$420,000.
f. True – In either case, $2 million will be spent. That will show up as an

expense in the government-wide financial statements and as an
expenditure in the fund-based financial statements (assuming the landfill
is reported in the General Fund).
51.
a. True – The amount of the liability to be reported each year would have
been based on $3 million rather than $2 million.
b. True – The government-wide financial statements accrue all liabilities

whether they are governmental activities or business-type activities.
c. False – At the end of Year Two, a liability of $420,000 is reported (26

percent of $2 million less $100,000 in payments). At the end of Year Three,
a liability of $1,050,000 is reported (40 percent of $3 million less $150,000

in payments). Adjusting the liability balance of $420,000 to $1,050,000

necessitates recognizing an expense of $630,000.
d. False – Present value is not used for landfill closure costs.
52.
a. True – One of the requirements for being able to choose to not capitalize a
museum piece is that any proceeds from a future sale must be required to
be used for a similar purchase.
b. False – If the asset is viewed as being inexhaustible (the asset is already

over 200 years old), no depreciation is required.
c. False – The city can record the $10,000 value as an expense immediately
but it can also choose to capitalize the asset and then depreciate it over its
expected useful life.
d. False – Revenue recognition is required for gifts of this type. It is only the
decision as to whether to record an asset or an expense that is at the
option of the government.
e. True – Both a revenue and an expense can be reported for this donation
so that net assets are not impacted.
53.
a. False – Although the city here appoints a majority of the board members,
there is no indication that (a) the city can impose its will on this board, (b)
that the library provides a financial benefit or a financial burden for the
city, or (c) that the library is financially dependent on the city. Appointing
a majority of the board makes the library a related organization but not
necessarily a component unit.
b. True – If the results of the component unit are included within the
governmental activities (like a fund), this reporting is known as blending
the component unit. This reporting is followed when the component unit
is closely entwined with the government.
c. False – Blending of a component unit is a judgment made when financial

statements are being prepared based on how entwined the activity is with
the government.
d. True – Blending of a component unit is a judgment made when financial

statements are being prepared based on how entwined the activity is with
the government.

Develop Your Skills
Research Case 1
One of the most controversial aspects of GASB 34 was the capitalization of

previously acquired, infrastructure items (such as bridges, sidewalks, streets,
and the like) that, in most cases, had always gone unreported. Determining a
reported value, for example, for miles of sidewalks constructed over a number of
decades was looked at as an almost impossible feat with little or no reporting
value to the readers of the financial statements.
Because of this criticism, GASB 34 tempered this one reporting requirement more
than any other. First, only a limited number of these earlier assets have to be
reported. According to paragraph 154, ―governments are required to capitalize
and report major general infrastructure assets that were acquired (purchased,
constructed, or donated) in fiscal years after June 30, 1980, or that received major
renovations, restorations, or improvements during that period.‖
So, the reporting of only ―major general infrastructure assets‖ is required. That
size requirement was identified as a subsystem that made up at least 5 percent of
the total of all general capital assets or a network that made up at least 10 percent
of the total of all general capital assets.
In addition, only assets acquired or renovated after June 30, 1980, had to be
assessed for reporting purposes. This parameter limited the required reporting
to assets that were relatively new. For example, a bridge constructed in 1922 did
not have to be reported unless renovated since June 30, 1980.
Finally, governments were given an extra four years beyond the required
implementation deadline for GASB 34 to report these previously obtained
infrastructure assets. This extension was allowed to provide governments with
plenty of time to make all of the necessary computations.
To make the actual computation of these figures, paragraphs 157 and 158
explain: ―The initial capitalization amount should be based on historical cost. If
determining historical cost is not practical because of inadequate records,
estimated historical cost may be used.
―A government may estimate the historical cost of general infrastructure assets

by calculating the current replacement cost of a similar asset and deflating this
cost through the use of price-level indexes to the acquisition year (or estimated
acquisition year if the actual year is unknown). There are a number of price-level
indexes that may be used, both private- and public-sector, to remove the effects
of price-level changes from current prices. Accumulated depreciation would be

calculated based on the deflated amount, except for general infrastructure assets
reported according to the modified approach.‖
Paragraph 160 goes on to provide additional guidance: ―Other information may

provide sufficient support for establishing initial capitalization. This information
includes bond documents used to obtain financing for construction or
acquisition of infrastructure assets, expenditures reported in capital project
funds or capital outlays in governmental funds, and engineering documents.‖
Research Case 2
A practicing accountant often faces a difficult challenge in applying a new

authoritative pronouncement, especially one as complex as GASB 34. Because
the reporting issues have not been encountered previously, implementation of
even the most carefully written statement can be mystifying. For that reason,
periodicals such as the Journal of Accountancy and the CPA Journal often
attempt to provide practical assistance. When a complicated new
pronouncement is issued, such guidance is very much necessary. Students
looking forward to entering the accounting profession need to be aware of the
help that is usually available when significant changes are made in the financial
reporting process.
This particular article was written to help government accountants begin the
process of adapting their financial statements to the requirements of GASB 34.
As part of this coverage, the statement of net assets and the statement of
activities for the City of Alexandria, Virginia are included because this particular
government had quickly begun to issue statements according to the new
regulations.
A look at both of these statements shows that some number of component units
are being discretely reported to the far right of each statement. It is possible that
other component units also exist that have been blended. Without the
accompanying footnotes to the statements, that information cannot be
ascertained for certain. On the statement of net assets, the discretely-presented
component units are shown as holding nearly $57 million in assets.
At the bottom of the statement of activities, the identity of these component units
can be determined even without footnote disclosure. Under the row of
information for business-type activities, the following three component units are
listed:

Alexandria library,
Alexandria transit company, and
Alexandria public schools.
Students may be interested to note that the library and the transit company
provided a financial burden for the city of only about $4 million each. The school
system, though, reported net expenses of over $95 million, a significant amount
that must be borne by the citizens of this city in order to finance public
education.
GASB 34 provides only a limited amount of information about component units,

deferring much of the guidance to the earlier GASB 14. Paragraph 20 of GASB 14
indicates that component units are legally separate organizations for which the
elected officials of the primary government are financially accountable. In
addition, component units can include other organizations for which the nature
and significance of their relationship with the primary government are such that
exclusion would cause the reporting entity’s financial statements to be
misleading or incomplete.
Thus, apparently, the library, the transit company, and the public schools must
qualify (based on the laws of that state) as legally separate organizations.
However, despite this legal separation from the city, the financial information is
still being presented within the city’s financial statements because (a) the primary
government is financially accountable or (b) the relationship makes the
statements misleading or incomplete if the financial information were omitted.
Analysis Case 1
Probably no better indication of the true magnitude of GASB 34 can be

constructed than comparing financial statements prepared prior to the adoption
of this standard to statements produced after GASB 34. Students who look at the
2000 statements found on the City of Sacramento website and the 2004
statements presented in the textbook should be surprised at the magnitude of the
change that took place between 2000 and 2004.
Almost an unlimited number of comparisons can be made between these two

sets of statements, produced only four years apart. The differences that a
particular student chooses to emphasize will probably depend on the areas most
closely studied. Here are a few possible examples that could be raised:
2004 statements are superior to 2000 statements:

The rationale for some of the columns on the 2000 statements seems arbitrary.
For example, a column is shown for the Debt Service Fund despite its size.
In 2004, on the fund-based statements, only the General Fund and other

major funds are reported separately. Small funds are accumulated into a
single column to avoid causing distraction.
On the balance sheet for 2000, fixed assets show up in some columns and not
others. There is clearly inconsistency in the methods used within this
statement.
For the 2000 financial statements for the individual governmental funds, there
is no way to get information other than about current financial resources
with the application of modified accrual accounting. However, in the 2004
financial statements, the reader can either choose to look at this
information in a relatively traditional format (fund-based financial
statements) or a basis similar to that of for-profit accounting (government-
wide financial statements).
The government-wide financial statements provide all of the information for
the government in a relatively concise fashion rather than being spread out
over a number of different funds.
2000 statements are superior to 2004 statements:

In 2004, there are a lot of different financial statements; it may be harder for
the reader to determine which statements to study.
Differences in totals may confuse readers. For example, on the statement of
net assets, governmental activities show over $2.3 billion in assets
whereas, on the balance sheet for the governmental funds, only $942
million in assets is shown. A reconciliation would be provided that may
help the reader but that amount of difference may simply be difficult for the
average reader to comprehend. Such huge differences exist all through the
financial statements for state and local governments.
In 2000, the budgetary information is presented within the financial statements
to emphasize the control feature of government accounting. In 2004, the
budget is most likely to be buried in required supplemental information
although it can be shown as an additional fund-based statement.
Analysis Case 2
One of the most significant changes in governmental accounting created by

GASB 34 was the inclusion of the Management’s Discussion and Analysis.
This written report is meant to be a discussion of the financial information for
the government in a verbal rather than a purely quantitative fashion. Students
often do not understand the range of information provided by the MD&A. In
this assignment, the student can read the MD&A for an actual city. The
information that is provided here is quite extensive and can cover a wide
range of subjects such as the following:
An explanation of government-wide financial statements.

An explanation of fund-based financial statements.
An explanation of governmental funds, proprietary funds, and fiduciary funds.

The reporting of infrastructure assets that were acquired before the adoption
of GASB 34.
A comparison of the governmental activities and the business-type activities.
The bond rating for the government.
Information about proprietary operations.
The method by which the government generates revenues.
The diversity of expenditures made within the governmental funds.
A discussion of the budgetary process.
Information about both capital assets and long-term liabilities.
The purpose of the various funds such as the general fund and the debt
service fund.
Communication Case 1
Students do not always fully comprehend the evolutionary nature of financial

accounting and reporting. In connection with for-profit businesses, ongoing
changes have occurred over a number of decades under the Financial
Accounting Standards Board, the Accounting Principles Board, and a variety of
other organizations. In comparison, the Governmental Accounting Standards
Board has been in operation for a relatively short period of time. The FASB has
produced approximately 160 statements whereas, at this time, the GASB has only
issued about 50. Therefore, the changes that governmental accounting has gone
through over the years may be a bit easier for a student to grasp.
This assignment is simply intended to provide the student with an overview of

the recent history of governmental accounting. The listed articles (and any
others that the students may find through their own library and Internet searches)
show how governmental accounting is gradually building up an official set of
generally accepted accounting principles to provide a structure for reporting that,
up until recently, has been very unstructured. The amount of authoritative
guidance has gone from almost nonexistent just a few decades ago to a fairly
well developed system of financial reporting.
Communication Case 2
If the city assesses a user charge, then officials always have the right to record
the landfill as an Enterprise Fund. However, such a classification is not required
unless the fee (a) is set at an amount intended to cover the various costs of the
service or (b) serves as the sole security for debts of the activity.
If the landfill is recorded as an Enterprise Fund, then accounting in the

government-wide financial statements and fund-based financial statements is
quite similar. The statements measure all economic resources and timing is
recorded based on accrual accounting. Perhaps most importantly, the

anticipated cost of closure and post-closure activities must be accrued in both

sets of financial statements.
Conversely, if the landfill is recorded within the General Fund, there is no impact
on the government-wide financial statements except the all transactions and
balances are shown as governmental activities rather than as business-type
activities. However, in the fund-based financial statements, as a governmental
fund, only current financial resources and the changes in those financial
resources are reported. Capital assets, in these statements, as well as long-term
liabilities such as closure costs are omitted.
Excel Case
This spreadsheet would be extremely helpful for a government attempting to

determine the historical cost less depreciation of infrastructure assets not
previously reported. This spreadsheet is designed along the guidelines
established in GASB Statement Number 34, paragraph 158. There are a number
of different ways that a spreadsheet could be created to solve this particular
problem. Here is one possible approach:
In Cell A1, enter text label ―City of Loveland—Reported Value of Each Mile of
Road‖
In the next three rows, enter the criteria on which calculations will be based:
In Cell A3, enter text label of ―Per 1 Mile of Road as of 12/31/2008‖ and in Cell
E3 enter ―$2,300,000‖
In Cell A4, enter text label of ―Yearly Inflation‖ and in Cell E4 enter ―8%‖
In Cell A5, enter text label of ―Depreciation‖ and in Cell E5 enter ―2%‖
Any of the above three variables can be changed to develop different schedules.
Enter Column Headings:

In Cell A7, enter text label of ―# of Years.‖
In Cell B7, enter text label of ―Date.‖
In Cell C7, enter text label of ―Inflation Reduced Cost.‖
In Cell D7, enter text label of ―Total Depreciation.‖
In Cell E7, enter text label of ―Reported Value.‖
Enter Row Headings:

In Cell A8, enter text label ―1‖ and in Cell A9, enter text label ―2.‖ Once you
establish a pattern, Excel can automatically fill in a series of numbers. To
continue the numbering for Years 3-20, click and drag across Cells A8 and
A9. Once these cells are highlighted, you will see a small black box in the
lower right corner of this selection, which is the ―fill handle.‖ Click on the
fill handle and drag across Cells A10 through A27 and release to display

numbers 3 through 20. The numbers will be displayed in increasing order

since that is the criteria that was established in Cells A8 and A9.
In Cell B8, enter text label ―12/31/2007‖ and in Cell B9, enter text label
―12/31/2006.‖ Perform the same click and drag operation above to fill the
date in Cells B10 through B27. The dates will be displayed in decreasing
order since that is the criteria that was established in Cells B8 and B9.
Enter Formulas:
In Cell C8, enter formula to calculate Inflation Reduced Cost as of 12/31/2007.
Reduce Per Mile figure established on 12/31/2008 (in Cell E3) by Yearly
Inflation Rate (in Cell E4): =+E3/($E$4+100%) (NOTE: Absolute
references, which are cell references that always refer to cells in a specific
location, can be created by placing a $ symbol before the Column letter
and/or the Row number. In this problem, we need to always refer to the
Yearly Inflation figure in Cell E4 and the Depreciation figure in Cell E5.)
In Cell D8, enter formula to calculate Total Depreciation. Multiply Inflation
Reduced Cost figure on 12/31/2007 by Yearly Depreciation Rate:
=+C8*($E$5*A8)
In Cell E8, enter formula for Reported Value of road for current year by
deducting Depreciation from Inflation: =+C8-D8.
In Cell C9, enter formula to calculate Inflation Reduced Cost figure as of
12/31/2006: Reduce Inflation on 12/31/2007 (in Cell C8) by Yearly Inflation
Rate (in Cell E4): =+C8/($E$4+100%)
Copy formulas from Cells D8 and E8 to Cells D9 and E9 by clicking and
dragging fill handle.
Format Cells to display currency. Click and drag across Cells C8 to E9. Select
Format, Cells, and under the Number tab, select Currency. Change the
Decimal places to 0 and click OK.
Copy Formulas:
Click and drag across Cell C9 through Cell E9. Place the cursor on the ―fill
handle‖ in the lower right corner of this section box and drag the cursor down to
Cell E27 and release. The formulas are automatically adjusted to correspond to
the current year information.


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I. Government entities sometimes obtain property by lease rather than by purchase.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

IV. Works of Art and Historical Treasures

V. Infrastructure Assets and Depreciation

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a. It must be fiscally dependent upon the primary organization or

4. Understand how governments incur a liability for compensated absences earned by

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

12. Describe the two government-wide financial statements.

Answer to Discussion Question

Is It Part of the County?

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3. In government-wide financial statements, the lease payment is treated the same as it is in

In fund-based financial statements, the recording is the same if a proprietary fund is

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5. Government-wide financial statements recognize expenses on the accrual and economic

6. Government-wide financial statements recognize expenses on the accrual and economic

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13. A Management’s Discussion and Analysis (MD&A) similar to profit-making financial

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

i. Excess or deficiency before contributions to term and permanent fund principal,

Classification as a special purpose government requires meeting three criteria:

16. Classification as a component unit requires meeting one of two criteria:

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

The Statement of Net Assets includes:

The Statement of Activities includes:

The Statement of Revenues, Expenditures, and Changes in Fund Balance includes:

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d. Other financing sources and uses.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

Leased Asset (present value) $28,750

Leased Asset (present value) $33,350

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Assets—Capital Lease 49,600

December 31, 2008

Depreciation Expense—Governmental 1,900

Depreciation Expense—Business-type 7,650

December 31, 2008

Depreciation Expense 7,650

Expenditures—Interest ($19,000 x 12%) 2,280

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

December 31, 2008

Depreciation Expense 17,560

December 31, 2009 (obligation is now $49,064 or $65,800 less $16,736)

Depreciation Expense 17,560

Expenditures—Lease Obligation 22,000

December 31, 2008

December 31, 2009

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December 31, 2008

Depreciation Expense 17,560

December 31, 2009

Depreciation Expense 17,560

December 31, 2008

Landfill Closure Liability 50,000

December 31, 2009

Landfill Closure Liability 50,000

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009

Accounted for as a General Fund (within the Governmental Activities)

December 31, 2008

Landfill Closure Liability 50,000