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Chapter 11
Issues of Reporting, Disclosure, and Financial Analysis
TRUE/FALSE (CHAPTER 11)
1. Governments must combine their blended component units into both the fund and
government-wide statements.
2. Governments must combine their discretely presented component units into both the fund and
the government-wide statements.
3. A related organization is a contractual arrangement whereby two or more participants agree
to carry out a common activity and share its risks and rewards.
4. A primary government can impose its will on a potential component unit if it has the
authority to modify or approve the unit’s budget.
5. The comprehensive annual financial report (CAFR) is divided into three main sections: the
table of contents section, the auditors’ report section, and the financial section.
6. The typical audit is designed to cover all information included in the CAFR.
7. There are only two government-wide statements: the statement of net position and the
statement of activities.
8. Required notes are an essential element of the basic financial statements.
9. Required supplementary information (RSI) is considered part of the basic financial
statements.
10. Public colleges and universities must adhere to the same GASB pronouncements as other
types of governments.
11. When a component unit is blended into the financial statements of a primary government, the
resulting fund financial statements will include two general funds.
12. Internal service funds are presented in a single column in the proprietary fund financial
statements, even if one or more of them is a major fund.
13, In its CAFR, a government should report upon individual internal service funds in combining
financial statements.
14. It is unacceptable for a special-purpose government that is a component unit of a general-
purpose government to issue its own “stand–alone” financial report.
15. One ratio measure of fiscal effort is Revenue from own sources/Intergovernmental revenues.
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MULTIPLE CHOICE (CHAPTER 11)
1. The financial reporting entity is composed of
a) The primary government.
b) The primary government and all legally separate governments for which the primary
government is financially accountable.
c) The primary government and all legally separate organizations for which the primary
government is financially accountable.
d) The primary government, all legally separate organizations for which the primary
government is financially accountable, and any organizations whose omission would
cause the primary government’s financial statements to be misleading or incomplete.
2. Which of the following is NOT a primary government?
a) A state government.
b) A general-purpose local government with the ability to determine its own budget.
c) A general-purpose local government whose tax levies must be approved by the state.
d) A special-purpose local government whose tax levies must be approved by the state.
3. Which of the following is necessary for a special-purpose local government to be considered a
primary government?
a) It must operate for a single purpose.
b) It must have a separately elected governing body.
c) It must tax its citizens with ad valorem taxes.
d) It must be fiscally dependent on another government.
4. Which of the following is necessary for a government to be considered fiscally independent?
a) It must be able to hire its own management.
b) It must be able to issue bonds that are tax-exempt.
c) It must not be subsidized by another government.
d) It must be able to levy taxes and/or set rates for its services.
5. Which of the following is a necessary characteristic of a component unit?
a) It is fiscally dependent on a primary government.
b) The primary government provides services that are used by both organizations.
c) The primary government can impose its will on the unit or the unit has the potential to
provide a financial benefit to or impose a financial burden on the primary government.
d) The primary government appoints a voting majority of the component unit’s governing
body or a voting majority of the unit’s governing body is composed of officials of the
primary government.
6. The Marigold School District, a legally separate school district that has a separately elected
governing body, cannot enter into any debt agreements without the approval of the county
commission. Marigold School District would be considered a(n):
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
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7. A county commission appoints a voting majority of the members of the board of a particular
organization. The county commission cannot impose its will upon the organization. There is
no potential for the organization to provide any financial benefit to the county nor is there any
potential for the organization to impose any financial burden on the county. The organization
is an example of a(n):
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
8. The State University Foundation is a legally separate, tax-exempt 501(c)(3) entity organized
for the purpose of raising funds to provide scholarships only to academically qualified students
at the State University. The existing university foundation board members elect new members
of the board. The foundation provides scholarships to students of the State University, but the
foundation receives no financial support from the university. The Foundation is an example
of:
a) Primary government.
b) Related organization.
c) Affiliated organization.
d) None of the above.
9. The governor of the state appoints the members of the Game and Fish Commission. The
members of the commission serve ten-year terms and can be removed only for cause. State
law prohibits the reappointment of a commissioner. The commission receives no tax dollars.
It is supported entirely by licenses and fees paid by hunters and anglers. The only bonds that
can legally be issued by the commission are revenue bonds backed by the licenses and fees
paid by the sportsmen. The Game and Fish Commission is not a 501(c)(3) organization and
does not have separate legal status. The Game and Fish Commission is an example of a:
a) Primary government.
b) Component unit.
c) Related Organization.
d) None of the above.
10. Of the following powers possessed by Government A, which is an indication that
Government A can impose its will on Government B? Government A:
a) Can dismiss Government B’s chief operating officer.
b) Can review Government B’s budget.
c) Can remove appointed members of Government B’s governing board only for cause.
d) Issues debt on behalf of Government B.
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11. Of the following powers possessed by Government A, which is NOT an indication that
Government B should be included as a component unit of Government A?
a) The governing documents state that, if dissolved, the assets of Government B will
become the property of Government A.
b) Government A issues revenue bonds in its name backed by the revenues of a project to be
undertaken by Government B. Government A is neither legally nor morally liable for
repayment.
c) Government A has agreed to provide financial support to Government B if Government
B operates at a deficit but in the entire 75 years that Government B has operated, it has
never operated at a loss.
d) The governing documents state that once Government B has equity in excess of a certain
amount, 50 percent of all future operating profits will be used to reduce bonded debt of
Government A.
12. The State has a legally separate State Building Authority which has a board appointed by the
Governor. The authority issues debt in its own name, holds title to buildings in its own name,
and leases its building exclusively to the State. The authority would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
13. The State has a legally separate State Building Authority which has a board appointed by the
governor. The authority issues debt in its own name, holds title to buildings in its own name,
and leases its building exclusively to the state. In what manner would the authority be
included in the State’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
14. The city created a legally separate housing authority to provide low-income housing to
residents of the city. The city issues debt for the housing authority in the name of the city,
but the housing authority is responsible for repayment of the debt. The housing authority is
governed by a board composed of all five members of the city council. Actions can be taken
by the authority upon receiving an affirmative vote by a simple majority of the board. The
housing authority would be considered a(n):
a) Primary Government.
b) Component Unit.
c) Related Organization.
d) Affiliated Organization.
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15. The city created a legally separate housing authority to provide low-income housing to
residents of the city. The city issues debt for the housing authority in the name of the city,
but the housing authority is responsible for repayment of the debt. The housing authority is
governed by a board composed of all five members of the city council. The authority can
take action based on the affirmative vote of a simple majority of the board. In what manner
would the authority be included in the city’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
16. The county created a legally separate county hospital authority. Members of the board of the
county hospital are elected in county-wide elections. The county must approve the budget of
the hospital, but the hospital receives no financial support from the county, except that the
county pays the hospital bills for county indigents. All revenues of the hospital are user fees.
The county hospital would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
17. The county created a legally separate county hospital authority. Members of the board of the
county hospital are elected in county-wide elections. The county must approve the budget of
the hospital, but the hospital receives no financial support from the county, except that the
county pays the hospital bills for county indigents. All revenues of the hospital are user fees.
In what manner would the hospital be included in the county’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
18. The county created a legally separate county hospital authority. Members of the board of the
county hospital are elected in county-wide elections. The hospital receives no financial
support from the county, except that the county pays the hospital bills for county indigents.
All revenues of the hospital are user fees. The county hospital would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
19. The county created a legally separate county hospital authority. Members of the board of the
county hospital are elected in county-wide elections. The hospital receives no financial
support from the county, except that the county pays the hospital bills for county indigents.
All revenues of the hospital are user fees. In what manner would the hospital be included in
the county’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
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20. The city created a legally separate port authority. Members of the board of the port authority
are elected in general city elections. The port authority receives no tax dollars; it is supported
entirely by user fees. The port authority determines its budget, sets user fees, and has the
power to issue bonded debt. The authority would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
21. The city created a legally separate port authority. Members of the board of the port authority
are elected in general city elections. The port authority receives no tax dollars; it is supported
entirely by user fees. The port authority determines its budget, sets user fees, and has the
power to issue bonded debt. In what manner would the port authority be included in the
city’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
22. Two cities entered into a contractual agreement to operate a landfill. The cities each
contributed the necessary assets to operate the landfill in proportion to their populations.
First City has the ability to appoint five members of the seven-person governing body of the
landfill. The appointees serve for six-year terms, cannot be reappointed, and can be removed
only for cause. First City has no obligation to contribute to the landfill if the landfill revenues
are insufficient to cover current operating costs. The landfill would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
23. Two cities entered into a contractual agreement to operate a landfill. The cities each
contributed the necessary assets to operate the landfill in proportion to their populations. Each
city has the ability to appoint two members of the governing body of the landfill, and each
has an equity interest in the arrangement. The assets contributed by First City were primarily
in the form of property and equipment that had been used in general government activities.
In what manner would the landfill be included in First City’s government-wide financial
statements?
a) As an investment.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
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24. Two cities entered into a contractual agreement to operate a landfill. The cities each
contributed the necessary assets to operate the landfill in proportion to their populations. Each
city has the ability to appoint two members of the governing body of the landfill. The assets
contributed by First City were primarily in the form of property and equipment that had been
used in general government activities. In what manner would the landfill be included in First
City’s fund financial statements?
a) In a governmental fund only.
b) In the schedule of changes in capital assets only.
c) In a proprietary fund only.
d) Not be recognized in the financial statements.
25. The city created a legally separate entity to operate a county hospital. The city council
appoints a voting majority of the board of the hospital. The city cannot impose its will on the
hospital and there is no potential for a financial benefit or financial burden to the city. The
county hospital would be a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
26. The city created a legally separate entity to operate a county hospital. The city council
appoints a voting majority of the board of the hospital. The city cannot impose its will on the
hospital and there is no potential for a financial benefit or financial burden to the city. In
what manner would the hospital be included in the city’s basic financial statements?
a) Blended.
b) Discretely presented.
c) Only by note disclosure of the relationship.
d) Not included in any manner.
27. The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3)
entity organized for the purpose of raising funds to provide financial assistance to the library.
Members of the board of the foundation are elected by the existing foundation board
members. The foundation provides financial assistance to the library, but the foundation
receives no financial support from the library. If dissolved, all of the foundation assets would
revert to the library. The foundation would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
28. The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3)
entity organized for the purpose of raising funds to provide financial assistance to the library.
Members of the board of the foundation are elected by the existing foundation board
members. The foundation provides financial assistance to the library, but the foundation
receives no financial support from the library. If dissolved, all of the foundation assets would
revert to the library. In what manner should the foundation be presented in the financial
statements of the library?
a) Blended.
b) Discretely presented.
c) Note disclosure only.
d) Not included in any manner.
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29. The Hospital Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the
purpose of raising funds to provide scholarships only to academically qualified students at the
Hospital Medical School. Members of the board of the Hospital Foundation are elected by
the existing board of trustees. The foundation provides scholarships to students of the
Hospital Medical School, but the foundation receives no financial support from the hospital.
The foundation would be considered a(n)
a) Primary government.
b) Component unit.
c) Related organization.
d) Affiliated organization.
30. The Hospital Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the
purpose of raising funds to provide scholarships only to academically qualified students at the
Hospital Medical School. Members of the board of the Hospital Foundation are elected by
the existing board of trustees. The foundation provides scholarships to students of the
Hospital Medical School, but the foundation receives no financial support from the Hospital.
In what manner would the Hospital include the foundation in its financial statements?
a) Blended.
b) Discretely presented.
c) Consolidated.
d) Note disclosure only.
31. A comprehensive annual financial report (CAFR) for Homer City need not include which of
the following sections?
a) Condensed summary data.
b) Introductory section.
c) Financial section.
d) Statistical section.
32. The introductory section of a CAFR includes which of the following?
a) Auditor’s opinion on the basic financial statements.
b) Basic financial statements.
c) Letter of transmittal.
d) MD&A and other RSI.
33. The financial section of a CAFR includes:
a) MD&A and other RSI.
b) Statistical section.
c) Letter of transmittal.
d) GFOA certificate of achievement.
34. Which of the following statements is not a required part of the basic financial statements of
Carlton City?
a) Government-wide statement of net position.
b) Statement of revenues, expenditures, and changes in fund balances for all governmental
funds.
c) Statement of revenues, expenses, and changes in net assets for all fiduciary funds.
d) Statement of cash flows for all proprietary funds.
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35. The auditor’s report generally refers to information in which of the following sections of the
CAFR?
a) The introductory section, the financial section, and the statistical section.
b) The introductory and the financial sections only.
c) The statistical and the financial sections only.
d) The financial section only.
36. Government-wide financial statements include which of the following?
a) Balance sheet and income statement.
b) Balance sheet, income statement, and statement of cash flows.
c) Statement of net position and statement of activities.
d) Statement of net position, statement of activities, and statement of cash flows.
37. Fund financial statements include which of the following for a governmental fund?
a) Statement of net position and statement of changes in net position.
b) Statement of net position, statement of changes in net position, and statement of cash
flows.
c) Balance sheet; statement of revenue, expenditures, and changes in fund balance; and
statement of cash flows.
d) Balance sheet; and statement of revenue, expenses, and changes in fund balance.
38. Fund financial statements for fiduciary funds include which of the following?
a) Balance sheet and income statement.
b) Balance sheet, income statement, and a statement of cash flows.
c) Statement of fiduciary net assets and a statement of changes in fiduciary net assets.
d) Statement of fiduciary net assets, statement of changes in fiduciary net assets, and
statement of cash flows.
39. For a government that depreciates infrastructure, RSI likely would not include which of the
following?
a) MD&A.
b) Actual to budget comparison.
c) Information about infrastructure condition.
d) Details of pension actuarial valuations.
40. With regard to combining statements, which of the following statements is true?
a) Combining statements for nonmajor governmental funds are optional.
b) Combining statements for nonmajor governmental funds are required.
c) Combining statements for nonmajor internal service funds are optional.
d) Combining statements for all internal service funds are optional.
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41. Eland City Council has adopted a policy of aggressively pursuing grants and other resource
inflows from other levels of government. Over the past several years, the proportion of total
city revenues that comes from other levels of government has steadily increased. As a
consequence of these increased revenues, the city has begun offering a number of new
services to citizens. In assessing the financial condition of the city, an analyst would
conclude which of the following?
a) The increasing reliance on intergovernmental revenues has increased the financial
viability of the city.
b) The increasing reliance on intergovernmental revenues can be a negative fiscal
characteristic.
c) The increasing reliance on intergovernmental revenues is irrelevant in assessing the
financial condition of the city.
d) The increasing reliance on intergovernmental revenues is a sign of poor management on
the part of the city council.
42. Which of the following is generally considered to be a positive fiscal characteristic for a city?
a) A high, or increasing, ratio of intergovernmental revenues to total revenues.
b) A low percentage of restricted revenues to total revenues.
c) A high proportion of one-time revenues to total revenues.
d) A low ratio of property tax revenues to total revenues.
43. Which of the following is generally considered to be a positive fiscal characteristic for a city?
a) An increasing amount of payroll costs.
b) An increasing amount of expenditures for specific functions.
c) An increasing percentage of nondiscretionary expenditures.
d) An increasing percentage of discretionary expenditures.
44. Which of the following would generally be considered an indication of future economic
concern for a city?
a) A decreasing percentage of revenue raised by the city as a proportion of total appraised
value of property.
b) A decreasing percentage of revenue raised by the city as a proportion of median family
income.
c) An increasing population base.
d) An increasing industrial base in a variety of industries.
45. A city’s Revenue from own sources/Median family income ratio is a measure of its
a) Adequacy of revenues
b) Fiscal effort
c) Stability of revenues
d) Liquidity
46. When a government’s Unassigned fund balance/Total operating revenues ratio is high
a) It is a sign of fiscal strength.
b) It indicates the government is spending too little.
c) It indicates the government is taxing too much.
d) Any of the above may be indicated.
47. A special-purpose government that engages only in a single governmental-type program
a) Need not prepare fund financial statements.
b) May combine fund and government-wide statements into a single statement.
c) May present a government-wide income statement in a business format showing
expenses deducted from revenues.
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d) Should be reported upon as a blended component unit of a general-purpose government.
48. A special-purpose government that engages in more than one program or in both
governmental-type and business-type programs
a) May combine fund and government-wide statements into a single statement.
b) Should be reported upon as one or more discretely presented component units of a
general-purpose government.
c) May present a government-wide income statement in a business format showing
expenses deducted from revenues.
d) Should prepare both government-wide and fund statements, similar to those required of
general-purpose governments.
49. A government’s financial condition
a) Is another term for its financial position as reported in the government-wide statement of
net position.
b) Is its ability to finance its services and satisfy its obligations on a continuing basis.
c) Can adequately be assessed from the financial section of its CAFR.
d) Depends primarily upon the national economy.
50. Which of the following would NOT be classified as required supplementary
information (RSI)?a) MD&A.
b) Information about infrastructure condition (for governments that do not depreciate
infrastructure).
c) Letter of transmittal included in a government’s CAFR.
d) Multi-year schedule of funding progress for a government’s pension plan.
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PROBLEMS (CHAPTER 11)
1. Parsley City joined with two other cities to create a regional landfill authority. The initial
cash investment by each community was as follows:
Parsley City $15 million
Sage City $10 million
Rosemary City $ 5 million
The landfill will be governed by a seven-member board—two members chosen by each
mayor and one member chosen by majority vote of the six mayoral appointees. During the
first year of operation the landfill, which receives no tax dollars, generated an excess of
revenues over expenses of $120,000. Record the journal entries Parsley City should make
under each of the mutually exclusive situations listed below, assuming that all participants
have an equal equity interest in the authority. Indicate in which fund the entry is being made.
a) Assume that Parsley City appropriates the $15 million contribution from its general fund
resources.
b) Assume that Parsley City uses the resources available in its city utility enterprise fund to
make the contribution.
2. For each of the following independent cases state whether or not the entity described should
be included in the financial statements of the primary government and if so, how? Be concise
but adequately defend your answer using GASB criteria.
a) The Planning and Development Authority is a separate legal entity with a five-member
board appointed as follows: one member appointed by the school district, one member
appointed by the city, one member appointed by the county, and two members elected by
the three appointed members. The Planning and Development Authority received a
$50,000 grant from the state. The money was used to make loans to businesses agreeing
to relocate to the immediate area. Repayments of the principal and interest by borrowers
are available for lending to new entities.
b) The state created a Public Building Authority, a separate legal entity. The governor
appoints a voting majority of the authority’s board. The authority issues bonds, backed
by the buildings financed with the proceeds. The authority leases the buildings to the
state and uses the proceeds of those leases to service the debt on the bonds.
c) Boxer County Hospital is built on land donated to the hospital by the US Bureau of Land
Management (a federal agency). The hospital board members elect replacements to the
board without outside nominations. The hospital is a separate legal entity and is entirely
supported by revenues generated by the hospital. The county commission must approve
the budget each year, but has never questioned any item in the budget.
d) Members of State University’s board of trustees are elected in a statewide general
election. The state provides approximately one-half of the operating revenues necessary
to finance the university’s programs. The university is a separate legal entity and state
laws apply to the conduct of its business.
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3. Based on the data from the general fund presented below, assess (as best you can) the
financial/fiscal condition of Karla city. As much as possible, justify your answer with
quantitative data.
(000’s omitted)
Population (increasing slowly) 86
Appraised value of taxable property $120,000
Total general fund revenues $ 25,000
General fund property tax revenue $ 11,000
Intergovernmental revenues $ 4,000
Miscellaneous revenues $ 8,000
Total general fund expenditures
(including debt service) $ 20,000
Current expenditures $ 21,300
Capital outlay $ 1,600
Debt service expenditures $ 100
Operating transfer-in $ 600
Operating transfer-out $ (4,600)
Unassigned fund balance $ 13,000
Cash and investments $ 15,000
Current liabilities $ 1,400
4. The data below were taken from the CAFRs of two cities.
Oak City
Maple City
Population
19,000
115,000
Value of taxable property
$860,678,900
$1,075,890,100
Annual property tax levy
$16,787,068
$54,991,385
Total general fund revenues
$57,166,696
$77,171,776
General fund tax revenues
$43,977,949
$54,991,385
Intergovernmental revenues
$6,188,029
$17,293,415
REQUIRED: Based on this limited information
a. Which city has the greater resources?
b. Which city imposes a greater tax burden on its citizens based on
• Per capita total general fund revenues?
• Per capital property taxes?
• Property taxes as a percentage of property values?
c. Which city receives more assistance from other governments?
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5. Gonzalo City has prepared all of the elements of its CAFR. REQUIRED: Numbering from
one to ten, indicate the order in which each of these elements should appear in the city’s
CAFR.
____ Auditor’s report
____ Letter of transmittal
____ Required supplementary information other than MD&A
____ Government-wide financial statements
____ Notes to financial statements
____ Combining statements for nonmajor funds
____ Combining statements for major discretely presented component units
____ Management’s Discussion and Analysis (MD&A)
____ Statistical tables
____ Governmental fund statements
6. Koch County has two component units—an Electric Utility and a Housing Authority. In its
separate financial statements, the Electric Utility reports using a single enterprise fund. The
Housing Authority reports using a general fund, a special revenue fund, and a debt service
fund.
a. Assuming that both component units meet the criteria for presentation as discretely
presented component units
• Where should their financial information be presented in the county’s financial
report?
• How would the Housing Authority’s general fund be reported?
b. Assuming that the Electric Utility meets the criteria for reporting as a major component
unit, what is the most likely way in which the city would meet the additional disclosure
requirement for the utility? What are two other ways that the disclosure requirements
could be met?
c. Assuming that the Housing Authority meets the criteria for presentation as a blended
component unit
• Where should the authority’s financial information be presented?
• How would the authority’s general fund be reported?
7. A city established an airport authority as a municipal corporation under state law for the
purpose of acquiring, maintaining, operating, and financing airports. The authority’s
governing board consists of five members—four appointed by the mayor of the city and one
appointed by the board of county commissioners. The board members may not be removed
by the appointing officials, except for cause through an impeachment process.
The authority is authorized to issue bonds, to levy taxes, to own property in its own name, to
determine its budget, and to establish rates. All debt issued is payable from revenues derived
solely from the operation of the authority. The city has no obligation for the debt of the
authority. The authority’s board controls the day-to-day operations of the organization. The
authority has sole responsibility for financing its deficits and has sole control of its surplus
funds.
Should the city include the authority in its financial statements as a component unit? How,
if at all, should it report the authority? Explain and justify citing the specific criteria that
you used to make your determination.
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• ESSAYS (CHAPTER 11)
1. The state established the State Housing Authority to finance construction of low-income
housing. The authority, a state corporation, is governed by an independent board of directors,
the members of which are appointed by the governor. They can be removed only for cause.
The board of directors has complete control over the authority’s operations. The director is
hired by the board and reports to the board; the director cannot be removed by the governor.
Although the state constitution limits the state to $2 million of bonds outstanding, the
authority issued $970 million in bonds to finance construction projects. In earlier years, the
authority issued debt that was backed by the taxing power of the state (moral obligation debt).
The newer bonds are revenue bonds only.
The authority uses the proceeds of the debt it issues to make loans to finance housing
construction. Debt is serviced from monies received in repayment of loans made by the
authority.
Do you believe the state should include the authority in its reporting entity? If so, how?
Justify your answer using the GASB Financial Reporting Entity criteria.
2. A comprehensive annual financial report (CAFR) includes a statistical section. What kinds
of information are found in the statistical section? To what use would a reader put the
information found in the statistical section? In your opinion, is the statistical section worth
the effort put into its preparation?
3. GASB reporting standards require that legally separate component units be included on the
face of the financial statements of the primary government. Small City created a legally
separate City Utility Service. The Small City council appoints the utility board members,
authorizes the bonds of the utility, and approves its budget. Small City’s general fund
revenues are $58 million; the revenues of the utility are $100 million (the utility owns a
generating plant and sells its excess power to other communities). Discuss the appropriate
reporting for the City Utility Service. Do you think that this presentation is meaningful?
Why or why not?
4. What are four types of information that must be presented in Management’s Discussion and
Analysis (MD&A)? From which financial statement, if any, is each type of information
derived?
5. Government colleges and universities have several reporting options under GAAP. What are
they? What financial statements would be presented under each? What basis of accounting
would be used?
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ANSWERS TO TRUE/FALSE (CHAPTER 11)
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ANSWERS TO MULTIPLE CHOICE (CHAPTER 11)
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ANSWERS TO PROBLEMS (CHAPTER 11)
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ANSWERS TO ESSAY (CHAPTER 11)
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