52. (12 Minutes) (The financial impact of fund transfers)
A. False—A transfer out will be shown by the governmental activities and a
transfer in will be reported by the business-type activities. Those two
figures will be netted together so that no overall impact is shown in the
total column for the government as a whole. However, both figures do
appear in their own separate columns.
E. False—The General Fund does not report expenses in the fund financial
statements but rather expenditures. An expenditure of this amount is
reported.
53. (15 Minutes) (Special assessment project)
A. Correct change in the fund balance is a $40,000 increase—According to
the information provided, the Capital Projects Fund reported an
increase in its fund balance for the year of $40,000. In arriving at that
figure, $10,000 in revenue and the related expenditure were both
recorded in that fund for this bus stop construction.
Because the government had no obligation, these cash flows should
actually have all been reported in the Agency Fund. The auditing firm
54. (5 Minutes) (Issuance of short-term note)x
The correct change in the fund balance for 2015 is an increase of $10,000.
55. (15 Minutes) (Reclassifying an activity as an enterprise fund)
A. The correct change in the fund balance for the General Fund is a
$66,000 increase. According to the information provided, the General
Fund reported an increase in its fund balance of $30,000. However, the
$9,000 revenue and $45,000 in expenditures were erroneously recorded
B. The correct change in the net position on the government-wide financial
statements is a $150,000 increase. According to the information
provided, the overall increase in net position during the year (on the
government-wide financial statements) was $150,000. An error has been
made in that this art display was reported in the governmental activities
(General Fund) rather than in the business-type activities (Enterprise
C. The correct change in the Enterprise Fund is a $54,000 increase.
According to the information provided, the overall change in net
position of the Enterprise Fund on the fund financial statements was a
$60,000 increase. However, the art display was not included as it should
asset and decreases another so that no change occurs in net position.
56. (12 Minutes) (Property tax assessments)
A. The correct change in the net position of the city on the statement of net
position is a $42,000 increase. According to the information provided,
the increase in net position on the government-wide financial
statements was $150,000. The government, though, has recognized
revenue for the amount received in the current period. The amount of
B. The correct change in the fund balance reported for the General Fund is
a $78,000 decrease. According to the information provided, the General
Fund reported an increase in its fund balance for the year of $30,000.
The government, though, had recognized revenue for the amount of
57. (12 Minutes) (Property tax assessments)
A. The correct change in the net position reported in the government-wide
financial statements is a $42,000 increase. According to the
information provided, the overall change in the net position of the city
B. The correct change in the fund balance for the General Fund is a
$78,000 decrease. According to the information provided, the General
Fund reported an increase in its fund balance for the year of $30,000.
However, as shown above, $108,000 was received that should have been
58. (12 Minutes) (Recording of grant money)
A. The correct change in the fund balance reported by the General Fund is
a $290,000 decrease. According to the information provided, the
General Fund reported an increase in its fund balance for the year of
$30,000. However, $320,000 was recognized here as revenue although
can be recognized until that time. Changing $320,000 from revenue to
unearned revenue reduces the $150,000 increase in the fund balance to
a $170,000 decrease. Depreciation of the machine is being handled
properly.
59. (8 Minutes) (Reporting of program revenues)
A. The correct change in the net position on the government-wide
statements is a $150,000 increase. According to the preliminary
information, the overall change in the net position of the city on the
Develop Your Skills
Research Case 1
been raised in connection with the handling of several unusual transactions. In
real life, no better method of resolving such questions exists than to actually
study the official standard itself.
Paragraph 144 defines special items as “significant transactions or other events
within the control of management that are either unusual in nature or infrequent
in occurrence.”
In this case, the GASB Codification provides clear guidance as to the identity of
these two accounts as well as their placement in the financial statements. In
practice, accountants rarely refer to textbooks when official guidelines are
available. Students, therefore, need to become comfortable with locating the
source of authoritative information about a topic in order to become proficient at
reading and understanding the material provided.
Research Case 2
Here, the accountants and officials of the City of Danmark are looking for
assistance in classifying a revenue as either a program revenue (reported directly
with a specific activity) or a general revenue (shown for the government as a
whole).
1. A search of the GASB Codification provides extensive assistance in this case.
Section 2200.136 spells out that “program revenues derive directly from the
2. Examples of program revenues are then given in Section 2200.137-139 that
include:
3. In contrast, general revenues are defined in the negative in Section 2200.140
4. Sales taxes and property taxes are included in this category as well as any
other revenues of the government that do not meet the program revenue criteria.
Analysis Case 1
1) Here is the independent auditor’s report for the financial statements
Independent Auditor’s Report
Honorable Mayor and
Members of the City Council
City of Phoenix, Arizona
We have audited the accompanying financial statements of the governmental
activities, the business-type activities, the aggregate discretely presented
component units, each major fund, and the aggregate remaining fund information
of the City of Phoenix, Arizona (the “City”) as of and for the year ended June 30,
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America established by the American Institute of
Certified Public Accountants and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit
In our opinion, the financial statements referred to above present fairly, in all
material respects, the respective financial position of the governmental activities,
the business-type activities, the aggregate discretely presented component units,
each major fund, and the aggregate remaining fund information of the City of
In accordance with Government Auditing Standards, we have also issued our
report dated December 21, 2012, on our consideration of the City’s internal
control over financial reporting and on our tests of its compliance with certain
Accounting principles generally accepted in the United States of America require
that the management’s discussion and analysis and the schedule of funding
progress on pages 3 through 12 and 93, respectively, be presented to supplement
the basic financial statements. Such information, although not a required part of
the basic financial statements, is required by the Governmental Accounting
Standards Board who considers it to be an essential part of financial reporting for
Our audit was conducted for the purpose of forming opinions on the financial
statements that collectively comprise the City’s basic financial statements. The
non-major governmental funds and other supplementary information as listed in
the table of contents is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such supplementary information
the basic financial statements as a whole.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The introductory section and the
Grant Thornton LLP
Phoenix, Arizona
December 21, 2012
Many aspects of this independent auditor’s report look very much like an audit of
a for-profit business. Other parts are different.
In an audit of a state or local government, the independent auditor’s report is
based on Government Auditing Standards (issued by the Comptroller General of