Chapter 04 – Accounting for Governmental Operating Activities
4-1
CHAPTER 4: ACCOUNTING FOR GOVERNMENTAL OPERATING
ACTIVITIES ⎯ ILLUSTRATIVE TRANSACTIONS AND
FINANCIAL STATEMENTS
OUTLINE
Number
Topic
Type/Task
Status
(re: 16/e)
Questions:
4-1
Dual effects of transactions
Explain, examples
Same
4-2
Encumbrances outstanding at year end
Explain
New
4-3
Tax anticipation notes
Explain
New
4-4
Property tax projections
Explain
New
4-5
Property tax revenue
Compute
Same
4-6
Purchase of supplies internally/externally
Compare
New
4-7
Purchases and consumption method of
accounting for supplies
Explain
Same
4-8
Interfund transactions
Explain
Same
4-9
Permanent funds
Describe
Same
4-10
Classes of nonexchange transactions
Describe
Same
Cases:
4-11
Analyzing reports of operations
Analyze, write
Revised
4-12
Policy issues relating to property taxes
Analyze, write
Revised
4-13
Delinquent taxes and tax liens
Research, write
New
4-14
Reporting of a reimbursement grant
Analyze, explain
Revised
Exercises/Problems:
4-15
Examine the CAFR
Examine
4-1 Revised
4-16
Various
Multiple Choice
Items 5 and 6 are
new; 2, 3, 4 and
7 are revised
4-17
Recording purchase orders; receipt of goods
JEs
4-3 Revised
4-18
Property tax calculations and journal entries
Calculate, JEs
New
4-19
Calculation of required tax anticipation
financing and recording issuance of TANs
Calculate, JEs
4-5 revised
4-20
Adjusting and closing entries
Analyze, JEs
Same
4-21
Special revenue fund and voluntary
nonexchange transactions
Analyze, JEs
New
4-22
Transactions and budgetary comparison
schedule
JEs and schedule
Same
4-23
Interfund and interactivity transactions
JEs
4-9 Revised
4-24
Operating transactions and General Fund
financial statements
JEs and statement
Same
4-25
Permanent fund accounting
JEs and statements
New
Chapter 04 – Accounting for Governmental Operating Activities
CHAPTER 4: ACCOUNTING FOR GOVERNMENTAL OPERATING
ACTIVITIES—ILLUSTRATIVE TRANSACTIONS AND
FINANCIAL STATEMENTS
Answers to Questions
4-1. Under the GASB financial reporting model, governmental activities are reported on a
long-term perspective at the government-wide level using the economic resources
measurement focus and the accrual basis of accounting, similar to business accounting.
This means that both current and noncurrent assets and liabilities, as well as deferred
General Problem Information: Dual effects of transactions
Learning Objective: 4-1
Learning Objective: 4-3
Topic: Measurement Focus and Basis of Accounting
4-2. In the statement or schedule of revenues, expenditures, and changes in fund balance
prepared on the budgetary basis, any encumbrances outstanding at year end are added to
expenditures in the budgetary basis column. By including any amounts encumbered that
Chapter 04 – Accounting for Governmental Operating Activities
4-3
Ch. 4, Question 4-2 (Cont’d)
General Problem Information: Encumbrances outstanding at year end
Learning Objective: 4-1
Topic: General Fund Financial Statements
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
4-3. Since cash inflows to governments often do not occur on a consistent basis, many
governments borrow money on a short-term basis. The taxing power of the government
General Problem Information: Tax anticipation notes
Learning Objective: 4-1
Topic: Tax Anticipation Notes
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy Medium Hard
4-4. Since property tax levies are based on assessed/market values of property, when property
values decline and no change in levy rate is made, tax collections will fall, sometimes
General Problem Information: Property tax projections
Learning Objective: 4-1
Topic: Accounting for Property Taxes
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
4-5. $6,720,000 = gross levy – (.04 X gross levy)
$6,720,000 = (1 – .04) X gross levy
General Problem Information: Property Tax Revenue
Learning Objective: 4-1
Topic: Accounting for Property Taxes
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Critical Thinking
Level of Difficulty: Medium
Chapter 04 – Accounting for Governmental Operating Activities
Ch. 4, Answers (Cont’d)
4-6. When recording a purchase from either an internal service fund or an external vendor, a
governmental fund will use encumbrance accounting. When goods are received, the
General Problem Information: Purchase of supplies internally/externally
Learning Objective: 4-1
Learning Objective: 4-4
Topic: Internal Exchange Transactions
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
4-7. The purchases method is consistent with the modified accrual basis of accounting as an
expenditure is recognized for the full cost of supplies when purchased, regardless of the
amount used during the year. The consumption method is consistent with the accrual
General Problem Information: Purchases and consumption method of accounting for supplies
Learning Objective: 4-1
Learning Objective: 4-2
Topic: Adjusting Entries
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
4-8. Because activities of the General Fund and City Library Fund are both reported in the
Governmental Activities column at the government-wide level, the $5,000 receivable by
the General Fund and payable by the City Library Fund are off-setting and are not
Chapter 04 – Accounting for Governmental Operating Activities
4-5
Ch. 4, Question 4-8 (Cont’d)
General Problem Information: Interfund transactions
Learning Objective: 4-4
Topic: Interfund Activity
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
4-9. Permanent funds and special revenue funds are both governmental fund types. If a
public-purpose trust requires that the principal amount of the contribution not be
expended, but that earnings on the principal (as defined in the trust agreement or by law)
General Problem Information: Permanent funds
Learning Objective: 4-5
Topic: Permanent Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
4-10. As shown in Appendix A to Chapter 4, the four classes of nonexchange transactions are
(1) derived tax revenues, (2) imposed nonexchange revenues, (3) government-mandated
nonexchange transactions, and (4) voluntary nonexchange transactions. For derived tax
revenues, such as sales and similar taxes, revenues should be recognized when the
General Problem Information: Classes of nonexchange transactions
Learning Objective: 4-6
Topic: Appendix A
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 04 – Accounting for Governmental Operating Activities
4-6
Ch. 4, Answers (Cont’d)
Solutions to Cases:
4-11. a. Students will examine different governments, but in all cases there should be a
significant difference between the change in the total fund balances of governmental
funds and the change in net position of governmental activities. A simple evaluation
of a positive change or increase is that it represents “good news” while a decrease in
b. Encourage students to examine the Reconciliation of the Statement of Revenues,
Expenditures, and Changes in Fund Balances—Governmental Funds to the Statement
of Activities (see Illustration A2-6). They should recast the information in this
General Problem Information: Analyzing results of operations
Learning Objective: 4-1
Topic: Section from Chapter
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
4-12. This is a case for which there is no “right” answer. Rather students should be given
credit for how well they identify, develop, and communicate pertinent issues, and on the
Chapter 04 – Accounting for Governmental Operating Activities
4-7
Ch. 4, Case 4-12 (Cont’d)
a. (1) Most students should see their tax situation during the first two years of the pre-
recession period in a very favorable light. After all, who wouldn’t be delighted to
find their property taxes declining while the market value of the same property is
increasing? This is a time when such taxpayers will be very quiet, being careful
b. (1) While it may be tempting to leave the tax rate unchanged during the period
property taxes are increasing, property owners whose properties have recently
been reassessed upward can be expected to lobby their council members or testify
(2) As it was for the property owners, the recessionary period is the period of greatest
concern to the city manager. Revenues from sources other than property taxes,
particularly sales taxes, will be declining sharply during a severe recession. Thus,
while the city manager would like to increase the property tax rate to offset
Chapter 04 – Accounting for Governmental Operating Activities
4-8
Ch. 4, Case 4-12 (Cont’d)
General Problem Information: Policy issues relating to property taxes
Learning Objective: 4-1
Topic: Accounting for Property Taxes
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Decision Making
Level of Difficulty: Medium
4-13. Student responses will vary depending upon the government selected and the policies
in effect regarding delinquent taxes and tax liens. Students should find this research
General Problem Information: Delinquent taxes and tax liens
Learning Objective: 4-1
Topic: Accounting for Property Taxes
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Decision Making
Level of Difficulty: Easy
4-14. a. Although it would be tempting to record a receivable and revenue (or, perhaps,
deferred inflow of resources) upon notification of approval, that would be
inconsistent with GASB guidance for voluntary nonexchange transactions. As
explained under the heading Accounting for Operating Grants in the Special
Revenue Funds section of this chapter, and in Appendix A, an eligibility
Chapter 04 – Accounting for Governmental Operating Activities
4-9
Ch. 4, Case 4-14 (Cont’d)
General Problem Information: Reporting of a reimbursement grant
Learning Objective: 4-1
Topic: Accounting for Operating Grants
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
Solutions to Exercises and Problems
4-15. The answers will differ from student to student, since each has a different annual report.
The instructor may wish to have copies made of good examples of statements, charts,
General Problem Information: Examine the CAFR
Learning Objective: 4-3
Topic: Various
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
4-16. 1. a. 6. b.
2. d. 7. d.
Chapter 04 – Accounting for Governmental Operating Activities
4-10
Ch. 4, Solutions, 4-16 (Cont’d)
General Problem Information: Various
Learning Objective: 4-1
Learning Objective: 4-2
Learning Objective: 4-3
Topic: Various chapter topics
Bloom’s Taxonomy: Remember/Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
4-17. CITY OF HICKORY HILLS
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
General Fund:
a. ENCUMBRANCES 1,065,000
ENCUMBRANCES
OUTSTANDING 1,065,000
Encumbrances Ledger:
General Fund:
b. ENCUMBRANCES
OUTSTANDING 1,065,000
ENCUMBRANCES 1,065,000
Chapter 04 – Accounting for Governmental Operating Activities
4-11
Ch. 4, Solutions, 4-17b (Cont’d)
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
EXPENDITURES 1,066,900
VOUCHERS PAYABLE 1,066,900
Expenditures Ledger:
c. The fact that the actual cost of these goods is $1,900 more than the
estimated cost when the goods were ordered is of no consequence, and
General Problem Information: Recording purchase orders; receipt of goods
Learning Objective: 4-1
Topic: Purchasing Transactions
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application
Level of Difficulty: Easy
Chapter 04 – Accounting for Governmental Operating Activities
4-12
Ch. 4, Solutions (Cont’d)
4-18. RIDGEDALE COUNTY
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
General Fund:
a. TAXES RECEIVABLE—CURRENT 4,200,000
ALLOWANCE FOR UNCOLLECTIBLE
b. General Fund:
c. General Fund:
TAXES RECEIVABLE—
DELINQUENT 300,000
ALLOWANCE FOR UNCOLLECTIBLE
d. General Fund:
INTEREST AND PENALTIES
Chapter 04 – Accounting for Governmental Operating Activities
4-13
Ch. 4, Solutions, 4-18 (Cont’d)
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
e. General Fund:
CASH 57,800
TAXES RECEIVABLE—
f. A for-profit company records the gross amount of receivables as an asset
and revenue, and the uncollectible portion as a contra asset and an
g. To be recognized as revenue in the General Fund, the taxes should be
General Problem Information: Property tax calculations and journal entries
Learning Objective: 4-1
Topic: Accounting for Property Taxes
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application
Level of Difficulty: Medium
Chapter 04 – Accounting for Governmental Operating Activities
4-14
Ch. 4, Solutions (Cont’d)
4-19. a. City of Troy
Calculation of Estimated Required
Tax Anticipation Financing
Estimated Expenditure Requirements:
Budgeted expenditures, remainder of FY 2017 $2,500,000
Current liabilities payable 830,000 $3,330,000
Estimated Resources Available:
b. General Fund and Governmental Activities:
Debits Credits
c. General Fund:
TAX ANTICIPATION NOTES PAYABLE 1,460,000
General Problem Information: Calculation of required tax anticipation financing and recording
issuance of TANs
Learning Objective: 4-1
Topic: Tax Anticipation Notes
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application
Level of Difficulty: Medium
Chapter 04 – Accounting for Governmental Operating Activities
4-15
Ch. 4, Solutions (Cont’d)
4-20. CITY OF COLUMBUS
GENERAL JOURNAL
Debits Credits
a. General Fund:
INVENTORY OF SUPPLIES 12,000
FUND BALANCE—NONSPENDABLE—
INVENTORY OF SUPPLIES 12,000
b. General Fund:
General Problem Information: Adjusting and closing entries
Learning Objective: 4-2
Learning Objective: 4-3
Topic: Adjusting Entries, Closing Entries
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application
Level of Difficulty: Medium