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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-11
C17-5 Examining Deposit and Investment Risk Disclosures of a Governmental Entity
(Note to the Instructor: Students may become frustrated because they may feel that the
information presented in the summaries for GASB 40 and GASB 3 are not enough to fully
(2) credit risk, (3) concentration of credit risk, (4) interest rate risk, and (5) foreign
currency risk. GASB 3 and GASB 40, which your students probably would not have,
define these as follows:
Custodial credit risk: (established in GASB 3 but amended in GASB 40): The risk that in
the event of a failure of a depository financial institution or a counterparty to a
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-12
E17-1 Multiple-Choice Questions on the General Fund [AICPA Adapted]
1. b – Governmental accounting requires that resources pertaining to different aspects of
the government operations be accounted for in separate, self-balancing funds.
2. a
3. b
4. c
5. b
E17-2 Matching for General Fund Transactions [AICPA Adapted]
1.
K
2.
C
3.
B
4.
B
5.
K
6.
A
7.
H
8.
I
9.
M
10.
F
11.
B
12.
B
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-13
E17-3 Multiple-Choice Questions on Budgets, Expenditures, and Revenue
1. c
2. d
3. c
4. a
5. b 7,500 – 4,500 – 750 = 2,250
6. c
7. d
8. b
9. c
10. d
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-14
E17-4 Multiple-Choice Questions on the General Fund
1.
b
2.
d
3.
c –
The balances in the ENCUMBRANCES CONTROL and the FUND BALANCE-
ASSIGNED FOR ENCUMBRANCES accounts are the same. Therefore, an
excess of one account over the other indicates a recording error.
4.
c –
The following entry is made when a purchase order is approved:
ENCUMBRANCES CONTROL
BUDGETARY FUND BALANCE – ASSIGNED FOR ENCUMBRANCES
5.
b –
The 60-day rule for property tax revenues states that property taxes collected
within 60 days after the end of a fiscal year (within first 60 days of 2007) may be
classified as revenues of the prior fiscal year (2006). The entry to record the tax
levy would be:
Property Taxes Receivable
700,000
Allowance for Uncollectible Taxes
10,000
Revenue – Property Taxes
600,000
Deferred Revenue (reported as a liability
on the general fund balance sheet)
90,000
[Note: The estimated uncollectibles are on the property taxes reported as
deferred revenue.]
6.
a –
Upon receipt of the order, Oak would record the following entries:
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
5,000
ENCUMBRANCES CONTROL
5,000
Expenditures Control
4,950
Vouchers Payable
4,950
7.
a –
Johnson would record the following entry:
ESTIMATED REVENUES CONTROL
9,000,000
ESTIMATED OTHER FINANCING SOURCE –
TRANSFER IN (Internal Service)
1,000,000
ESTIMATED OTHER FINANCING SOURCE –
TRANSFER IN (Debt Service)
500,000
APPROPRIATIONS CONTROL
XXXXXX
BUDGETARY FUND BALANCE – UNASSIGNED
XXX
8.
c
9.
a
10.
b
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-15
E17-5 Encumbrances at Year-End
a.
Outstanding encumbrances lapse at year-end.
(1)
Order equipment—November 3, 20X2:
ENCUMBRANCE
21,000
BUDGETARY FUND BALANCE--ASSIGNED
FOR ENCUMBRANCES
21,000
Order equipment and record encumbrance.
(2)
Year-end entries—December 31, 20X3:
BUDGETARY FUND BALANCE – ASSIGNED FOR
ENCUMBRANCES
21,000
ENCUMBRANCES
21,000
Close remaining budgeted encumbrances.
Fund Balance – Unassigned
21,000
Fund Balance – Assigned for Encumbrances
21,000
Reserve actual fund balance for outstanding encumbrances at year-end.
(3)
City Council accepts outstanding encumbrances—January 1, 20X3:
Fund Balance – Assigned for Encumbrances
21,000
Fund Balance – Unassigned
21,000
Reverse prior-year encumbrance reserve.
ENCUMBRANCES
21,000
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
21.000
Establish budgetary control over encumbrances renewed from prior year.
(4)
Equipment received—January 18, 20X3:
BUDGETARY FUND BALANCE – ASSIGNED FOR
ENCUMBRANCES
21,000
ENCUMBRANCES
21,000
Remove budgetary reserve for goods received.
Expenditures
21,800
Vouchers Payable
21,800
Record expenditure for goods received at actual cost of $21,800.
(5)
Year-end entry—December 31, 20X3:
Fund Balance—Unassigned
21,800
Expenditures
21,800
Close 20X3 expenditures account.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-16
E17-5 (continued)
b.
Outstanding encumbrances are nonlapsing.
(1)
Order equipment—November 3, 20X2:
ENCUMBRANCE
21,000
BUDGETARY FUND BALANCE--ASSIGNED
FOR ENCUMBRANCES
21,000
Order equipment and record encumbrance.
(2)
Year-end entries—December 31, 20X2:
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
21,000
ENCUMBRANCES
21,000
Close remaining budgetary encumbrances.
Fund Balance – Unassigned
21,000
Fund Balance – Assigned for Encumbrances
21,000
Reserve fund balance for outstanding encumbrances.
(3)
Date the encumbrances from prior year—January1, 20X3::
Fund Balance – Assigned for Encumbrances
21,000
Fund Balance – Assigned for
Encumbrances – 20X2
21,000
Reclassify reserve from 2002, prior year.
(4)
Equipment received—January 18, 20X3:
Expenditures – 20X2
21,000
Expenditures (20X3)
800
Vouchers Payable
21,800
Record actual expenditure for goods received.
(5)
Closing entries—December 31, 20X3:
Fund Balance – Assigned for
Encumbrances – 20X2
21,000
Expenditures – 20X2
21,000
Close expenditures account for prior year encumbrances.
Fund Balance – Unassigned
800
Expenditures (20X3)
800
Close expenditures for current year.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
E17-5 (continued)
(Note: In entry (4), the $800 excess of actual cost over the encumbered amount must be
approved as part of 20X3's expenditures. Entry (4) records the City Council’s approval
with a debit to Expenditures (20X3) which increases 20X3’s total expenditures. The
expenditures for 20X3 are closed in entry (5). If the actual cost was less than the
encumbered amount, then the difference should be closed to Fund Balance-Unassigned,
although some governmental units have a policy of closing any difference between actual
and encumbered amounts for prior year encumbrances to the current year's
expenditures.)
c.
(1)
Outstanding encumbrances are nonlapsing; City Council cancels order—
January 1, 20X3:
Fund Balance—Assigned for Encumbrances
21,000
Fund Balance—Unassigned
21,000
City Council cancels 20X2 order for equipment.
E17-6 Accounting for Inventories of Office Supplies
a.
Consumption method of accounting for inventories:
(1)
Purchase of supplies:
August 8, 20X2
Expenditures
3,600
Vouchers Payable
3,600
Acquire inventory of supplies.
(2)
Entries at end of 20X2 fiscal year:
September 30, 20X2
Inventory of Supplies
2,800
Expenditures
2,800
Recognize ending inventory of supplies.
Fund Balance – Unassigned
2,800
Fund Balance – Assigned for Inventories
2,800
Establish fund reserve for ending inventory.
Fund Balance – Unassigned
800
Expenditures
800
Close expenditures account.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-18
E17-6 (continued)
(3)
Entry at end of 20X3 fiscal year:
September 30, 20X3
Expenditures
2,800
Inventory of Supplies
2,800
Record expenditures for inventories consumed.
Fund Balance – Assigned for Inventories
2,800
Fund Balance – Unassigned
2,800
Remove fund balance reserve for inventories consumed.
Fund Balance – Unassigned
2,800
Expenditures
2,800
Close expenditures account.
b.
Purchase method of accounting for inventories:
(1)
Purchase of supplies:
August 8, 20X2
Expenditures
3,600
Vouchers Payable
3,600
Acquire inventory of supplies.
(2)
Entries at end of 20X2 fiscal year:
September 30, 20X2
Inventory of Supplies
2,800
Fund Balance – Assigned for Inventories
2,800
Recognize ending inventory of supplies.
Fund Balance – Unassigned
3,600
Expenditures
3,600
Close expenditures account.
(3)
Entries at end of 20X3 fiscal year:
September 30, 20X3
Fund Balance – Assigned for Inventories
2,800
Inventory of Supplies
2,800
Remove fund balance reserve for inventories consumed.
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-19
E17-7 Accounting for Prepayments and Capital Assets
(a)
Acquired three-year insurance policy:
September 1, 20X1
Expenditures
5,400
Vouchers Payable
5,400
Record acquisition of three-year insurance policy.
(b)
New furniture for the city council meeting room:
September 17, 20X1
ENCUMBRANCES
15,600
BUDGETARY FUND BALANCE – ASSIGNED
FOR ENCUMBRANCES
15,600
Encumber for purchase orders for new furniture.
October 1, 20X1
BUDGETARY FUND BALANCE – ASSIGNED FOR
ENCUMBRANCES
15,600
ENCUMBRANCES
15,600
Reverse reserve for furniture received.
Expenditures
15,200
Vouchers Payable
15,200
Receive furniture at actual cost.
(c)
Acquired supplies – consumption method used:
November 4, 20X1
Expenditures
1,800
Vouchers Payable
1,800
Acquire supplies.
Closing entries:
December 31, 20X1
Inventory of Supplies
1,120
Expenditures
1,120
Recognize ending inventory of supplies.
Fund Balance – Unassigned
1,120
Fund Balance – Assigned for
Inventories
1,120
Establish fund reserve for ending inventory.
Fund Balance – Unassigned
21,280
Expenditures
21,280
Close expenditures account:
$ 5,400
Insurance Policy
15,200
Furniture
680
Supplies
$21,280
Total
Chapter 17 - Governmental Entities: Introduction and General Fund Accounting
17-20
E17-8 Computation of Revenues Reported on the Statement of Revenues,
Expenditures, and Changes in Fund Balance for the General Fund
Gilbert City
Revenue Reported by the General Fund
For the Year Ended June 30, 20X8
Property tax revenue
$1,862,000
Interest revenue on advance
1,500
Grant revenue used to acquire computer equipment
235,000
Sales tax revenue
125,000
Liquor license revenue
66,000
Total revenue reported
$2,289,500
Notes:
(1) The amount reported for property tax revenue, $1,862,000 is computed as follows:
Levy
$2,000,000
Less:
Property taxes expected to be collected after August 31,
20X8 – the 60 day rule for property tax
(100,000)
collections – report in balance sheet as deferred
revenue at June 30, 20X8, net of $2,000
allowance for uncollectible taxes (2%)
The allowance for uncollectible taxes on this period’s
revenue [($2,000,000 - $100,000 deferred) X .02]
(38,000)
Property tax revenue for year ended June 30, 20X8
$1,862,000
(2) The receipt of $50,000 for the repayment of the advance is recorded in the
following manner by the general fund:
Cash
51,500
Advance to Internal Service Fund
50,000
Interest revenue
1,500
(3) Collection of property taxes during the year ended June 30, 20X8, does not affect the
date.
(4) Revenue recognition related to the State grant is based upon spending the grant to
(5) Revenue from the sales tax is the amount collected during the year ended June 30,
(6) The borrowing of the $800,000 using the property tax levy as collateral represents a
(7) The $30,000 received from a terminated debt service fund is reported as an other
