436
Chapter 13
Personal Financial Statements and Accounting for
Governments and Not-For-Profit Organizations
QUESTIONS
13– 1. Personal financial statements may be prepared for an individual, a husband and
wife, or a larger family group.
13– 5. Estimated current value basis
13– 8. No.
13–11. Broker’s statements
Income tax returns
13–12. Examples would be methods used in determining current values of major
estimated income taxes.
13–13. If quoted market prices are not available, then reasonable estimates should be
used.
437
13–14. This is an open-ended question. The responses here are merely suggestions.
Dues will not increase
13–16. No. The accounting for a profit-oriented business is centered on the entity
13–17. a. General fund
b. Proprietary fund
additional assets.
c. Fiduciary fund
distributed.
13–18. The number of funds that will be utilized will depend upon the responsibilities of
responsibilities.
13–19. When the representatives of the citizens approve the budget, then the individual
13–20. Government Finance Officers’ Association
438
13–23. No. The accounting for a profit enterprise is centered on the entity concept and
enterprise.
13–25. This book is periodically updated for subsequent changes to governmental
accounting standards.
No. 34, which was issued in 1999.
13–27. Examples of governmental activities are police and fire. Examples of business–
13–28. The financial data of the component units are included with the government
439
PROBLEMS
PROBLEM 13-1
a.
$
80,000
Purchase price
10,000
Improvements
90,000
x 1.40
Increase in inflation rate
126,000
20,000
Less mortgage
$
106,000
Note: An appraisal would likely be preferable to this computation.
c. Estimated current value of the IRA:
IRA
$
20,000
Less Taxes:
1. 10% IRS penalty for early withdrawal
$
(2,000)
2. $20,000 x 30%
(6,000)
$
(8,000)
Estimated current value of the IRA
$
12,000
d. The guarantee should not be presented as a liability. It should be disclosed in a
note, if material.
e. If the offer to buy back the mortgage is still outstanding, the estimated current value
440
PROBLEM 13-2
a. Ree’s:
$
20,000
14
$
19,986
Bell’s:
$
16,000
17
$
15,983
b.
Certificate of deposit
$
10,000
Accrued interest
500
10,500
Less early withdrawal penalty
300
$
10,200
c.
Present selling price per share
$
25
Option price per share
20
Estimated value of options per share (a)
$
5
Number of options (b)
x
500
Total estimated value of options (a) x (b)
$
2,500
d.
Cash value
$
50,000
Less loan outstanding
20,000
Estimated current value
$
30,000
e.
$
90,000
estimate of current value
4,500
broker fee (5% x $90,000)
$
85,500
Note: it would be better to get an independent appraisal of the home than to use
Larry’s estimate.
441
PROBLEM 13-3
a.
Marketable securities $5,000 x 28% =
$
1,400
Residence 25,000 x 28% =
7,000
$
8,400
b.
Barb and Carl
Statement of Financial Condition
December 31, 2012
Assets
Cash
$
20,000
Marketable securities
50,000
Life insurance
50,000
Residence
125,000
Furnishings
25,000
Jewelry
20,000
Autos
12,000
Total Assets
$
302,000
Liabilities
Mortgage payable
$
90,000
Note payable
30,000
Credit cards
10,000
Total liabilities
130,000
Estimated income taxes on differences between estimated
current value of assets and their tax basis
8,400
*
Net worth
163,600
Total liabilities and net worth
$
302,000
Comparison of specific assets with related liabilities:
Residence:
Current value
$
125,000
Mortgage payable
90,000
Net investment
$
35,000
442
PROBLEM 13-4
a.
Marketable securities: $20,000 x 28% =
$
5,600
Options: $30,000 x 28% =
8,400
Residence: $50,000 x 28% =
$
14,000
Royalties: $20,000 x 28% =
5,600
$
33,600
b.
Mary Lou and Ernie
Statement of Financial Condition
December 31, 2012
Assets
Cash
$
20,000
Marketable securities
100,000
Options
30,000
Residence
150,000
Royalties
20,000
Furnishings
20,000
Auto
15,000
$
355,000
Liabilities
Mortgage
$
70,000
Auto loan
10,000
Total liabilities
$
80,000
Estimated income taxes on differences between estimated
current value of assets and their tax basis
33,600
*
Net worth
241,400
Total liabilities and net worth
$
355,000
c. The net worth is $241,000
Comparison of specific assets with related liabilities:
Auto
Residence
Current value
$
15,000
Current value
$
150,000
Auto loan
10,000
Mortgage
70,000
Net investment
$
5,000
Net investment
$
80,000
443
PROBLEM 13-5
a.
Mike Szabo
Statement of Changes in Net Worth
For the Year Ended December 31, 2012
Realized increases in net worth
Salary
$
60,000
Dividend income
2,500
Interest income
2,000
Gain on sale of marketable securities
500
$
65,000
Realized decreases in net worth
Income taxes
$
20,000
Interest expense
6,000
Personal expenditures
29,000
$
55,000
Net realized increases in net worth
$
10,000
Unrealized increases in net worth
Stock options
$
3,000
Land
7,000
Residence
5,000
$
15,000
Unrealized decreases in net worth
Boat
$
3,000
Jewelry
1,000
Furnishings
4,000
Estimated income taxes on the differences between the
estimated current values of assets and the estimated
current amounts of liabilities and their tax bases
15,000
$
23,000
Net unrealized decreases in net worth
$
8,000
Net increase in net worth
$
2,000
Net worth at the beginning of year
150,000
Net worth at end of year
$
152,000
Net realized increases in net worth were $10,000.
444
The greatest unrealized decrease in net worth was the estimated income taxes on
PROBLEM 13-6
a.
Jim and Carrie
Statement of Changes in Net Worth
For the Year Ended December 31, 2012
Realized increases in net worth
Salary
$
50,000
Interest income
6,000
$
56,000
Realized decreases in net worth
Income taxes
$
15,000
Interest expense
3,000
Personal property taxes
1,000
Real estate taxes
1,500
Personal expenditures
25,000
$
45,500
Net realized increases in net worth
$
10,500
Unrealized increases in net worth
Marketable securities
$
2,000
Land
5,000
Residence
3,000
Stock options
4,000
$
14,000
Unrealized decreases in net worth
Furnishings
3,000
Estimated income taxes on the differences between the
estimated current values of assets and the estimated
current amounts of liabilities and their tax bases
12,000
$
15,000
Net unrealized decreases in net worth
$
1,000
Net increase in net worth
$
9,500
Net worth at the beginning of year
130,000
Net worth at end of year
$
139,500
445
year to $139,500.
PROBLEM 13-7
a.
City of Toledo
Revenues – Business-Type Activities
Charge for Services
Horizontal Common-Size
Business-type activities:
2003
2004
2005
2006
2007
2008
2009
2010
Charges for services:
Water
100.0
105.2
114.6
106.8
118.6
116.9
110.2
130.4
Sewer
100.0
112.9
123.1
125.5
138.3
158.5
153.2
162.2
Storm utility
100.0
92.7
103.9
97.8
103.7
108.6
121.1
117.8
Utilities administration
100.0
96.8
127.2
96.5
119.7
130.7
107.6
124.6
Parking
100.0
101.9
105.8
109.6
103.5
111.3
107.6
102.0
Property management
100.0
31.3
29.8
N/A
30.0
29.6
23.5
53.0
Small business development
100.0
148.1
73.1
N/A
—–
—–
—–
340.4
Tow lot
100.0
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Capital grants
100.0
—–
—–
—–
—–
—–
—–
343.9
Total business-type activities
revenues
100.0
103.7
115.7
111.2
124.5
133.8
126.9
146.3
Small business development also increased materially when comparing 2010 with
2003.
Property management decreased materially and then increased sharply in 2010,
Total business-type activities revenues increased moderately.