978-1259917059 Chapter 9 Solution Manual Part 1

Chapter 09 – Financial Reporting of State and Local Governments

9-1

CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

GOVERNMENTS

OUTLINE

Number

Topic

Type/Task

Status

(re: 17/e)

Questions:

9-1

Primary governments

Identify

9-2

Interim reports

Explain

9-3

Financial reporting entity

Define

9-4

Component units

Define

New

9-5

Types of component units

Explain

Same

9-6

CAFR and general purpose reports

Identify

Same

9-7

Required financial statements

List

Same

9-8

Reconciliations

Explain

New

9-9

Reconciliation of financial statements

Identify

9-8

9-10

Popular Reporting

Explain

9-9

9-11

Financial reporting project

Explain

New

Cases:

9-12

Identification of component units

Analyze

9-11

9-13

MD&A and statistical tables

Analyze

9-12 revised

9-14

Analyzing reconciliation of financial reports

Analyze

New

9-15

Popular reports

Evaluate

New

Exercises/Problems:

9-16

Examine the CAFR

Evaluate

9-15

9-17

Various

Multiple Choice

9-16, five

new

9-18

Primary governments

Matching

9-17

9-19

Financial reporting

Matching

New

9-20

Comprehensive set of transactions

Journal entries

9-18

9-21

Reconciliation of financial statements

Report

preparation

9-19

9-22

Operating statement reconciliation

Report

preparation

New

9-23

Adjusting net position balances

Matching

9-20

9-24

Change in net position

Calculation

9-21

9-25

Governmental fund financial statements

Error

identification

9-22

9-26

Government-wide financial statements

Report

preparation

9-23

9-27

Modified accrual to accrual accounting

Adjustments, JEs

9-24

Chapter 09 – Financial Reporting of State and Local Governments

9-2

CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

GOVERNMENTAL UNITS

Answers to Questions

9-1. A special purpose government can be considered a primary government if it has a

separately elected governing body, is legally separate from other entities, and is fiscally

General Problem Information: Primary governments

Learning Objective: 9-1

Topic: The Government Reporting Entity

Bloom’s Taxonomy: Remember

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

Level of Difficulty: Easy

9-2. Disagree. Administrators need periodic reports in order to make day-to-day operating and

General Problem Information: Interim reports

Learning Objective: 9-3

Topic: Government Financial Reports

Bloom’s Taxonomy: Understand

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

Level of Difficulty: Medium

9-3. According to the GASB a financial reporting entity is a primary government,

organizations for which the primary government is financially accountable, and other

General Problem Information: Financial reporting entity

Learning Objective: 9-1

Topic: The Government Reporting Entity

Bloom’s Taxonomy: Remember

Chapter 09 – Financial Reporting of State and Local Governments

9-3

Ch. 9, Answers, Question 9-3 (Cont’d)

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

Level of Difficulty: Easy

9-4. Component units are recognized on the reporting entity’s financial statements. By

definition a component unit is a legally separate organization for which the elected

officials of the primary government are financially accountable. Additionally, a primary

General Problem Information: Component units

Learning Objective: 9-2

Topic: The Government Reporting Entity

Bloom’s Taxonomy: Remember

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

Level of Difficulty: Easy

9-5. Component units for which the primary government is financially accountable are

reported in one of two ways—through blended or discrete presentation. A blended

component unit is one that is an integral part of the primary government, which can be

demonstrated through factors such as common governing boards, financial benefit/burden

Chapter 09 – Financial Reporting of State and Local Governments

9-4

Ch. 9, Answers, Question 9-5 (Cont’d)

1. The assets received or held by the component unit are entirely or almost entirely

for the direct benefit of the primary government, its component units, or its

constituents.

General Problem Information: Types of component units

Learning Objective: 9-2

Topic: The Government Reporting Entity

Bloom’s Taxonomy: Understand

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

Level of Difficulty: Medium

9-6. General purpose external financial reports include management’s discussion and analysis

(MD&A), basic financial statements and related notes, and required supplementary

General Problem Information: CAFR and general purpose reports

Learning Objective: 9-3

Topic: Government Financial Reports

Bloom’s Taxonomy: Remember

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting

Level of Difficulty: Easy

9-7. The nine required statements are:

• The two government-wide financial statements—statement of net position and

Chapter 09 – Financial Reporting of State and Local Governments

Ch. 9, Answers, Question 9-7 (Cont’d)

• The two fiduciary fund financial statements—statement of fiduciary net position and

9-8. The GASB requires two financial statement reconciliations: (1) a reconciliation of the

and (2) a reconciliation of the net change in governmental fund balances on the statement

of revenues, expenditures, and changes in fund balances to the change in governmental

activities net position on the government–wide statement of activities. Reconciliations are

required since the governmental funds statements and the government-wide statements

9-9. Chapter 9 provides a list of the items requiring reconciliation when going from the

modified accrual to accrual basis of accounting. Students should be able to provide

examples related to each of the nine items identified in Chapter 9. The use of a state or

9-6

9-10. Popular reporting is a highly condensed version of the CAFR, usually short in length. It

might be considered a “plain English” version of the CAFR. As such, the information

contained is simplified and summarized, and often contains graphs to illustrate the

information. It is not a substitute for the CAFR, since it does not contain many items

9-11. The financial reporting model project is a major GASB project involving the examination

of the measurement focus and basis of accounting used to recognize and report

information in the governmental funds. If the GASB determines a measurement focus

9-12. a. Tesser Municipal Hospital is a component unit of the City of Tesser. Tesser is

financially accountable for the hospital since the mayor appoints the governing

board and the city is able to impose its will on the hospital through final approval

Chapter 09 – Financial Reporting of State and Local Governments

9-7

Ch. 9, Solutions, Case 9-12 (Cont’d)

only question is if there is fiscal dependency on the county. Since the actions of

the Sports Authority are voluntary and the recommendations of the county need

9-13. a. The three largest revenue sources for the City and County of Denver are sales

taxes (34.64% of the 2016 total revenues), property taxes (20.46% of the 2016

total revenues), and charges for services (13.67% of the 2016 total revenues). A

31.8% over the last two years.

The strong sales tax trends would seem to indicate that sales tax revenues will

Chapter 09 – Financial Reporting of State and Local Governments

9-8

Ch. 9, Solutions, Case 9-13 (Cont’d)

of 9.23%. Relative to 2015, general government experienced a 12.83% growth in

spending while public safety saw no growth and public works had a decline of

2.28%.

c. Over the 10-year period provided on the table revenues have grown 43.98% while

over 18.9% since 2013. Revenue growth has been fairly steady since 2009.

It is difficult to predict the next two to three years, other than to say it can be

expected that revenues will exceed expenditures. History seems to show that

Denver has difficulty stabilizing costs, most recently this is reflected in the fact

9-14. a. The list provided by each student should vary somewhat based on the CAFR

report used. However, some items that could be listed as leading to differences

between the net change in fund balances and net change in governmental

activities net position include:

Chapter 09 – Financial Reporting of State and Local Governments

9-9

Ch. 9, Solutions, Case 9-14 (Cont’d)

• Some revenues that are not available are not reported on the statement of

revenues, expenditures, and changes in fund balances but are reported on the

net position on the statement of net position include:

• Capital outlays are reported as assets on the statement of net position and are not

reported on the balance sheet.

• Long-term debt (and any related premium or discounts) is reported as a liability

on the statement of net position but is not reported on the balance sheet.

position are not reported on the balance sheet.

c. Each report will vary but it is important that the student point out that the reason

for the difference is due to different methods used in capturing and reporting the

transactions (modified accrual versus accrual basis of accounting). The student

will also want to point out that the reason for the difference is that the reports

9-10

consent of McGraw-Hill Education.

Ch. 9, Solutions (Cont’d)

9-15. a. The GFOA identifies four eligibility criteria that must be met to receive the PAFR

award. The students should provide a brief evaluation of whether the Scottsdale

1. The PAFR must clearly advise readers of the availability of the CAFR.

2. If the PAFR contains information from only selected funds, or if the PAFR

does not include all component units, that fact must be disclosed.

3. The financial information contained in the PAFR must be derived from the

actual GAAP data in the CAFR.

4. Some form of appropriate narrative or graphic analysis must be provided to

explain items of potentially significant interest or concern.

• Both reports provide narrative—Suffolk is much more extensive than

Scottsdale.

Chapter 09 – Financial Reporting of State and Local Governments

9-11

consent of McGraw-Hill Education.

Ch. 9, Solutions, Case 9-15 (Cont’d)

Bloom’s Taxonomy: Evaluate

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB: Critical Thinking

Level of Difficulty: Hard

Solutions to Exercises and Problems

9-16. Since each of the students will have a different annual report, the solutions to 9-16 should

differ from student to student. Note that not all reports that say “CAFR” on the cover

have three sections. Some reports may only contain the middle or financial section.

2. d. 7. b. 12. c.

4. c. 9. b. 14. a.

5. c. 10. d. 15. c.

General Problem Information: Various

9-12

consent of McGraw-Hill Education.

Ch. 9, Solutions (Cont’d)

2. N University of South Florida is not a primary government

3. Y Tri-County School District is a special purpose government

4. Y The State of Colorado is a general purpose government and

by definition it is therefore a primary government.

5. N Greenfield Sports Authority is a joint venture and does not

meet the definition of a primary government since it is

owned and operated by two groups, one of which is not a

2. I 7. MDA

4. MDA 9. S

5. S 10. F

General Problem Information: Financial reporting

9-13

consent of McGraw-Hill Education.

9-20. CITY OF LYNNWOOD

1. GF ESTIMATED REVENUES 2,000,000

2. GF TAXES RECEIVABLE—CURRENT 1,940,000

ALLOWANCE FOR UNCOLLECTIBLE

CURRENT TAXES 9,000

3. GF OFU—INTERFUND TRANSFERS OUT 25,000

CASH 25,000

4. PF INVESTMENTS—MARKETABLE