————————————————-——-CHAPTER 10–—————————————————–
REVIEW QUESTIONS
Q10-1 The basic differences between the information content of the fund financial statements and the
government-wide statements are:
a. Fund statements focus on major funds; government-wide statements aggregate the funds into
b. In the fund statements, governmental fund assets, liabilities, inflows and outflows are reported
Q10–2 Normally, the government-wide statement of net position will have columns for the primary
Q10–4 The purpose of a classified statement of net position is to provide information on the relative
liquidity of assets and liabilities. Assets and liabilities are each separated as between those that are current
Q10-5 The three categories of revenues that must be deducted from expenses to report net expenses or
revenues for each program or function are
Q10-6 Interfund activities and balances should be eliminated in government–wide financial statements.
When aggregating the governmental-type funds for the government-wide statements, due-to’s and from’s
Q10–7 Internal Service Funds are eliminated in the government-wide financial statements. Because Internal
Service Funds generally provide most of their services to governmental-type activities, the balance sheet
Q10–8 Property tax revenues are taxes levied without underlying external exchange transactions. Under the
accrual accounting principles for such taxes, property tax revenues should be recognized (net of estimated
refunds and uncollectible amounts) in the period for which the taxes are levied – even if the enforceable
Chapter 10
2
Q10-9 In the fund financial statements, governmental-type funds are reported using the current financial
resources measurement focus and modified accrual basis of accounting. In the government-wide financial
statements, governmental activities are reported using the economic resources measurement focus and the
Q10–10 In the fund financial statements, governmental-type funds are reported using the current financial
resources measurement focus. In the government-wide financial statements, governmental activities are
Q10–11 Following are the major reconciling items between fund financial statements and government-wide
financial statements:
a. Reporting capital outlays as expenditures in fund statements, but reporting depreciation expense in
government-wide statements.
Q10–12 Infrastructure assets are long-lived capital assets that are generally stationary and can be preserved
Q10–13 A governmental unit may choose not to depreciate infrastructure assets if it adopts the “modified
approach” to reporting those assets. The modified approach requires that the government have an asset
management system and document that the assets are being preserved at or above a condition level that it
establishes and discloses. (If infrastructure assets are not depreciated, additions or improvements that
increase the capacity of the assets are capitalized, but other expenditures are expensed in the year incurred.)
Chapter 10
3
DISCUSSION SCENARIOS AND ISSUES
D10-1 Ted should discuss with the mayor the difference between the Introductory section of the CAFR and
the MD&A portion of the general purpose external financial statements. The Introductory section of the
CAFR is recommended, but is not prescribed by a standards-setting body. The MD&A, however, is part of
the minimum requirements for general purpose external financial statements prescribed by the
D10-2 The answer to this question is a matter of judgment. A good case can be made for recording the
EXERCISES
E10-1 (20 minutes)
E10-2 (90 minutes)
E10-3 (15 minutes)
1. c 5. c
E10-4 (10 minutes)
government-wide statements.)
4. T
E10-5 (10 minutes)
Capital assets 4,300,000
Accumulated depreciation, capital assets 2,000,000
E10-6 (10 minutes)
Accumulated depreciation, equipment 66,000
E10-7 (10 minutes)
Net position 6,000,000
Bonds payable 6,000,000
E10-8 (10 minutes)
Judgments and claims expenses 11,000
Chapter 10
5
E10-9 (10 minutes)
Net position 215,000
E10-10 (10 minutes)
Net position 75,000
Accrued interest payable 75,000
E10-11 (15 minutes)
(a) Interest expenditure 2012 – $0
(b) Interest expense 2012 – $10,000, calculated as follows: ($1,000,000 x 4% x ¼) = $10,000
E10-12 (15 minutes)
a. Property taxes recognized in the governmental fund statements:
Deferred from 2012 $ 5,000
c. Adjusting entries
Revenues – property taxes 5,000
Net position 5,000
E10-13 (15 minutes)
When preparing government-wide financial statements, amounts reported as expenses need to be adjusted
for any “profits and losses” made by internal service funds as a result of billing governmental activities. In
this instance the Motor Pool ISF had a net “profit” of 10 percent on sales ($10,000/$100,000). To eliminate
the intra-government profit, all ISF billings included in government program expenses need to be reduced
by 10 percent. Therefore, program expenses will be reduced by a total of $10,000 and reported as follows:
Program Reduce ISF Billings Reported Expenses
General $ 2,000 $ 313,000
PROBLEMS
P10-1 (45 minutes)
a. Entries to record transactions in funds:
Item 1. CPF Cash 1,000,000
Item 2. GF Transfer out to Capital Projects Fund 20,000
Cash 20,000
Item 3. CPF Expenditures – capital outlay 1,020,000
Construction contracts payable 1,020,000
Chapter 10
7
Item 4. GF Transfer out to Debt Service Fund 80,000
Cash 80,000
To record transfer for debt service payment.
(Note: Amount needed is (a) $50,000 plus (b) interest on $1,000,000 @ 4%
Item 5. DSF Matured bond principal payable 50,000
b. Adjustments for government-wide statements:
Other Interest expense 9,500
Accrued interest payable 9,500
c. Calculation of amounts reported as invested in capital assets, net of related debt
Year ended December 31 2013 2014
Buildings 1,020,000 1,020,000
P10-2 (30 minutes)
Town of Hamilton
Statement of Activities
For the Year Ended December 31, 2013
—————-Program Revenues—–——– Net (Expense)
Charges for Operating Capital Revenue, Change
Functions Expenses Services Grants Grants in Net Position
General gov. $ 625,000 $( 625,000)
General revenues:
Property taxes 3,250,000
P10-3 (60 minutes)
a. Entries in General Fund to record year 2012 transactions for fund financial statements:
Property taxes receivable 700,000
Revenues – property taxes 700,000
To record property tax levy
Chapter 10
9
b. Adjustment for year 2012 government-wide statements:
c. Entries in General Fund to record year 2013 transactions for fund financial statements:
Regarding the 2012 property taxes —
Cash 48,000
Regarding the 2013 tax levy –
Property taxes receivable 730,000
d. Adjustments for year 2013 government-wide statements:
e.. For the year 2012, Honesdale will recognize a net amount of $687,000 of property tax revenues in
Chapter 10
10
For 2013, Honesdale will recognize $731,000 of property tax revenue in the fund statements. This
consists of:
P10-4 (90 minutes)
Requirement a (journal entries)
a. Unreserved fund balance 185,000
Net position 185,000
To reclassify unreserved fund balance to net positon.
To report accrued interest expense
e. Deferred property tax revenues 18,000
Net position 18,000
Chapter 10
11
Balance Adjustments Adjusted
Sheet Debit Credit Bal. Sheet
Cash 175 175
Accounts payable 43 43
Accrued salaries, other expenses 14 d 20 34
Requirement b (statement of net position)
Harlan City
Government-Wide Statement of Net Position
January 1, 2013
Assets
Current assets:
Liabilities
Current liabilities:
Accounts payable 43,000
Accrued salaries and other expenses 34,000