15–1
CHAPTER 15
UNDERSTANDING THE ISSUES
1. GASB Statement No. 34 stipulates a new
reporting model that includes two separate,
but related sets of financial statements. The
accrual-basis accounting. The value of both
perspectives is the retention of a near cash
ning for increased expenditures in future
periods. Capital assets and long-term
2. Separating activity into governmental, pro-
prietary, and fiduciary funds allows for
3. Budgets are the legal authorization to raise
revenue, incur long-term debt, and appro-
priate resources. Authorized expenditures
4. The advantage of reporting designations of
the fund balance is improved communica-
ment’s ability to cover financial obligations
and invest in future assets. Further classify-
for payment of an “expected liability.” It is
an estimate of an expenditure that may or
15–2
cash is recorded in the fund, and the debt
is removed from the account group. Since
7. (Appendix) The 13 basic principles of gov-
ernment accounting are found in GASB
15–3 Ch. 15—Exercises
EXERCISES
EXERCISE 15-1
(2) d (a), (b), and (c) represent outflows of financial resources to acquire goods and services.
The consumption, not the purchase of inventory, is an expenditure.
(4) d Revenues are credited when the taxpayers are billed.
(6) c Governmental organization reporting is designed to demonstrate the accountability for
(7) a Acquisition of a new police car in a city’s general fund would be displayed as an expenditure in
its governmental fund statement of revenues, expenditures, and changes in fund balances.
(9) d When a purchase order is approved, Encumbrances is debited to reflect the expected
(10) a The lease obligation is long-term debt and should be recorded in the account group.
EXERCISE 15-2
(1) a Grants without restriction are recorded as revenue when received.
(3) b This is an expenditure by the general fund.
(5) e A loan only affects the balance sheet accounts.
(7) b Payments on an operating lease are expenditures for the general fund.
Ch. 15—Exercises 15–4
EXERCISE 15-3
Estimated Revenues ($205,000 + $7,000 + $90,000 + $50,000) …. 352,000
EXERCISE 15-4
Jan. Cash …………………………………………………………………………. 275,000
Tax Anticipation Notes Payable ………………………………. 275,000
To record borrowing.
Feb. Cash …………………………………………………………………………. 12,000
Apr. Cash …………………………………………………………………………. 104,500
Delinquent Property Taxes Receivable …………………….. 100,000
Revenues …………………………………………………………….. 4,500
To record collection of delinquent property taxes.
Tax Liens Receivable ………………………………………………….. 5,000
Exercise 15-4, Concluded
Sept. Cash …………………………………………………………………………. 345,000
EXERCISE 15-5
(1) Cash …………………………………………………………………………….. 45,000
(2) No entry in the general fund for land. Record in the general
fixed assets account group:
(3) Due from State ………………………………………………………………. 30,000
(4) Cash …………………………………………………………………………….. 9,000
Other Financing Sources ……………………………………………. 9,000
(5) Cash …………………………………………………………………………….. 5,000
Revenues …………………………………………………………………. 2,500
EXERCISE 15-6
(1) Expenditures ($100,000 + $50,000 + $125,000 + $13,000) ….. 288,000
(2) Other Financing Uses ……………………………………………………… 50,000
(3) Expenditures ………………………………………………………………….. 43,000
Inventory of Supplies …………………………………………………. 43,000
EXERCISE 15-7
(1) Encumbrances ……………………………………………………………….. 18,000
(2) Encumbrances ……………………………………………………………….. 70,000
(3) Fund Balance—Assigned or Committed ……………………………. 88,000
Encumbrances ………………………………………………………….. 88,000
To reverse encumbrances for orders received.
Inventory of Supplies ………………………………………………………. 82,000
Vouchers Payable ……………………………………………………… 82,000
To record purchase of inventory.
15–7 Ch. 15—Exercises
EXERCISE 15-8
Encumbrances
Unobligated
Date Item Debit Credit Balance Expenditures Balance
January 1 Budget — — — — 25,000
January 15 Encumbrances 16,000 — 16,000 — 9,000
EXERCISE 15-9
(a) Estimated Revenues ………………………………………………………. 520,000
Appropriations …………………………………………………………… 515,000
Budgetary Fund Balance—Unassigned ………………………… 5,000
To record budget for the year.
(b) Taxes Receivable—Current …………………………………………….. 378,788
Allowance for Uncollectible Current Taxes ……………………. 3,788
Revenues …………………………………………………………………. 375,000
To record tax levy.
Exercise 15-9, Concluded
(h) Cash …………………………………………………………………………….. 10,000
Revenues …………………………………………………………………. 10,000
To record receipt of miscellaneous revenues.
(i) Expenditures ………………………………………………………………….. 120,000
Cash ……………………………………………………………………….. 120,000
To record purchase of property. (The property would also
be entered in the general fixed assets account group.)
(l) Due from State ………………………………………………………………. 30,000
Revenues …………………………………………………………………. 30,000
To record share of state sales taxes receivable.
(m) Vouchers Payable ………………………………………………………….. 175,000
Cash ……………………………………………………………………….. 175,000
To record vouchers paid.
(n) Budgetary Fund Balance—Unassigned …………………………….. 5,000
EXERCISE 15-10
(1) Closing entries:
Appropriations …………………………………………………………………. 650,000
Estimated Other Financing Uses ……………………………………….. 50,000
Budgetary Fund Balance …………………………………………………… 50,000
(2) Shorewood Village
General Fund
Budgetary Comparison Schedule
For Fiscal Year Ended June 30, 2019
Variance—
Favorable
Budget
Actual (Unfavorable)
Revenues ………………………………………………………….. $ 600,000 $ 595,000 $ (5,000)
Expenditures ……………………………………………………… 650,000 588,000 62,000
Excess (shortage) of revenues over
Exercise 15-10, Concluded
(3) Shorewood Village
General Fund Balance Sheet
June 30, 2019
Assets Liabilities and Fund Equity
Cash ……………………………….. $190,000 Liabilities: Vouchers payable ……….. $ 91,000
Receivables (net) ……………… 120,000 Fund balances:
brances
EXERCISE 15-11
Event Fund or Group Entry
Purchase General Fund Expenditures …………………………………. 65,000
Cash ………………………………………… 65,000
Fund Balance—Assigned or Committed 70,000
Encumbrances …………………………… 70,000
15–11 Ch. 15—Exercises
EXERCISE 15-12
(a) Land …………………………………………………………………………………… 325,000
Buildings …………………………………………………………………………….. 975,000
Investment in General Fixed Assets—General Funds ………….. 1,300,000
To record property purchase.
(b) Land …………………………………………………………………………………… 330,000
Buildings …………………………………………………………………………….. 220,000
Investment in General Fixed Assets—Donations ………………… 550,000
To record donated property at its fair value.
(c) Construction in Progress ………………………………………………………. 800,000
Investment in General Fixed Assets—Capital Projects Funds
(General Obligation Bonds) ………………………………………… 800,000
To record cost of work to date.
EXERCISE 15-13
(1) Amount to Be Provided for Compensated Absences ………………… 2,200,000
(2) Unfunded Compensated Absences ………………………………………… 400,000
(3) Amount to Be Provided for Claims and Judgments …………………… 11,000,000
Claims and Judgments Payable ……………………………………….. 11,000,000
Exercise 15-13, Concluded
(4) Amount to Be Provided for Payment of Bonds ………………………. 100,000,000
(5) Amount Available in the Debt Service Fund ………………………….. 1,000,000
(6) Amount Available in the Debt Service Fund ………………………….. 4,800,000
EXERCISE 15-14
(a) Amount to Be Provided for Payment of Term Bonds ………………. 13,000,000
Term Bonds Payable ……………………………………………………. 13,000,000
To record issuance of general obligation bonds at
EXERCISE 15-15
(Note to Instructor: The GASB Web site lists all of the pronouncements of the board. Individual
15–13 Ch. 15—Problems
PROBLEMS
PROBLEM 15-1
(1) b Funds are used to separate reporting of the diverse variety of governmental activities
(3) b The GASB stipulated that the measurement focus for governmental funds is the flow of
financial resources.
(4) c Interperiod equity seeks to determine whether current-year revenues are sufficient to
pay for current-year services or whether future taxpayers will be required to assume
burdens for services previously provided. The flow of financial resources measurement
(5) a Long-term debt used to purchase fixed assets is recorded in the general fund as an
(6) d Current standards specify that neither interest nor principal on long-term debt should be
PROBLEM 15-2
(2) a Grants from outside units are revenues unless they require the prior recording of an ex-
penditure that is then reimbursed.
(4) c These notes are short-term operating debt that will be repaid out of current revenues.
(6) b A hypothetical entry to record the tax levy is:
Taxes Receivable—Current ………………………………………… 100,000
Problem 15-2, Concluded
(7) a Revenues are recognized when measurable and available to meet current-period ex-
(8) a The general fixed assets account group records the fixed assets of governmental funds
but not proprietary funds or trust funds.
(9) b Expenditures are recorded when the liability is incurred. Under the modified accrual
PROBLEM 15-3
(1) At inception of the lease:
General Fund Expenditures …………………………………………. 800,000
Other Financing Sources …………………… 800,000
To record the acquisition of the
(2) First interest payment:
General Fund Expenditures (interest) ($800,000 × 6%) …… 48,000
Expenditures (principal) ………………………….. 60,694
Problem 15-3, Concluded
General Capital Lease Obligation …………………………. 60,694
Long-Term Amount to Be Provided ……………………… 60,694
PROBLEM 15-4
(1) (a) Estimated Revenues ……………………………………………………….. 400,000
Appropriations …………………………………………………………. 362,000
Budgetary Fund Balance—Unassigned ………………………. 38,000
To record budget.
Encumbrances ……………………………………………………………….. 16,000