7-1
—————————————-————–Chapter 7————————————————
REVIEW QUESTIONS
Q 7-1
The “cause and effect” relationship between the revenues and expenses of a proprietary
Q 7-2
The revenues and expenditures of governmental-type funds are “independent” of each
Q 7-3
An Internal Service Fund should be used when a governmental unit can provide goods or
Q 7-4
Q 7-5
The net position section of a proprietary fund can have 3 sections:(1) invested in capital
Q 7-6
Depreciation is recorded as an expense in proprietary funds because the economic
7-2
Q 7-7
An Internal Service Fund is used when a governmental unit provides goods and/or services
to departments or agencies within the governmental unit or to other governmental units.
Q 7-8
No. Until recently, proprietary funds were required to follow applicable FASB and AICPA
Q 7-9
Revenue bonds are debt securities that are secured by the revenues generated by a
D7-1
a. Hotel-Motel Occupancy Tax. The occupancy tax will provide the resources needed to pay
b. Electric Power Activity. The new governmental electric power activity will provide
7-3
D7-2
The major points that should be presented in a student’s answer to this question are:
1. Reports: Internal Service Fund (ISF): A statement of net position; a statement of
3. Fund equity: ISF: (possibly) invested in capital assets, net of related debt;
4. Assets: ISF: reports current assets, fixed assets, and accumulated depreciation. CPF:
D7-3
A sound pricing policy for the Printing Internal Service Fund would be one that
charges users for all costs, including depreciation of the equipment. Such a policy
will enable the Printing Fund to replace the equipment when it wears out.
A decision as to whether the General Fund should make a loan or a grant to the
7-4
D7-4
The mayor’s suggestion is probably illegal because it will probably violate the bond
EXERCISES
E 7-1 (5 minutes)
The Motor Pool Fund operated at slightly more than break-even level. Revenues exceeded
E 7-2 (15 minutes)
1. GF Transfer out to Internal Service Fund—contributed capital100,000
2. ISF Due from other funds 200,000
3. ISF Operating expenses 300,000
4. GF Transfer out to Internal Service Fund—contributed capital100,000
E 7-3 (10 minutes)
The cost of the automobiles and trucks acquired by the Motor Pool Fund are expensed
7-5
E 7-4 (5 minutes)
1. departments or agencies within the government or to other governmental units
E 7-5 (15 minutes)
2. F Internal Service Funds are used to account for activities that provide
3. F Internal Service Funds use the full accrual basis of accounting.
that fund.
E 7-6 (10 minutes)
E 7-7 (10 minutes)
7-6
GF Budgetary fund balance reserved for encumbrances 50,000
Encumbrances 50,000
E 7-8 (10 minutes)
(1) Revenues from fees 14,000
Salaries expense 4,500
(2) Total net position = $12,300 + $8,100 = $20,400
E 7-9 (20 minutes)
(1) GF Cash 300,000
Other financing sources – proceeds from issuance of bonds 300,000
E7–10 (20 minutes)
Calculation of cost per trip:
Automobiles ($50,000 / 5) = $ 10,000
E7–11 (20 minutes)
2. Fuel and maintenance expense 600
Cash 600
3. Depreciation expense 833.33
4. Insurance expense 83.33
5. Fringe benefits expense 2,000
6. Due from General Fund 12,000
Due from Water Enterprise Fund 1,500
7-8
PROBLEMS
P 7-1 (Moderate, 60 minutes)
(1)
1. Cash 2,000,000
Transfer in from General Fund—capital contribution 2,000,000
2. Equipment—computer 1,900,000
4. Due from departments 650,000
Revenues—computer billings 650,000
6. Cash 629,000
Due from departments 629,000
7. Salaries expense 200,000
9. Supplies expense 4,200
Supplies 4,200
11. Rental expense—office space 2,000
7-9
(2)
Pleasantville
Internal Service Fund
Data Processing Fund
Statement of Revenue, Expenses, and Changes in Net Position
For the Year Ended December 31, 2013
Rental expense—office space 2,000
Supplies expense 4,200
7-10
Pleasantville
Internal Service Fund
Data Processing Fund
Statement of Net Assets
December 31, 2013
Assets:
Current assets:
Noncurrent assets:
Equipment—computer 1,900,000
Liabilities:
Current liabilities:
Accounts payable 1,700
7-11
P7-2 (Moderate, 60 minutes)
Part a.
1. Cash 6,000
2. Equipment 4,800
3. Supplies expense 4,500
4. Due from General Fund 65,000
5. Cash 63,000
6. Accounts payable 4,500
7. Salaries expense 50,000
8. Loans payable to County 1,500
9. Depreciation expense – equipment 1,200
7-12
Part b
Lilly County
Lilly Printing Fund
Statement of Net Position
December 31, 2013
Assets
Current assets:
Cash $ 2,140
Liabilities
Current liabilities:
Current portion of loan payable to County 1,500
Total current liabilities 1,500
Noncurrent liabilities:
Note: Invested in capital assets, net of related debt, is computed as follows:
Net book value of equipment $ 3,600
Part c
Lilly County
Lilly Printing Fund
Statement of Revenues, Expenses, and Changes in Net Position
For the Year Ended December 31, 2013
7-13
Printing services $65,000
Operating expenses:
Salaries expense $50,000
P7-3 (Moderate, 60 minutes)
(a)
1. GF Transfer out to Central Supplies Fund—capital contribution75,000
3. ISF Supplies 29,000
Accounts payable 29,000
4. DSF Expenditures—interest 120,000
5. ISF Due from departments 31,000
7-14
7. ISF Office equipment 2,000
Notes payable 2,000
8. ISF Cash 27,500
10. GF Budgetary fund balance reserved for encumbrances 34,000
11. ISF Depreciation expense—office equipment 400
Accumulated depreciation—office equipment 400
7-15
(b)
City of Monticello
Internal Service Fund
Central Supplies Fund
Statement of Revenues, Expenses, and Changes in Fund Net Position
For the Year Ended June 30, 2013
Nonoperating expense:
Interest expense
( 50)
Loss before capital contribution from General Fund (16,950)
(c) City of Monticello
Internal Service Fund
Central Supplies Fund
Statement of Net Assets
June 30, 2013
Assets:
Current assets:
Cash $55,000
Liabilities
Current liabilities:
Accounts payable $4,000
7-17
P 7-4 (Moderate, 75 minutes)
(a)
1. Cash 2,000,000
Transfer in from General Fund—contributed capital 2,000,000
Cash 25,000,000
2. Accounts receivable 3,900,000
Airline rental revenue
4. Cash 3,850,000
Accounts receivable 3,850,000
6. Utilities expense 100,000
Cash 100,000
7. Cash 1,000
7-18
10. Supplies expense 3,600
Supplies 3,600
12. No entry
14. Cash 315,000
15. Equipment 300,000
Cash 300,000
17. Other operating expenses 55,000
Accrued operating expenses 55,000
18. Depreciation expense—buildings 500,000
20. Cash 150,000
Interest revenue 150,000
7-19
(b)
City of Arlington
Enterprise Fund
Municipal Airport Fund
Trial Balance
June 30, 2013
Debits Credits
Equipment 2,100,000
Accumulated depreciation—equipment 180,000
Accounts payable 4,000
Accrued interest payable 350,000
Interest revenue 165,000
Salaries expense 200,000