Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–21
Ch. 7, Solutions, Exercise 7-19 (Cont’d)
d. On the basis of the operating statement for the current year ended December 31, the
pricing policy is NOT achieving the goal of covering all operating expenses,
General Problem Information: Information Technology Internal Service Fund
Learning Objective: 7-2
Topic: Internal Service Funds
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Hard
7-20.
CITY OF TOWNSEND
HUMAN RESOURCE FUND
GENERAL JOURNAL
Debits Credits
1. Internal Service Fund:
2. Internal Service Fund & Governmental Activities:
LEASED ASSETS 87,218
LEASE OBLIGATIONS PAYABLE 82,218
CASH 5,000
3. Internal Service Fund:
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–22
4. Internal Service Fund & Governmental Activities:
OFFICE SUPPLIES 2,500
VOUCHERS PAYABLE 2,500
5. Internal Service Fund:
UTILITIES EXPENSE 3,000
DUE TO OTHER FUNDS 3,000
6. Internal Service Fund:
DUE FROM OTHER FUNDS 20,700
BILLINGS TO DEPARTMENTS 20,700
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–23
Ch. 7, Solutions, Exercise 7–20, part 3 (Cont’d)
Debits Credits
7. Internal Service Fund:
Closing Entries:
BILLINGS TO DEPARTMENTS 20,700
SALARIES AND WAGES EXPENSE 15,000
UTILITIES EXPENSE 3,000
EXCESS OF NET BILLINGS OVER COSTS 2,700
INTERFUND TRANSFERS IN 100,000
NET POSITION—UNRESTRICTED 100,000
General Problem Information: Human Resources Internal Service Fund
Learning Objective: 7-2
Topic: Internal Service Funds
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–24
Ch. 7, Solutions (Cont’d)
7-21.
INGLIS CITY
INTERNAL SERVICE FUND
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $2,915,500
NET CASH PROVIDED BY OPERATIONS $704,900
CASH FLOWS FROM NONCAPITAL FINANCING
ACTIVITIES:
GRANT FROM STATE 50,000
TRANSFER TO GENERAL FUND (25,000)
NET CASH PROVIDED BY NONCAPITAL
FINANCING ACTIVITIES 25,000
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF INVESTMENTS (75,000)
INTEREST RECEIVED ON INVESTMENTS 42,400
NET CASH PROVIDED BY INVESTING ACTIVITIES (32,600)
NET INCREASE IN CASH AND CASH EQUIVALENTS 229,800
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–25
Ch. 7, Solutions, Exercise 7-21 (Cont’d)
General Problem Information: Enterprise fund statement of cash flows
Learning Objective: 7-2
7-22. a. CITY OF SALTWATER BEACH
TRIBUTE AQUATIC CENTER FUND
STATEMENT OF REVENUE, EXPENSES, AND
CHANGES IN FUND NET POSITION
FOR THE CURRENT YEAR ENDED
OPERATING INCOME:
CHARGES FOR SERVICES $2,040,000
OPERATING EXPENSES:
SUPPLIES EXPENSE 67,200
DEPRECIATION EXPENSE 136,960
TOTAL OPERATING EXPENSES 1,508,760
OPERATING INCOME 531,240
NONOPERATING REVENUE/EXPENSES:
INTEREST INCOME 92,500
INTEREST EXPENSE (323,840)
TOTAL NONOPERATING INCOME (EXPENSE) (231,340)
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–26
Ch. 7, Solutions, Exercise 7-22 (Cont’d)
b. CITY OF SALTWATER BEACH
TRIBUTE AQUATIC CENTER FUND
STATEMENT OF NET POSITION
AS OF YEAR END
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 182,240
CAPITAL ASSETS:
LAND 1,400,000
BUILDINGS AND EQUIPMENT $ 925,000
LESS: ALLOW. FOR DEPRECIATION (41,625) 883,375
IMPROVEMENTS OTHER THAN
LIABILITIES:
CURRENT LIABILITIES:
ACCOUNTS & ACCRUED PAYABLES 22,150
CURRENT PORTION OF LONG-TERM DEBT 281,600
TOTAL CURRENT LIABILITIES 303,750
NONCURRENT LIABILITIES:
BONDS PAYABLE 6,195,200
TOTAL LIABILITIES 6,498,950
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–27
Ch. 7, Solutions, Exercise 7-22 (Cont’d)
c. CITY OF SALTWATER BEACH
TRIBUTE AQUATIC CENTER FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $2,038,355
CASH PAID TO:
CASH PAID TO SUPPLIERS (65,900) (1,376,725)
NET CASH PROVIDED BY OPERATIONS $ 661,630
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF CAPITAL ASSETS 9,250
PRINCIPAL PAID ON CAPITAL DEBT (281,600)
INTEREST PAID ON CAPITAL DEBT (323,840)
NET CASH USED BY FINANCING ACTIVITIES (596,190)
CASH FLOWS FROM INVESTING ACTIVITIES:
INTEREST RECEIVED ON INVESTMENTS 92,500
RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE
SHEET
END BEGINNING
OF YEAR OF YEAR
CASH AND CASH EQUIVALENTS IN CURRENT
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
Ch. 7, Solutions, Exercise 7-22, c. (Cont’d)
RECONCILIATION OF OPERATING INCOME TO NET CASH
PROVIDED BY OPERATIONS
OPERATING INCOME $531,240
ADJUSTMENTS:
DEPRECIATION EXPENSE 136,960
INCREASE IN ACCOUNTS RECEIVABLE (1,645)
General Problem Information: Tribute Aquatic Center Enterprise Fund
Learning Objective: 7-5
Topic: Enterprise Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Hard
7–29
7-23. TOWN OF MASHPEE
GOLF ENTERPRISE FUND
PARTIAL STATEMENT OF NET POSITION
AS OF YEAR END
NET POSITION:
NET POSITION—NET INVESTMENT IN CAPITAL ASSETS $ 1,764,300
NET POSITION—RESTRICTED 198,000
NET POSITION—UNRESTRICTED 309,382
TOTAL NET POSITION $2,271,682
Calculations
Net investment in capital assets:
Beginning balance $1,709,800
– Note related to equipment 40,000
+ Additional construction costs 52,000
Ending balance $1,764,300
NOTE: The construction in progress would also increase net investment in capital assets, but it is decreased
by the same amount of outstanding debt ($302,000).
Restricted:
Beginning balance $ 50,000
Unrestricted:
Beginning balance $354,692
+ Net income 207,190
– Increase in net investment in capital assets 54,500
– Increase in resources restricted
for construction 198,000
Ending balance $309,382
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–30
Ch. 7, Solutions, Exercise 7-23 (Cont’d)
General Problem Information: Net Position Classifications
Learning Objective: 7-5
Topic: Enterprise Funds
7-24. a. TOWN OF ELIZABETH
CENTRAL STATION FUND
GENERAL JOURNAL
Debits Credits
1. ACCOUNTS RECEIVABLE 95,000
RENTAL INCOME 95,000
3. ADMINISTRATIVE SERVICES EXPENSE 25,205
4. GRANTS RECEIVABLE 10,000
GRANT REVENUE 10,000
6. DEPRECIATION EXPENSE 3,519
ALLOWANCE FOR DEPRECIATION 3,519
7–31
6. RENTAL INCOME 95,000
GRANT REVENUE 10,000
INTERFUND TRANSFER IN 60,000
ADMINISTRATIVE SERVICES EXPENSE 25,205
b.
TOWN OF ELIZABETH
CENTRAL STATION FUND
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION
FOR THE YEAR ENDED
OPERATING REVENUES:
RENTAL INCOME $ 95,000
ADMINISTRATIVE SERVICES $ 25,205
MAINTENANCE & REPAIRS EXPENSE 72,882
UTILITIES EXPENSE 30,124
DEPRECIATION EXPENSE 3,519
TOTAL OPERATING EXPENSES 131,730
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
7–32
Ch. 7, Solutions, Exercise 7-24 (Cont’d)
c. No. The explanation notes that there is no long-term debt. Thus, the activity of the
fund is not financed with debt secured by the Central Station Fund’s revenues.
The Central Station Fund is not currently covering the cost of providing services
with the revenues it generates, having operated at a loss in the current year. At
d. As manager, you may want to know what, if any, circumstances resulted in such a
sizable operating loss. For example, were there a large number of un-booked event
dates, and if so, why? Traditionally, what type of support has the General Fund
provided the Central Station Fund and why? If the Central Station Fund is to be
operated as a business, the pricing policy needs to be adjusted to ensure costs are
recovered. If there are reasons why the government has decided not to recover
Chapter 07 – Accounting for the Business–type Activities of State and Local Governments
Ch. 7, Solutions, Exercise 7-24 (Cont’d)
General Problem Information: Town of Elizabeth Central Station Fund
Learning Objective: 7-5
Topic: Enterprise Funds