Solution manual fundamentals of advanced accounting 9e by fischertaylor ch 10

In addi-tion, since the governmental activities are accounted for using a modified accrual basis of accounting in order to capture financial re-source information, the account groups

UNDERSTANDING THE ISSUES

1 Separating activity into governmental,

proprie-tary, and fiduciary funds allows for detailed

re-porting of resources and spending Separating

of activities also allows for a different

measurement focus and basis of accounting

depending on whether activities are general

government or business-type activities In

addi-tion, since the governmental activities are

accounted for using a modified accrual basis of

accounting in order to capture financial

re-source information, the account groups have

served to record (i.e., list) the long-term capital

assets and liabilities Proponents of this model

argue that information generated best serves

the budget-planning process and answers

questions relating to how much resources are

needed to pay for the current level of services

2 Budgets are the legal authorization to raise

revenue, incur long-term debt, and appropriate

resources Authorized expenditures are termed

appropriations Budgetary totals are recorded in

the general ledger as control accounts to allow

for budgetary comparisons in the ledgers as

well as to facilitate financial reporting of a

bud-getary comparison statement

3 The advantage of reporting designations of the

fund balance is improved communications of

decisions made by the common council or

town/village board that will impact the

availabili-ty of resources for other purposes While not

restricted by external grantors or donors, these

funds are internally designated for specific

pur-poses, e.g., planned purchases, reduction of

taxes, and improvements in services

4 The encumbrance system is designed as an

early indicator or an ―expected expenditure‖ to

prevent overspending and to plan for payment

of an ―expected liability.‖ It is an estimate of an

expenditure that may or may not be realized by

year-end but will require the use of existing or

future financial resources

5 Capital projects funds are used to account for

the inflows and outflows of financial resources

raised and expended to acquire major capital

assets used by the general government This

accounting is in accordance with the flows of

fi-nancial resources measurement focus adopted

for governmental funds Fixed assets acquired with proceeds from general obligation bonds are accounted for in the general fixed assets account group subsequent to acquisition

6 Revenues would be credited if resources were

received from a source outside of the mental unit that need not be repaid An exam- ple is a property tax levy If repayment is required, as in the case of a bond issue, the credit is to Other Financing Sources The latter account is also used for amounts received from other funds of the same governmental unit if that unit had previously recorded the resources

govern-as revenue The procedure prevents ing the same resources twice as revenue

7 Both funds account for public-purpose trusts If

the resources and any earnings on investments can be used to finance government programs, then a special revenue fund is used If only the earnings can be spent, a permanent fund is used

8 Both are proprietary funds An enterprise fund

is used to account for activities of a government that provides goods or services to the public

An internal service fund is used to account for activities providing goods or services to other departments within the same governmental unit

9 The accounting emphasis for governmental

funds emphasizes the funds available, ble resources, and their expenditures Modified accrual accounting is required The accounting for proprietary funds, however, em- phasizes expenses rather than expenditures and is similar to that for a private enterprise Proprietary funds measure net income, focus- ing on the total cost of services and the amounts of cost recovered by revenue Proprie- tary funds are accounted for with a capital maintenance measurement focus, using the accrual basis of accounting They account for their own assets (including fixed assets and depreciation) and liabilities (including long-term debt) Proprietary funds also differentiate be- tween contributed and earned equity, just as a corporation would

spenda-10 Private-purpose trust funds are used to account

for assets held by the government on behalf of

an individual, group, or organization

Perma-nent funds record assets held, income from which will benefit the government activities

EXERCISE 10-1

(1) c Items (a) and (b) are Other Financing Sources, while (d) is a reduction of Expenditures

(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

(3) a Donated fixed assets are recorded in the general fixed asset account group at their fair value

when received

(4) b Representing potential inflow of assets, Estimated Revenues is debited

(5) d Taxes receivable is debited with offsetting credits to an allowance for uncollectible taxes and

revenues

(6) d Interfund transfers employ the other financing uses/sources accounts

(7) c Long-term debt related to governmental funds may be operating debt or general long-term

capital debt

(8) b The purchase of equipment is an outflow of resources from the general fund An additional

entry to record the fixed asset will be made in the account group

(9) b Expenditures are closed along with the other nominal accounts to determine an increase or

decrease in the fund balance from the current period operations

(10) d When a purchase order is approved, an encumbrance is debited to reflect the expected

ex-penditure A reserve is also established by a credit to Fund Balance—Reserved for brances

EXERCISE 10-3

Estimated Revenues 502,000

Estimated Other Financing Sources 115,000

Appropriations 500,000 Estimated Other Financing Uses 45,000 Budgetary Fund Balance 72,000

(Note to Instructor: Property taxes paid by a proprietary fund are considered revenue.)

Tax Liens Receivable 16,000

To record collection of tax liens, sale of property

Allowance for Uncollectible Tax Liens 23,000

Tax Liens Receivable 17,000 Revenues 6,000

To close allowance

Apr Cash 104,500

Delinquent Property Taxes Receivable 100,000 Revenues 4,500

To record collection of delinquent property taxes

Tax Liens Receivable 35,000

Delinquent Property Taxes Receivable 35,000

To transfer delinquent property taxes to tax liens

Allowance for Uncollectible Delinquent Taxes 40,000

Allowance for Uncollectible Tax Liens 35,000 Revenues 5,000

To transfer allowance for uncollectible delinquent taxes to allowance for uncollectible tax liens

July Property Taxes Receivable 422,000

Allowance for Property Taxes Receivable 21,100 Revenues 400,900

To record current property tax levy

Sept Cash 365,000

Property Taxes Receivable 365,000

To collect current property taxes

Tax Anticipation Notes Payable 275,000

Other Financing Sources 45,000

To transfer from municipal trust fund

(2) No entry in the general fund for land Record in the general

fixed assets account group:

Land 75,000

Investment in General Fixed Assets—Donations 75,000

To record donation of park

(3) Due from State 30,000

Revenues 30,000

To record state grant

(4) Cash 9,000

Other Financing Sources 9,000

To record sale of fire truck

Additional entry in General Fixed Assets Group:

Investment in General Fixed Assets—General Fund Revenues 36,000

Equipment 36,000 (5) Cash 5,000

Revenues 2,500 Deferred Revenue 2,500

To record sale of park stickers

To record payment of vouchers

(2) Other Financing Uses 57,000

Cash 57,000

To transfer to debt service fund

(3) Expenditures 42,500

Inventory of Supplies 42,500

To record consumption of inventory

Fund Balance—Unreserved, Undesignated 2,500

Fund Balance—Reserved for Inventory 2,500

To adjust reserve to match inventory balance

EXERCISE 10-7

(1) Encumbrances 18,000

Fund Balance—Unreserved, Undesignated 18,000

To restore previous year’s encumbrances

(2) Encumbrances 70,000

Fund Balance—Reserved for Encumbrances 70,000

To record current encumbrances

(3) Fund Balance—Reserved for Encumbrances 88,000

To record use of inventory

Fund Balance—Unreserved, Undesignated 4,000

Fund Balance—Reserved for Inventory 4,000

To adjust reserved fund balance to match inventory

(a) Estimated Revenues 520,000

Appropriations 515,000 Budgetary Fund Balance—Unreserved 5,000

To record budget for the year

Fund Balance—Reserved for Encumbrances 240,000

To record purchase orders authorized

(d) Cash 280,000

Taxes Receivable—Current 280,000

To record receipt of tax payments

(e) Fund Balance—Reserved for Encumbrances 223,000

To record purchase of property (The property would also

be entered in the general fixed assets accounts group.)

(j) No entry Recorded only in general fixed assets account group

(k) Other Financing Uses 12,000

Due to Other Funds 12,000

To record amount due other funds and approved for

payment

Exercise 10-8, Concluded (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—Unreserved 5,000

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

(d) Machinery and Equipment 190,000

Investment in General Fixed Assets—General Fund

Revenues 190,000

To record fire engine purchase at full value

Investment in General Fixed Assets—General Fund Revenues 100,000

Machinery and Equipment 100,000

To record trade-in

(e) Infrastructure 250,000

Investment in General Fixed Assets—Capital Projects Funds 250,000

To record cost of new street

(1) Amount to Be Provided for Compensated Absences 2,200,000

Unfunded Compensated Absences 2,200,000

To record the noncurrent portion of the obligation for

vacations

(2) Unfunded Compensated Absences 400,000

Amount to Be Provided for Compensated Absences 400,000

To reduce the long-term obligation for vacations

(3) Amount to Be Provided for Claims and Judgments 11,000,000

Claims and Judgments Payable 11,000,000

To record the noncurrent portion of the judgment against

the city

(4) Amount to Be Provided for Payment of Bonds 100,000,000

General Obligation Bonds Payable 100,000,000

To record the issuance of general obligation bonds at

maturity value

(5) Amount Available in the Debt Service Fund 1,000,000

Amount to Be Provided for Payment of Bonds 1,000,000

To record accumulation of resources in the Debt Service

Fund for bond principal

(6) Amount Available in the Debt Service Fund 4,800,000

Amount to Be Provided for Payment of Bonds 4,800,000

To record interest earned and appreciation in fair value

of investments in the Debt Service Fund

EXERCISE 10-11

(1) c Item A is debt service, B is in the trust fund, and D is within the proprietary fund

(2) c As an interest adjustment factor, the premium should be transferred to the debt service fund

that pays the interest

(3) a The general fund uses modified accrual Enterprise funds recognize revenue when earned

under full accrual accounts

(4) a The entry for reinstatement is:

Encumbrances XXX

Fund Balance—Unreserved, Undesignated XXX

(5) a The cash flow statement for governmental proprietary funds and nonexpendable trust funds

has four parts Cash from operations, cash from capital financing activities, cash from capital financing activities, and cash from investing activities

non-Exercise 10-11, Concluded (6) d Payments for services provided by an internal service fund within the same governmental enti-

ty are considered quasi-external transactions

(7) b This is one of two reclassification entries:

Deferred Revenues XXX

Revenues XXX (8) c The revenue is recorded by the general fund, but the debt service fund makes the payment of

principal and interest

(9) a Governmental funds do not report cash flows since the amounts reported using modified

ac-crual are near cost

(10) b Accounting procedures of internal service funds resemble commercial accounting

EXERCISE 10-12

(1) a Permanent funds are classified as governmental and follow accounting rules similar to general

funds

(2) d The debt service fund follows general fund procedures except for the usual practice of not

us-ing budgetary entries

(3) c The amount to be provided is reduced with the receipt of available funds in the debt service

fund

(4) a Debt service funds are used to account for the payment of interest and principal on general

government long-term debt, not short-term debt or the debt of proprietary funds

(5) b With no commitment by the governmental unit, the liability is solely that of the assessed

prop-erty owners However, the amount of the bond liability may be shown in the notes to the cial statements

finan-(6) b The agency fund internally distributes monies to recipient funds

(7) d This is the typical entry to record a year’s capitalizable costs of an unfinished capital project (8) d Capital projects funds are used to account for major construction activity financed by general

tax revenues or special assessments

(9) a An investment trust fund is used to account for assets, liabilities, net assets, and changes in

net assets of external participants in an investment pool managed by the government

(10) a Permanent funds are used to account for public-purpose trusts, for which earnings are

expend-able for a specific purpose Permanent funds are classified as governmental funds

Fund or

Account Group Entries Debit Credit (a) Capital Estimated Other Financing Sources 2,400,000

Projects Appropriations 850,000 Fund Budgetary Fund Balance 1,550,000

To record budgeted amounts for city hall construction project

General The general fund budgetary entry would include

Fund $400,000 in Estimated Other Financing Uses

(b) General Other Financing Uses 400,000

Fund Other Financing Uses 20,000

Other Financing Sources 2,000,000

To record proceeds from the sale of bonds

General Amount to Be Provided for Payment of Serial Bonds 2,000,000

Long-Term Serial Bonds Payable 2,000,000 Debt To record liability for the serial bonds

Expenditures 1,000,000 Cash 1,000,000

To record expenditures for partial completion

General Construction in Progress 1,000,000

Fixed Assets Investment in General Fixed Assets—

Account Capital Projects Fund(s) 1,000,000 Group To record partial completion of city hall project

Other Financing Sources 800,000

To record receipt of cash from the general fund

(d) Cash with Fiscal Agent 800,000

Cash 800,000

To record transfer to First Bank

(e) Matured Bonds Payable 500,000

Matured Interest Payable 291,000

Cash with Fiscal Agent 791,000

To record payments by bank

(a) Restricted Assets—Cash for Construction 300,000

Interfund Transfer from General Fund 300,000

To record restricted amount received from the

general fund

(b) Accounts Receivable 220,000

Due from Other Funds 67,000

Operating Revenues (or Billings for Services) 287,000

(d) Restricted Assets—Revenue Bond Development Cash 700,000

Revenue Bonds Payable 700,000

To record bond issuance with restriction on proceeds

(e) No entry Enterprise Funds do not use budgetary accounts

for encumbrances

(f) Construction in Progress 360,000

Contracts Payable from Restricted Assets 360,000

To record liability for work to date

(g) Contracts Payable from Restricted Assets 300,000

Restricted Assets—Revenue Bond Development Cash 300,000

To record issuance of check from restricted cash