Solution manual for essentials of accounting for governmental and not for profit organizations 10th edition copley

THETHREESTANDARDSSETTINGBODIESINQUESTIONARETHE GOVERNMENTAL ACCOUNTING STANDARDS BOARD GASB, THE FEDERAL ACCOUNTING STANDARDS ACCOUNTING ADVISORY BOARD FASAB, ANDTHE FINANCIAL ACCOUNTING

I NSTRUCTOR ’ S M ANUAL

TO A CCOMPANY

ESSENTIAL OF ACCOUNTING FOR GOVERNMENTAL

AND NOT-FOR-PROFIT ORGANIZATIONS:

TENTH EDITION

P REPARED BY :

P AUL A C OPLEY

M ARY L ORETTA M ANKTELOW

J AMES M ADISON U NIVERSITY

CHAPTER 1 Introduction to Accounting and Financial Reporting for Governmental and

Not-for-Profit Organizations

1-1 THESOLUTIONTOTHISANDTHEFIRSTEXERCISEOF CHAPTERS 2 THROUGH 9 WILL

DIFFERFROMSTUDENTTOSTUDENTASSUMINGEACHHASADIFFERENT CAFR.

1-2.

1) ORGANIZATIONAL PURPOSES: WHILETHEPURPOSEOFACOMMERCIALBUSINESS

ISTOGENERATEAPROFITFORTHEBENEFITOFITSOWNERS, GOVERNMENTSEXIST FORTHEWELLBEINGOFCITIZENSBYPROVIDINGPUBLICSERVICES – WHETHEROR NOTTHESERVICESAREPROFITABLEUNDERTAKINGS

2) SOURCES OF REVENUES: GOVERNMENTSDERIVEMANYOFTHEIRRESOURCES FROMTAXES INDIVIDUALSANDBUSINESSESPAYTAXESTOAVOIDPENALTY, NOT VOLUNTARILYBECAUSETHEYPERCEIVEGOVERNMENTSERVICESTOBEOFVALUE ANDFAIRLYPRICED SINCETAXESDONOTINVOLVE ANEARNINGSPROCESS, THE TIMINGOFTHERECOGNITIONOFTAXREVENUEISNOTALWAYSCLEAR

3) POTENTIAL FOR LONGEVITY: BECAUSETHE U.S ANDSTATECONSTITUTIONS GRANTSTATEANDLOCALGOVERNMENTSTHEABILITYTOTAX, GOVERNMENTS VERYRARELYGOOUT-OF-BUSINESS THISLONGTERMVIEWOFOPERATIONS CHANGESTHEFOCUSOFACCOUNTINGFROMONEOFNEARTERMRECOVERYOF AMOUNTSINVESTEDINASSETSTOALONGER-TERMFOCUSONTHE

SUSTAINABILITYOFSERVICESANDTHEABILITY TOMEETFUTUREDEMAND.

4) RELATIONSHIP WITH STAKEHOLDERS: TAXESARECREATEDTHROUGHTHE LEGISLATIVEPROCESSBYOFFICIALSELECTEDBYTHECITIZENS BECAUSE

CITIZENSANDBUSINESSESARETHENREQUIREDTOPAYTHESETAXES,

GOVERNMENTSHAVEANOBLIGATIONTODEMONSTRATEACCOUNTABILITYFOR THESEPUBLICFUNDS

5) ROLE OF THE BUDGET: GOVERNMENTBUDGETSAREEXPRESSIONSOFPUBLIC POLICYANDOFTENCARRYTHEAUTHORITYOFLAW, PREVENTINGPUBLIC

OFFICIALSFROMSPENDINGOUTSIDETHEIRBUDGETARYAUTHORITY THE

INCREASEDIMPORTANCEOFBUDGETSISREFLECTEDINGOVERNMENTFINANCIAL REPORTSBYAREQUIREDREPORTCOMPARINGBUDGETEDANDACTUALAMOUNTS.

1-3 THETHREESTANDARDSSETTINGBODIESINQUESTIONARETHE GOVERNMENTAL

ACCOUNTING STANDARDS BOARD (GASB), THE FEDERAL ACCOUNTING STANDARDS

ACCOUNTING ADVISORY BOARD (FASAB), ANDTHE FINANCIAL ACCOUNTING

STANDARDS BOARD (FASB) THE GASB SETSACCOUNTINGANDFINANCIAL

REPORTINGSTANDARDSFORSTATEANDLOCALGOVERNMENTALORGANIZATIONS,

INCLUDINGTHOSENOT-FOR-PROFIT ORGANIZATIONSTHATAREDETERMINEDTOBE STATEANDLOCALGOVERNMENTS THE FASAB ESTABLISHESACCOUNTING

STANDARDSFORTHEFEDERALGOVERNMENTANDITSAGENCIESUNLESSOBJECTED

TOBYONEOFTHE "PRINCIPALS" (THEDIRECTOROFTHEOFFICEOFMANAGEMENT ANDBUDGET, THECOMPTROLLERGENERALOFTHEUNITEDSTATES, ANDTHE

SECRETARYOFTHETREASURY) WHENTHE "PRINCIPALS" APPROVE, THE FASAB

STANDARDSBECOME GAAP THE FASB SETSACCOUNTINGANDFINANCIAL

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REPORTINGSTANDARDSFORALLNONGOVERNMENTALENTITIES, INCLUDINGBUSINESS ENTITIESANDNONGOVERNMENTAL, NOT-FOR-PROFITENTITIES.

1-4 THEDEFINITIONOFAGOVERNMENT, ASAGREEDTOBYTHE FASB ANDTHE GASB IS

ASFOLLOWS:

“PUBLICCORPORATIONSANDBODIESCORPORATEANDPOLITICAREGOVERNMENTAL ORGANIZATIONS OTHERORGANIZATIONSAREGOVERNMENTALORGANIZATIONSIF THEYHAVEONEORMOREOFTHEFOLLOWINGCHARACTERISTICS:

1 POPULARELECTIONOFOFFICERSORAPPOINTMENT (ORAPPROVAL) OFA

CONTROLLINGMAJORITYOFTHEMEMBERSOFTHEORGANIZATION’S GOVERNINGBODYBYOFFICIALSOFONEORMORESTATEORLOCAL GOVERNMENTS;

2 THEPOTENTIALFORUNILATERALDISSOLUTIONBYAGOVERNMENTWITHTHE

NETASSETSREVERTINGTOAGOVERNMENT, OR

3 THEPOWERTOENACTANDENFORCEATAXLEVY.

FURTHERMORE, ORGANIZATIONSAREPRESUMEDTOBEGOVERNMENTALIFTHEYHAVE THEABILITYTOISSUEDIRECTLY (RATHERTHANTHROUGHASTATEORMUNICIPAL AUTHORITY) DEBTTHATPAYSINTERESTEXEMPTFROMFEDERALTAXATION

HOWEVER, ORGANIZATIONSPOSSESSINGONLYTHATABILITY (TOISSUETAX-EXEMPT DEBT) ANDNONEOFTHEOTHERGOVERNMENTALCHARACTERISTICSMAYREBUTTHE PRESUMPTIONTHATTHEYAREGOVERNMENTALIFTHEIRDETERMINATIONIS

SUPPORTEDBYCOMPELLING, RELEVANTEVIDENCE.

1-5 THE “HIERARCHYOF GAAP” REFERSTOTHEPREFERENTIALORDERINGOFSOURCES

THATDEFINEACCOUNTINGANDREPORTINGPRINCIPLESFORGOVERNMENTALAND NONGOVERNMENTALUNITS THEHEIRARCH SERVESASAGUIDEFORAUDITORSAND FINANCIALSTATEMENTPREPARERS

FOR STATE AND LOCAL GOVERNMENTAL UNITS:

A GASB STATEMENTSAND INTERPRETATIONS,

B GASB TECHNICAL BULLETINSAND, IFCLEAREDBYTHE GASB, AICPA INDUSTRY

AUDIT AND ACCOUNTING GUIDESAND STATEMENTS OF POSITION

C AICPA PRACTICE BULLETINSTHATHAVEBEENCLEAREDBYTHE GASB

D IMPLEMENTATION GUIDES (Q&AS) PUBLISHEDBYTHE GASB STAFF, ANDPRACTICES THATAREWIDELYRECOGNIZEDANDPREVALENTINSTATEANDLOCALGOVERNMENTS.

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FOR THE FEDERAL GOVERNMENT AND ITS AGENCIES:

A FASAB STATEMENTS AND INTERPRETATIONS, AND AICPA AND FASB

PRONOUNCEMENTSSPECIFICALLYMADEAPPLICABLETOFEDERALGOVERNMENTAL ENTITIESBY FASAB STATEMENTSOR INTERPRETATIONS GASB TECHNICAL

BULLETINSAND, IFCLEAREDBYTHE GASB, AICPA INDUSTRY AUDIT AND

ACCOUNTING GUIDESAND STATEMENTS OF POSITION

B FASAB TECHNICAL BULLETINSAND, IFSPECIFICALLYMADEAPPLICABLETOFEDERAL GOVERNMENTALENTITIESBYTHE AICPA ANDCLEAREDBYTHE FASAB, AICPA

INDUSTRY AUDIT AND ACCOUNTING GUIDESAND STATEMENTS OF POSITION

C AICPA ACSEC PRACTICE BULLETINSIFCLEAREDBYTHE FASAB, TECHNICAL

RELEASESOFTHE FASAB ACCOUNTINGAND AUDITING POLICY COMMITTEE.

D IMPLEMENTATION GUIDESPUBLISHEDBYTHE FASAB STAFF, ANDPRACTICESTHAT AREWIDELYRECOGNIZEDANDPREVALENTINTHEFEDERALGOVERNMENT.

FOR NONGOVERNMENTAL UNITS:

A FASB STATEMENTSAND INTERPRETATIONS, FASB STAFF POSITIONS, AND AICPA

ACCOUNTING RESEARCH BULLETINSAND ACCOUNTING PRINCIPLES BOARD OPINIONS

THATARENOTSUPERSEDEDBYACTIONSOFTHE FASB

B FASB TECHNICAL BULLETINSAND, IFCLEAREDBYTHE FASB, AICPA INDUSTRY

AUDIT AND ACCOUNTING GUIDESAND STATEMENTS OF POSITION

C AICPA PRACTICE BULLETINSTHATHAVEBEENCLEAREDBYTHE FASB, AND

CONSENSUSPOSITIONSOFTHE FASB EMERGING ISSUES TASK FORCE

D IMPLEMENTATION GUIDES (Q&AS) PUBLISHEDBYTHE FASB STAFF, AICPA

ACCOUNTING INTERPRETATIONS, INDUSTRY AUDIT AND ACCOUNTING GUIDESAND

STATEMENTS OF POSITIONNOTCLEAREDBYTHE FASB, ANDPRACTICESTHATARE WIDELYRECOGNIZEDANDPREVALENTEITHERGENERALLYORINTHEINDUSTRY.

1-6

A CONCEPTUALLY, THEMEASUREMENTFOCUSDETERMINESWHATISMEASURED; THE

BASISOFACCOUNTINGDETERMINESWHENSOMETHINGISMEASURED THEECONOMIC RESOURCESMEASUREMENTFOCUSMEASURESALLECONOMICRESOURCES, INCLUDING FIXEDASSETSANDLONG-TERMDEBT THECURRENTFINANCIALRESOURCES

MEASUREMENTFOCUSMEASURESPRIMARILYFINANCIALRESOURCESANDDOESNOT MEASURELONG-TERMASSETSANDLIABILITIES THEACCRUALBASISOFACCOUNTING RECOGNIZESREVENUESWHENEARNEDANDEXPENSESWHENINCURRED THE

MODIFIEDACCRUALBASISOFACCOUNTINGISSOMEWHEREBETWEENTHECASHAND ACCRUALBASESOFACCOUNTINGANDRECOGNIZESREVENUESWHENMEASURABLE ANDAVAILABLETOFINANCEEXPENDITURESOFTHECURRENTPERIOD THEMODIFIED ACCRUALBASISOFACCOUNTINGRECOGNIZESEXPENDITURESGENERALLYWHEN GOODSANDSERVICESARERECEIVED, EXCEPTFORPAYMENTSOFINTERESTONLONG

-TERMDEBTWHICHARERECOGNIZEDWHENDUE.

B UNDERACCRUALACCOUNTINGREVENUESBASEDONEXCHANGETRANSACTIONSARE

RECOGNIZEDWHENEARNED REVENUESBASEDONNONEXCHANGETRANSACTIONS ARERECOGNIZEDACCORDINGTOTHEPROVISIONSOF GASB STATEMENT 33 UNDER MODIFIEDACCRUALACCOUNTING, REVENUERECOGNITIONISMODIFIEDTOREQUIRE THATTHEAMOUNTBEMEASURABLE (DETERMINABLE) ANDAVAILABLETOFINANCE EXPENDITURESOFTHECURRENTPERIOD.

C UNDERACCRUALACCOUNTING, EXPENSESARERECOGNIZEDWHENINCURRED

EXPENSESAREOFTENMATCHEDWITHTHEREVENUESTHOSEEXPENSESGENERATE, IN THECASEOFEXCHANGETRANSACTIONS ACCRUALSAREREQUIREDFORINTEREST ANDOTHEREXPENSES, REGARDLESSOFWHENCASHISTOBETRANSFERRED UNDER MODIFIEDACCRUALACCOUNTING, EXPENDITURES (NOTEXPENSES) ARERECORDED GENERALLYWHENGOODSORSERVICESARERECEIVED (TOTHEINSTRUCTOR: THIS ANSWERISBASEDONTHEINFORMATIONGIVENIN CHAPTER 1; MORESOPHISTICATION

ISINTRODUCEDINLATERCHAPTERS.)

D UNDERTHEECONOMICRESOURCESMEASUREMENTFOCUSANDACCRUAL

ACCOUNTING, FIXEDASSETSARECAPITALIZEDANDDEPRECIATED (EXCEPTFOR

INFRASTRUCTUREASSETSUSINGTHEMODIFIEDAPPROACH) UNDERTHECURRENT FINANCIALRESOURCESMEASUREMENTFOCUSANDMODIFIEDACCRUALACCOUNTING,

FIXEDASSETSARENOTCAPITALIZEDORDEPRECIATED; RATHERFIXEDASSETSARE CHARGEDTOEXPENDITURESWHENRECEIVED.

E UNDERTHEECONOMICRESOURCESMEASUREMENTFOCUSANDACCRUAL

ACCOUNTING, LONG-TERMDEBTISRECORDEDASALIABILITY; REPAYMENTSARE RECORDEDASAREDUCTIONOFTHATLIABILITY UNDERTHECURRENTFINANCIAL RESOURCESMEASUREMENTFOCUSANDMODIFIEDACCRUALACCOUNTING, LONG

-TERMDEBTISNOTRECORDEDASALIABILITY (LATERCHAPTERSWILLINDICATE THATTHEISSUANCEOFDEBTRESULTSINAN “OTHERFINANCINGSOURCE” INTHE GOVERNMENTALFUNDSTATEMENTSANDTHATTHEREPAYMENTOFDEBTWILLRESULT

INANEXPENDITUREINTHEGOVERNMENTALFUNDSTATEMENTS.)

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1-7 PUBLICSECTORORGANIZATIONSAREGOVERNMENTSORORGANIZATIONSOWNEDOR CONTROLLEDBYGOVERNMENTS PRIVATESECTORORGANIZATIONSAREORGANIZATIONS THATARENOTOWNEDORCONTROLLEDBYGOVERNMENTSANDINCLUDEBUSINESSESAS WELLASPRIVATENOT-FOR-PROFITORGANIZATIONS.

1-8 GASB HASATHREE-PARTBUDGETARYPRINCIPLE:

1 ANANNUALBUDGET (S) SHOULDBEADOPTEDBYEVERYGOVERNMENTAL UNIT.

2 THEACCOUNTINGSYSTEMSHOULDPROVIDETHEBASISFORAPPROPRIATE BUDGETARYCONTROL.

3 BUDGETARYCOMPARISONSSHOULDBEINCLUDEDINTHEAPPROPRIATE

FINANCIALSTATEMENTSANDSCHEDULESFORGOVERNMENTALFUNDSFORWHICHAN ANNUALBUDGETHASBEENADOPTED.

1-9 ACCORDINGTOTHEWEBSITE, “THEMISSIONOFTHE GOVERNMENTAL ACCOUNTING

STANDARDS BOARDISTOESTABLISHANDIMPROVESTANDARDSOFSTATEANDLOCAL GOVERNMENTALACCOUNTINGANDFINANCIALREPORTINGTHATWILL:

* RESULTINUSEFULINFORMATIONFORUSERSOFFINANCIALREPORTSAND

* GUIDEANDEDUCATETHEPUBLIC, INCLUDINGISSUERS, AUDITORS, ANDUSERSOF THOSEFINANCIALREPORTS.”

1-10 THEAPPROPRIATEFUNDSARE:

A) CAPITALPROJECTSFUND: THESEFINANCIALRESOURCESARETOBEUSEDTO FINANCECONSTRUCTIONOFACAPITALASSET SINCETHEJAILISUNLIKELY

TOCHARGEFORITSSERVICES, ITWOULDNOTBEPARTOFAPROPRIETARY FUND.

B) SPECIALREVENUEFUND: SINCETHETAXREVENUEISRESTRICTEDBYSTATE LAWFORAPURPOSEOTHERTHANCAPITALPROJECTORDEBTSERVICE, THESE AMOUNTSWOULDBEREPORTEDINASPECIALREVENUEFUND.

C) ENTERPRISEFUND: ALTHOUGHTHISREPRESENTSACAPITALPROJECT, WATER DEPARTMENTSARETYPICALLYREPORTEDASENTERPRISEFUNDS

D) PRIVATE-PURPOSETRUSTFUND: THISISATRUSTFUNDINWHICHTHEINCOME BENEFITSINDIVIDUALS IFTHEPURPOSEOFTHEFUNDWASTOBENEFITTHE GOVERNMENTORITSCITIZENRY (BROADLY), THENITWOULDBEAPPROPRIATE

TOREPORTTHESERESOURCESINAPERMANENTFUND.

E) SPECIALREVENUE FUND: ALTHOUGHTHELIBRARYBENEFITSTHECITIZENRY

INGENERAL, THEABSENCEOFAREQUIREMENTTHATPRINCIPALBE MAINTAINEDPRECLUDESTHERESOURCESBEINGREPORTEDINAPERMANENT FUND SINCETHERESOURCESARERESTRICTEDBYTHEDONOR, THEYWOULD

BEREPORTEDINASPECIALREVENUEFUND.

F) GENERAL FUND: THERESOURCESARENEITHERFIDUCIARYNOR

PROPRIETARY SINCETHERESOURCESARENOTRESTRICTEDORCOMMITTED

TOAPARTICULARPURPOSE, THE GENERAL FUNDWOULDBETHEAPPROPRIATE FUNDFORREPORTINGTHEPROCEEDSOFTHESALEOFTHEEQUIPMENT

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