Ch2 HW

P13 1. Which of the following funds is likely to have the caption "long-term bonds payable" in its fund balance sheet/statement of net position? a. Capital Projects Fund b. Enterprise Fund c. General Fund d. Debt Service Fund

B

P13 6. A city maintains a motor pool for all city-owned vehicles. It charges city agencies as the vehicles are used, so that the charges cover the cost of operating and maintaining the vehicles. Which fund should the city use to account for pool revenues and expenses? a. General Fund b. Internal Service Fund c. Special Revenue Fund d. Enterprise Fund

B

P13 7. A county is responsible for holding temporarily idle funds owned by school districts and investing the funds until needed. Which type of fund should the county use to report the activities and balances held for the school districts? a. Enterprise type b. Fiduciary type c. Governmental type d. Special Purpose type

B

P13 8. When a municipal electric utility bills the municipal Police Department for electric services, two funds are needed to record the transaction. Which two are needed? a. Enterprise Fund and Internal Service Fund b. Enterprise Fund and General Fund c. Internal Service Fund and General Fund d. Special Revenue Fund and Agency Fund

B

P11 2. Which fund should record the proceeds of a federal grant made to assist in financing the future construction of a police training facility? a. General Fund b. Special Revenue Fund c. Capital Projects Fund d. Enterprise Fund

C

P11 4. Several years ago, a city established a fund to retire general obligation bonds issued for the purpose of constructing a new police station. This year the city made a $50,000 contribution to that fund from its general revenues. The fund also realized $15,000 in revenue from its investments. The bonds due this year were retired. This year's transactions require accounting recognition in which funds? a. General Fund and Internal Service Fund b. Debt Service Fund and Special Revenue Fund c. Debt Service Fund and General Fund d. Capital Projects Fund and Debt Service Fund

C

P12 3. Which fund would be used to account for the activities of a municipal employee retirement plan that is financed by equal employer and employee contributions? a. Agency Fund b. Internal Service Fund c. Pension Trust Fund d. Private-Purpose Trust Fund

C

P13 2. Which of the following funds is likely to have the caption "equipment" in its fund balance sheet/statement of net position? a. Capital Projects Fund b. Agency Fund c. Enterprise Fund d. General Fund

C

P13 5. Which of the following statements is true regarding the accounting measurement implications of the current financial resources measurement focus and modified accrual basis of accounting? a. Capital assets are recorded as assets when they are acquired. b. Revenues are recognized when they are earned. c. Expenditures and liabilities for compensated absences are recognized when the liabilities come due for payment as employees resign or retire. d. A fund liability is recorded upon the receipt of proceeds from the sale of bonds.

C

P12 5. Which fund should be used to account for a special tax on business district properties to finance the cost of decorations and special lighting during a holiday season? a. General Fund b. Special Revenue Fund c. Enterprise Fund d. Internal Service Fund

B

E2 (Identification of funds, measurement focus, and basis of accounting) For each scenario, state which fund type would be used and which measurement focus and basis of accounting would be used for each fund type. 1. To construct a new highway 2. To pay salaries of personnel who maintain state parks 3. To accumulate resources to pay pension benefits for its employees 4. To collect sales taxes on behalf of local governments that impose such a tax 5. To operate a central printing department that prints forms and reports for all state departments

1. Capital Project Fund- modified accrual basis (MA)- current financial resources (CFR) 2. Special Revenue Fund- modified- current financial resources (assuming insignificant user fees) (2. General fund- CFR, MA) 3. Pension Fund- accrual basis (A)- economic resources (ER) 4. Agency Fund- ER, A 5. Internal Service Fund- ER, A

E11 (Identification of funds through examples) For each type of the following situations, indicate which fund would be used to report the transaction. 1. A city made payments to a contractor on a major bridge project. 2. The Department of Streets purchased materials to be used to repair potholes. 3. A city paid salaries to the employees of its Fire Department. 4. The state Tax Department collected sales taxes on behalf of several large cities in the state. 5. A city accumulated resources in a fund to pay principal and interest on its general obligation bonds. 6. A city acquired land for bridge approaches as part of the project mentioned in the first situation.

1. Capital Projects Fund 2. General Fund 3. General Fund 4. Agency Fund 5. Debt Service Fund 6. Capital Projects Fund

E12 (Identification of funds through examples) For each of the following situations, indicate which fund would be used to report the transaction. Note: Several of the transactions require using more than one fund. 1. A city-owned water utility sent bills to the city for water provided to city departments. 2. The city's mass transit facility received an operating subsidy from the city and a construction grant from the federal government. 3. The city sent out property tax bills to finance day-to-day city operating activities. 4. The city sold bonds to construct new roads- a major capital project. 5. The city used tax resources to pay for new police sedans. (The city classifies the purchase of all sedans as "minor capital items," to be paid from tax resources rather than the sale of bonds.) 6. The city paid principal and interest on a bond issue from resources accumulated for that purpose. 7. The city's centralized printing facility billed the city's Tax Department for printing tax forms. 8. The city levied a special hotel tax dedicated to beautifying its downtown shopping area.

1. Enterprise Fund, General Fund 2. Enterprise Fund, General Fund 3. General Fund 4. Capital Projects Fund 5. General Fund 6. Debt Service Fund 7. Internal Service Fund, General Fund 8. Special Revenue Fund

P6 (Identification of funds when there are interfund transactions) Each of these transactions affects two funds. Use the following codes to identify the types of funds needed to record the transactions. GF -- General Fund CPF -- Capital Projects Fund DSF -- Debt Service Fund SRF -- Special Revenue Fund EF -- Enterprise Fund ISF -- Internal Service Fund PTF -- Pension Trust Fund 1. The fund that finances the city's day-to-day activities makes a payment to the fund that invest money pending payment of pensions to city employees. 2. The city's electric utility fund sends bills to the fund that serves as a central purchasing, storage, and supply agency for all city departments. 3. The fund that operates a central motor pool for all village departments on a cost-reimbursement basis sends a bill to several departments for services. 4. After completing a large capital project, the city had $75,000 left in the fund. As required by city charter, the fund transferred the $75,000 to the fund that accumulates resources to pay off the bonds sold to finance the capital project. 5. To reduce the need for borrowing, the city transferred $500,000 from the fund that pays for day-to-day operating expenditures to the fund that accumulates resources to pay for acquiring capital assets. 6. A city ordinance decreed that all parking fines, wherever collected, be places in a separate fund and used to maintain the city zoo. Although the fines covered virtually all operating expenditures, the fund that finances day-to-day operating expenditures transferred $30,000 to the separate fund so it could acquire several new animals.

1. GF, PTF 2. EF, ISF 3. ISF, GF 4. CPF, DSF 5. GF, CPF 6. SRF, GF

P7 (Transactions involving all funds) Indicate which fund(s) would be used to record each of the following actions performed by the city, county, or state referred to in the transaction. Use the following codes: GF -- General Fund SRF -- Special Revenue Fund DSF -- Debt Service Fund CPF -- Capital Projects Fund PF -- Permanent Fund EF -- Enterprise Fund ISF -- Internal Service Fund PTF -- Pension Trust Fund ITF -- Investment Trust Fund PPTF -- Private-Purpose Trust Fund AF -- Agency Fund 1. The city made a contribution to the employees' retirement fund. 2. Taxes that are dedicated to street repairs were collected. The ordinance establishing the tax requires a separate accounting for these resources. 3. The contractors who were building a bridge were paid. 4. General governmental revenues were transferred to the fund that accumulates resources to retire general long-term debt. 5. The salary for the chief of police was paid. 6. The central supplies fund sent out bills (covering the cost of the supplies plus overhead) for supplies provided to the police and fire departments and to the city airport. 7. The city received from a citizen a gift to be held in perpetuity. The investment income must be used to provide free concerts in city parks. 8. Bonds were issued to finance construction of an office building. 9. The police department purchased three police sedans, using general tax revenues. 10. Sales taxes were collected by the state Tax Department. One-half of what was collected was deposited in the fund that accumulates resources to finance day-to-day operating activities, and one-half was held for remitting to other governments on whose behalf the state collects taxes. 11. The city sold some of its excess office equipment. The proceeds were to be used for general city operations. 12. General obligation bonds were retired, using resources accumulated in a fund used solely for that purpose. 13. The county bus system, accounted for as a separate fund, sold bonds to finance a bus depot. 14. The city uses a separate fund to account for its central purchasing function. Supplies were purchased by this fund. 15. A citizen donated securities to the city, stipulating that the principal amount must remain intact and that the income must be spent to provide free food to the elderly at the city-operated senior citizen centers. 16. The county treasurer distributed to school districts the school districts' shares of the earnings from investments made by the county-operated investment pool.

1. General fund and Pension trust fund 2. Special revenue fund 3. Capital projects fund 4. Debt service fund and General fund 5. General fund 6. General fund and Enterprise fund (city airport) and Internal service fund 7. Permanent fund and Special revenue fund or General fund (investment income) 8. Capital projects fund (until building is built-then Debt service fund) 9. General fund 10. General fund and Agency fund (fiduciary) 11. General fund 12. Debt service fund 13. Enterprise fund 14. Internal service fund 15. Permanent fund and Special revenue fund or General fund 16. Investment trust fund

E1 (Fund categories) State which category of funds (governmental-type, proprietary-type, or fiduciary-type) would be used by a state government for each of the following purposes: 1. To construct a new highway 2. To pay salaries of personnel who maintain state parks 3. To accumulate resources to pay pension benefits for its employees 4. To collect sales taxes on behalf of local governments that impose such a tax 5. To operate a central printing department that prints forms and reports for all state departments

1. Governmental-type fund 2. Governmental-type fund 3. Fiduciary-type fund 4. Fiduciary-type fund 5. Proprietary-type fund

P12 10. Bay Creek's municipal motor pool maintains all city-owned vehicles and charges the various departments for the cost of rendering those services. In which of the following funds should Bay Creek account for the cost of such maintenance? a. General Fund b. Internal Service Fund c. Special Revenue Fund d. Enterprise Fund

B

P11 3. Which fund should record the receipts from a special tax levied to pay principal and interest on general obligation bonds issued to finance the construction of a city hall? a. Debt Service Fund b. Capital Projects Fund c. Enterprise Fund d. Special Revenue Fund

A

P11 5. Which fund would recognize a transaction in which a municipal electric utility paid $150,000 for new equipment out of its earnings? a. Enterprise Fund b. General Fund c. Capital Projects Fund d. Special Revenue Fund

A

P12 2. Which fund would a city use if it had a separate fund to hold and then remit to an insurance company the lump sum of hospital-surgical insurance premiums collected as payroll deductions from employees? a. Agency Fund b. Special Revenue Fund c. Internal Service Fund d. Private-Purpose Trust Fund

A

P12 7. To provide for the retirement of general obligation bonds, a city transfers a portion of its general revenue receipts to a separate fund. In which fund should the city account for receipt of the transfer? a. Debt Service Fund b. Internal Service Fund c. Capital Projects Fund d. Special Revenue Fund

A

P12 9. A city collects property taxes for the benefit of sanitary, park, and school districts (all of which are legally separate governmental units) and periodically remits collections to these units. Which fund is used to account for this activity? a. Agency Fund b. General Fund c. Internal Service Fund d. Private-Purpose Trust Fund

A

P13 3. A state government collects sales taxes both for the state and for all counties within the state that levy a sales tax. In which fund should the state record the liability for sales taxes it holds on behalf of the counties? a. Agency Fund b. Special Revenue Fund c. General Fund d. Enterprise Fund

A

Q1 Define fund as the term is used in governmental accounting.

A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations.

Q13 Discuss why Agency Funds do not have a fund balance.

Agency Funds do not have a fund balance because the governmental unit does not own the assets. Instead, the governmental unit simply holds resources belonging to others and disburses those resources in accordance with law or contract.

P11 1. Which of the following fund types of a governmental unit has/have current financial resources as a measurement focus? General Fund ----- Enterprise Fund a. Yes ----- Yes b. Yes ----- No c. No ------ No d. No ----- Yes

B

P11 8. Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they _____. a. are earned b. are earned or levied and become available and measurable c. are earned and collectible d. are collected

B

P12 1. Which fund should record the fixed assets of a central purchasing and stores department organized to serve all municipal departments? a. Enterprise Fund b. Internal Service Fund c. General Fund d. Capital Projects Fund

B

P11 6. Which of the following funds of a governmental unit records the acquisition of a fixed asset as an expenditure rather than as an asset? a. Internal Service Fund b. Pension Trust Fund c. Enterprise Fund d. General Fund

D

P11 7. Which of the following funds of a governmental unit uses the modified accrual basis of accounting? a. Internal Service Fund b. Enterprise Fund c. Pension Trust Fund d. Debt Service Fund

D

P12 4. A transaction in which a municipal electric utility issues bonds (to be repaid from its own operations) requires accounting recognition in which fund? a. General Fund b. Debt Service Fund c. Capital Projects Fund d. Enterprise Fund

D

P12 6. Which fund should record the liability for general obligation bonds issued for constructing a city hall and serviced from tax revenues? a. Enterprise Fund b. General Fund c. Capital Projects Fund d. None of the above

D

P12 8. Which fund should be used to account for the operations of a municipal swimming pool receiving the majority of its support from charges to users? a. Special Revenue Fund b. General Fund c. Internal Service Fund d. Enterprise Fund

D

P13 4. Which of the following statements is true regarding accounting for capital assets by state and local governments? a. Capital outlays are recorded as expenditures in Internal Service Funds. b. Capital outlays are recorded as assets in Enterprise Funds, but the depreciation on those assets is recorded in the General Fund. c. Capital outlays are recorded as assets in Special Revenue Funds and are depreciated in those funds. d. Capital outlays are recorded as capital outlay expenditures in the General Fund.

D

Q11 Why do proprietary-type funds use full accrual accounting?

Enterprise funds and internal service funds use full accrual accounting in order to determine full cost - that is both operating costs and capital costs. Having full costs enables managers of these entities to have appropriate data for determining user charges.

P14 (Difference between expenditures and expenses) Based on the information shown below, calculate for the year ended December 31, 2012, (a) the total amount of expenditures that would be recognized when using the current financial resources measurement focus and modified accrual basis of accounting, and (b) the total amount of expenses that would be recognized using the economic resources measurement focus and accrual basis of accounting. Salaries paid in cash during 2012 $3,000,000 Salaries applicable to 2012, due to be paid Jan. 5, 2013 $20,000 Utility bill applicable to 2012, due to be paid Jan. 10, 2013 $10,000 Equipment acquired at the beginning of 2012 and having an estimated useful life of 10 years $200,000 Payment of principal on long-term debt on Dec. 31, 2012 $100,000 Payment of interest on long-term debt on Dec. 31, 2012 $40,000

Expenditures . . . . . Expenses 3,000,000 . . . . . . . . 3,000,000 20,000 . . . . . . . . . . . 20,000 10,000 . . . . . . . . . . . 10,000 200,000 . . . . . . . . . . 20,000 100,000 . . . . . . . . . . . -0- 40,000 . . . . . . . . . . . . 40,000 _____________________________ 3,370,000 . . . . . . . . 3,090,000 Only difference is in long-term assets/liabilities (depreciation)

Q4 Describe the difference between economic resources measurement focus and current financial resources measurement focus. Which measurement focus is used in each fund category?

Measurement focus relates to what is being expressed in the financial statements and which resources are being measured. The economic resources measurement focus is used in measuring whether revenues exceeded expenses. It takes account of transactions and events that affect all the resources available to the activity - financial and capital. Proprietary-type and fiduciary-type funds use the economic resources measurement focus. The current financial resources measurement focus is concerned with flows of cash and near-cash items. It takes account of current financial resources only. Acquisitions of capital assets are reported as outflows of financial resources, rather than as exchanges of financial resources for capital resources. Proceeds of long-term debt are reported as inflows of financial resources rather than as long-term liabilities. Governmental-type funds use the current financial resources measurement focus

Q2 What is the purpose of fund accounting?

The basic purpose of fund accounting is to help ensure compliance with legal restrictions on the use of governmental resources. Funds are generally established pursuant to law. They serve as a control mechanism to ensure budgetary compliance and help ensure resources are spent for the specific purposes intended.

Q8 The controller for the City of Walla Walla recently made the following comment: "At a minimum, we could run city government with the use of only one fund." Do you agree with this statement? Why or why not?

The controller is at least partially correct. The general rule in governmental accounting is to use as few funds as possible in the accounting system. Using fewer funds makes accounting and budgeting more flexible and less cumbersome. On the other hand, having separate funds does help to demonstrate accountability for restricted resources, as in the case of bonds approved by the citizens for use only to construct a specific capital project. Thus, although it is theoretically possible to run city government using only one fund, that is not likely to occur very often.

Q12 List the fiduciary-type funds, and briefly describe the use of each.

The fiduciary-type funds and their uses are as follows: Pension Trust - to account for resources held in trust for employee retirement plans and other employee benefit plans; Investment Trust - to account for resources of an external investment pool managed by a sponsoring government; Private-Purpose Trust - to account for resources of all other trust arrangements maintained by a governmental unit for the benefit of individuals, other governments, and private organizations; Agency - to account for resources held in a custodial capacity for some other organization and that must be disbursed according to law or contractual agreement;

P2 (Identification of activities with funds and identifying funds with the appropriate measurement focus and basis of accounting) Jasmin City is a small city on the Canadian border of the United States. Because of its colorful history and fine restaurants, it is a tourist destination. Jasmin uses separate funds to account for the following activities. For each of the activities listed, state (a) the type of fund that Jasmin City will use, (b) the measurement focus and basis of accounting of each fund, and (c) the fund-level financial statements required for each fund. 1. The city's day-to-day operating activities. 2. Sources of financing and expenditures related to the construction of an office building. 3. Payment of debt service on long-term bonds issued to build the office building. 4. A central activity that acquires suppliers and sells them to the various city agencies. 5. A city-owned utility that buys and sells electricity to its residents. 6. A fund that accumulates resources to pay pensions to city employees. 7. An activity that invests funds on behalf of two small neighboring cities. 8. Disposition of sales taxes collected by the city on behalf of the county where it is located.

The following abbreviations are used in the answer table: • Current financial resources measurement focus=CFR • Economic resources measurement focus=ER • Modified accrual basis of accounting=MA • Accrual basis of accounting=A • Balance sheet=BS • Statement of revenues, expenditures, and changes in fund balances=SRECFB • Statement of fund net position=SFNP • Statement of revenues, expenses, and changes in fund net position=SRECFNP • Statement of cash flow=SCF • Statement of fiduciary net position=SFidNP • Statement of changes in fiduciary net position=SCFNP Type of fund/ Measurement focus/ Basis of financial accounting/ Statements 1. General / CFR / MA / BS, SRECFB 2. Capital Projects / CFR / MA / BS, SRECFB 3. Debt Service / CFR / MA / BS, SRECFB 4. Internal Service / ER / A / SFNP, SRECFNP, SCF 5. Enterprise / ER / A / SFNP, SRECFNP, SCF 6. Pension Trust / ER / A / SFidNP, SCFNP 7. Investment Trust / ER / A / SFidNP, SCFNP 8. Agency / ER / A / SFidNP

Q5 How has governmental budgeting influenced the measurement focus and basis of accounting used in the governmental funds category?

The governmental budget process is one of estimating the yield from taxes and other sources and authorizing the expenditure of those resources. Although most state laws require governmental budgets to be balanced, they do not specify that budgetary balance must be achieved in the accrual accounting sense. The revenue aspect of the budget focuses on the availability of resources for spending. When budgets provide authority to spend, the authority relates to current outflows of budgetary resources. Thus, the budget and budgetary measurements focus on the short run. For example, once resources are used to acquire capital assets, the resources are no longer available for spending. Governmental accounting systems have historically provided information to help manage budget execution. As a result, accounting measurements within the funds have tended to be similar to budgetary measurements.

Q7 List the governmental-type funds, and briefly describe the use of each.

The governmental-type funds and their purposes are: General - to account for all financial resources not accounted for in some other fund; or more generally, the day-to-day general activities of government. Special Revenue - to account for the proceeds of specific revenue sources that are restricted or otherwise limited to spending for specified purposes other than debt service and capital projects. Debt Service - to account for financial resources restricted or otherwise limited to spending for principal and interest on general long-term debt Capital Projects - to account for financial resources restricted or otherwise limited to spending for capital outlays, including facilities and other capital assets Permanent - to account for resources legally restricted so that only earnings from the principal or corpus may be used to support governmental programs; while the corpus or principal must remain intact.

Q10 List the proprietary-type funds, and briefly describe the use of each.

The proprietary funds and their uses are as follows: Enterprise - to account for resources used to supply goods and services, for a fee, to users primarily external to the government itself, such as the general citizenry. Internal Service - to account for resources used to supply goods or services, on a cost- reimbursement basis, within the government unit and other governments. (The government unit is the predominant user.) Both funds are used to account for activities involved in providing goods or services. The difference lies in the fact that Enterprise funds sell primarily to nongovernmental users (e.g., citizens who use a toll road or toll bridge), whereas Internal service funds sell to users within the governmental unit and to other governments (but the government unit must be the predominant user).

Q3 List the three categories of funds used in governmental accounting, and describe the types of activities accounted for in each category.

The three categories of funds are: governmental-type (to account for the basic day-to-day-services provided by government; proprietary-type (to account for governmental activities that operate in a manner similar to private sector enterprises in the sense that they charge fees for services); and fiduciary-type (to account for resources held in a trust or agency capacity for others).

Q9 Why are there no capital assets in governmental-type funds?

There are no capital assets in governmental-type funds because those funds account only for inflows and outflows of financial resources. Governmental-type funds can be used and indeed are used to acquire capital assets. When that happens, however, the accounting within the funds is such that there is an expenditure of financial resources, rather than an exchange of a financial resource for a capital asset. Capital assets are reported in government-wide financial statements, but not in fund financial statements.

Q6 Compare the timing of revenue and expense (or expenditure) recognition using the accrual basis of accounting with that using the modified accrual basis of accounting. Which basis of accounting is used in each fund category?

Under the full accrual basis of accounting, revenues are recognized in the period in which they are earned, and expenses are recognized when resources are consumed or liabilities are incurred. Under the modified accrual basis of accounting, revenues are recognized in the period in which they are measurable and available, the term "available" meaning that the revenues must be collected either within the current period or soon enough thereafter to be used to pay the bills of the current period. Expenditures under modified accrual accounting are generally recognized in the period in which services and goods are received and a liability is incurred, but there are specific exceptions to this rule so certain items are not recognized until the liabilities come due for payment. Governmental-type funds use the modified accrual basis of accounting. Proprietary-type and fiduciary-type funds use the accrual basis of accounting.

D4 To fulfill a campaign promise, the new mayor of Cordelia is looking for ways to finance an increase in the level of police protection without raising the city's property tax rate. He reads the city's financial report and notices that the Capital Projects Fund has a large fund balance. He discusses the fund balance with his finance commissioner, who says: "The fund balance is high because the city voted to sell bonds last year to finance construction of a new firehouse. The architect just finished the design of the firehouse, and we are about to award a construction contract." The mayor responds: "Forget the firehouse. I promised to put more police patrols on the street. Let's use the bond proceeds to hire more police officers." How should the finance commissioner respond to the mayor?

• The mayor's proposal is undoubtedly illegal. Advise the mayor to seek another appropriation if he wishes to increase the level of police protection. • If the mayor persists, advise him to obtain a legal opinion from Cordelia's corporation counsel, because the bonds were sold to construct a firehouse. • Tell the mayor that citizens and the media will surely wonder what happened to the new firehouse - and start asking questions.