Solution Manual Advanced Accounting 12e Beams Ch 20
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Advanced Accounting (AKK302)
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Advanced Accounting
Solution manual for questions, exercises, and problems of Advanced Accounting 12e by Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, and Kenneth A. Smith.
Test Bank - Advanced Accounting 13th Edition by Floyd Beams All Chapters Covered ,Latest Edition, ISBN:9780134472140
Test Bank - Advanced Accounting 13th Edition by Floyd Beams, All Chapters Covered ,Latest Edition, ISBN:9780134472140
Test Bank for Advanced Accounting 13th Edition by Floyd Beams, Joseph Anthony, Bruce Bettinghaus, Kenneth Smith, All Chapters |Complete Guide A+
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Chapter 20
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS — GOVERNMENTAL
FUNDS
Questions
1 The governmental fund accounting equation is:
Current Assets – Current Liabilities = Fund Balance
2 GASB 54 no longer allows the use of “reserved” or “unreserved” fund balance. The allowable
classifications are nonspendable, restricted, committed, assigned and unassigned.
3 Taxpayers are billed the full $200,000. The amount recorded as Revenue would be $194,000
with $6,000 recorded as Allowance for Uncollectible Taxes.
4 Encumbrance means “commitment,” and encumbrance accounting records commitments made
for goods on order and for unperformed contracts in order to provide additional control over
expenditures.
5 The required governmental fund financial statements include a statement of net positionor
balance sheet and a statement of revenues, expenditures, and changes in fund balance. The fund
financial statements for the governmental funds are prepared on the modified accrual basis of
accounting.
6 Capital projects funds are used to account for the financing and acquisition of capital facilities or
other capital assets (general fixed assets) of a governmental unit. They are not used to account
for the acquisition of capital facilities financed through internal service or enterprise funds.
General fixed assets may be purchased through the general fund or special revenue funds.
General fixed assets may be acquired by donation in which case the capital projects fund would
not likely be involved.
7 Capital projects funds may receive resources from numerous sources such as the proceeds of
general obligation bond issues, state and federal grants, shared revenues, and transfers from other
funds. A CPF is terminated when the capital facilities have been acquired and project liabilities
settled. This may involve a short period of time in the case of assets acquired by purchase and
several years in the case of assets acquired by construction. Assets remaining after a capital
project has been completed and paid for are ordinarily transferred to the general fund or to the
debt service fund with responsibility for servicing the debt issued to finance the project.
,20-2 Accounting for State and Local Governmental Units
8 A government may treat supply acquisitions as expenditures either when purchased (purchases
method) or when used (consumption method), as long as it reports significant amounts of
inventory in the balance sheet. While the consumption method is similar to the manner in which
commercial businesses record supplies, the purchases method better allows for comparison of
expenditures and appropriations. Under the purchases method, a government with significant
inventory balances at year-end will recognize the balances as assets in the fund balance sheet and
establish an accompanying fund balance-nonspendable to reflect the fact that the supply amount
is not an available financial asset.
9 The grant from the federal government is intergovernmental revenue.
Under modified accrual accounting, a governmental fund recognizes revenue on restricted grants
when qualifying costs have been incurred (and other significant conditions, if any, have been
met), assuming that the funds are measurable and available.
Because the CPF did not receive the federal grant proceeds for the town hall project at the time
the books were closed, the town will prepare an accrual entry, provided that the commitment is
firm.
Just as previously discussed in the section on SRFs, governments recognize revenue if the
receivable will be collected and available to meet current obligations. Otherwise, they must
credit Revenue collected in advance. Failure to recognize revenue from the grant could make the
CPF appear to be in financial difficulty for interim reporting purposes when, in fact, it has
progressed as planned.
10 A transfer of resources by the general fund to the debt service fund to be used to retire all or a
portion of the general long-term debt would affect the general fund and the debt service fund at
the same time. Assuming that the amount of the transfer is $10,000, the entries would be:
GF
Other financing uses--nonreciprocal transfer to debt service fund 10,000
Cash 10,000
DSF
Cash 10,000
Other financing sources--nonreciprocal transfer from 10,000
general fund
A final difference is that property taxes are levied each year for that year (or sometimes
the following year). Special assessment levies often are for amounts to be collected over several
years.
12 Capital project funds are used to account for the construction activities of general government
special assessment projects and the debt service fund is used to account for the related debt
service if the government is obligated in some manner. Debt service for special assessment
liabilities for which the government is not obligated in any manner is accounted for in agency
funds, with the special assessment obligation being disclosed in notes to the financial statements.
13 A construction contract often stipulates that a portion of the contractor’s remuneration be
withheld until completion of the construction project and final inspection. Note that the fixed
asset (construction in progress) is not recorded in the CPF, because it is a governmental fund.
The fixed asset does not represent CPF working capital. Instead, the incurrence of the contract
payable liability increases CPF liabilities and decreases CPF fund balance. Governments report
this fund balance decrease as expenditure.
14
Expenditures 420,000
Supplies Inventory 420,000
To adjust the supplies inventory and supplies expenditures accounts.
The closing and reclassification entries will result in a 20,000 decrease in Fund balance-
nonspendable such as below. Note how the amount of unassigned fund balance that was “used
up” in this year is the amount actually spent on supplies ($400,000) while the amount in the
expenditures account ($420,000) is the amount consumed during the year. The difference is
reflected in the $20,000 decrease in the fund balance-nonspendable account.
Fund balance – nonspendable 20,000
Fund balance – unassigned 400,000
Expenditures 420,000
To close and reclassify supply expenditures.
15 Governments record details of the planned revenues (such as property taxes, sales taxes, and
license revenue) and appropriations (such as police supplies, mayor’s office expenses, and
maintenance of the town hall) in subsidiary revenue and expenditure ledgers. The detail allows
for better control over expenditures, as appropriations can be compared to expenditures and
encumbrances at any time.
, 20-4 Accounting for State and Local Governmental Units
16 The amount that city officials can order prior to year end is $75,000 ($250,000 – $175,000). If
they have not spent the full $250,000 in appropriations prior to year end, depending on the laws
of the Village of Lester, all appropriations lapse at the end of the year for which they are made,
with the exception of committed appropriations (encumbrances outstanding), which can continue
to serve as authorizations for items on order or under contract. Since governments are no longer
allowed to report “reserve for encumbrances” in the financial statements due to GASB 54, the
government will need to establish a policy for how to record and report on outstanding
commitments at the end of the year. One approach is to reverse all of the encumbrances and
related reserve for encumbrances and report the commitments as Fund balance-committed.
17 Permanent funds (PF) account for contributions for which the grantor specifies that a principal
amount must be maintained but for which interest accumulation or asset appreciation, or both,
are to be used for a specified purpose. Funds that are expendable are accounted for in a special
revenue fund. If contributions benefit parties external to the government, they are accounted for
in private purpose trust funds.
18 The general fund is always a major fund. Other funds are considered major funds if they meet
both of the following criteria:
1. Total assets, liabilities, revenues, or expenditures/expenses (excluding extraordinary
items) of that individual governmental or enterprise fund are at least 10% of the
corresponding total (assets, liabilities, etc.) for all funds of that category or type.
2. Total assets, liabilities, revenues, or expenditures/expenses (excluding extraordinary
items) of that individual governmental or enterprise fund are at least 5% of the
corresponding total for all governmental and enterprise funds combined.
19 A budgetary comparison schedule, which is required supplementary information for the general
fund and for all special revenue funds with legally adopted budgets, includes columns for the
original budget, the final budget, actual balances (on the budgetary basis) and variances
(optional).The budgetary comparison schedule includes the same classifications as the GAAP
operating statement, however, the amounts reported for revenues, expenditures, and fund
balances often differ between the two statements. Differences exist when a government uses a
non-GAAP basis of accounting for budgeting purposes. It should be included in a CAFR.
20 Since the government-wide statements are prepared on the accrual basis of accounting while the
fund financial statements for the governmental funds are prepared on the modified accrual basis
of accounting, governments must convert governmental fund financial information to the accrual
basis of accounting for inclusion in the government-wide statements of activities and net
position. A conversion worksheet is an optional tool that facilitates reconciliation of the two
statements.
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