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CHAPTER 7: ACCOUNTING FOR THE BUSINESS-TYPE ACTIVITIES OF STATE AND LOCAL GOVERNMENTS OUTLINE Number Topic Type/Task Status (re: 12/e) Questions: 7-1 Compare internal service and enterprise funds Contrast 7-1 7-2 Benefits of internal service funds Describe 7-3 7-3 Reason for internal service funds Explain 7-4 7-4 Pricing policy for ISF Describe 7-6 7-5 Restricted assets of enterprise funds Describe 7-8 7-6 Original cost of public utilities Define 7-10 7-7 Cash flows in proprietary funds Describe 7-11 7-8 Accrued utilities revenues Describe 7-12 7-9 Segment information Define 7-13 7-10 Solid waste landfills Explain 7-14 Cases: 7-1 Building maintenance fund Assess 7-2 7-2 Internal service fund policies – Columbia, MO Assess 7-1 7-3 Mass transit system Evaluate 7-3 Exercises/Problems: 7-1 Examine the CAFR Examine 7-1 7-2 Various Multiple Choice 7-2 Revised 7-3 Automotive Service Fund Financial Statement 7-5 7-4 Insurance internal service fund JEs and FE 7-6 Revised 7-5 Central Garage ISF – City of Ashville Journal Entries 7-4 7-6 Utility Plant Fund Compute and JEs 7-7 7-7 City of Templeton Water Utility Fund JEs and FS 7-8 7-8 City of Templeton (cont'd) FS and recommend 7-9 124
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CHAPTER 7: ACCOUNTING FOR THE BUSINESS-TYPE ACTIVITIES OF STATE AND LOCAL GOVERNMENTS Answers to Questions 7.1. Internal service funds and enterprise funds are similar in that they are both proprietary funds and thus follow business-type accounting principles, including accrual accounting and many FASB standards. They are different in their purpose and in their presentation in the government-wide financial statements. Internal service funds are created primarily to provide goods and services to other departments of the same government; enterprise funds are created mainly to provide goods and services to the general public or to other departments of the same government in exchange transactions, such as for water, electricity, and sewage treatment. Both internal service funds and enterprise funds are presented as proprietary funds in the funds financial statements. However, since the transactions of internal service funds predominately involve sales of goods or services to the General Fund and other funds that comprise the governmental activities of a government, their financial balances are allocated back on a pro rata basis to the governmental funds, and hence collapsed into the government activities column of the government-wide statements. 7-2. The traditional benefit from establishing internal service funds is improved management of resources. However, since government services are increasingly being financed by user charges, another benefit of proprietary fund accounting is that it permits administrators to determine whether user charges are commensurate with operating costs and whether costs are reasonable in relation to benefits. Typical examples of activities accounted for in internal service funds are purchasing, warehousing, and issuing supplies; motor pool; electronic data processing; printing; and risk financing.
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