Chap007 - Chapter 07 - Accounting for the Business-type...

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Unformatted text preview: Chapter 07 - Accounting for the Business-type Activities of State and Local Governments CHAPTER 7: ACCOUNTING FOR THE BUSINESS-TYPE ACTIVITIES OF STATE AND LOCAL GOVERNMENTS OUTLINE Number Topic Type/Task Status (re: 14/e) Explain Describe Same Same Explain Compare Describe Contrast New New Same Same 7-7 7-8 7-9 7-10 Internal service and enterprise funds Use of internal service funds and enterprise funds Budgetary control of internal service funds Reporting uncollectible accounts Restricted assets of enterprise funds Interest capitalization requirements for enterprise funds Cash flows in proprietary funds Regulatory accounting Operating and nonoperating revenues/expenses Segment information Contrast Describe and Explain Explain Define Same New Same Same Cases: 7-1 7-2 7-3 Building maintenance fund Risk management internal service fund Mass transit system Assess Explain and Analyze Evaluate Same New Same Examine Multiple Choice JEs and FS JEs and FS Journal Entries Financial Statements JEs, FS and Assess JEs and FS Analysis Same Revised Revised Same Same Same New New New Classify New Questions: 7-1 7-2 7-3 7-4 7-5 7-6 Exercises/Problems: 7-1 Examine the CAFR 7-2 Various 7-3 Central Duplicating Internal Service Fund 7-4 Central Garage ISF – City of Ashville 7-5 Net asset classifications 7-6 City of Dalton Parking Facilities Fund 7-7 Town of Elizabeth Central Station Fund 7-8 City of Bay Lake Water Utility Fund 7-9 Von County proprietary funds statement of revenues, expenses and changes in fund net assets 7-10 Proprietary fund statement of cash flows 7-1 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments 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 both proprietary funds and are presented as such in the funds financial statements. However, since the transactions of internal service funds primarily involve sales of goods or services to the General Fund and other funds that compose the governmental activities of a government, their financial balances are included in a single column of the proprietary fund financial statements. Those enterprise funds considered to be major funds are presented in separate columns of the proprietary fund financial statements, with non-major enterprise funds aggregated in an Other Enterprise Funds column. GASB requires that three proprietary fund financial statements be prepared: statement of revenues, expenses and changes in fund net assets; statement of net assets; and a statement of cash flows. Due to the nature of internal service funds, at the government-wide level the internal service funds balances are collapsed into the Government Activities column of the government-wide statements. Enterprise funds are considered business-type activities and are reported in the Business-type Activities column of the government-wide statements. 7-2. Internal service funds are established primarily to provide goods and services to other departments of the same government. The traditional benefit from establishing internal service funds is improved management of resources. Enterprise funds are established mainly to provide goods and services to the general public or to other departments of the same government in exchange transactions. Examples of enterprise activities include provision of water, electricity, sewage treatment, airports, and municipal swimming pools. Since such goods and services are financed by user charges, the use of an enterprise fund permits administrators to determine whether user charges adequately cover the operating costs and whether costs are reasonable in relation to benefits. 7-3. Disagree. The main purchasers of the internal service fund’s services are the city’s governmental funds. As shown in Illustration 7-1, the city commission has budgetary authority over the General Fund and other budgetary funds that will be using internal services. Through its approval of the budgets for these funds, the commission is able to control the resources flowing to the city’s internal service funds. 7-4. Recording of uncollectible accounts for governmental funds and proprietary funds is somewhat different. For governmental funds uncollectible accounts are recorded through a direct reduction to the revenue account at the time revenue is recognized. The reason for directly adjusting the revenue account is that under modified accrual the recording and 7-2 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Answers, Question 7-4 (Cont’d) reporting of uncollectible accounts does not involve an increase or decrease in financial resources. Recall from Chapter 4, transaction 10a, the entry to record taxes receivable involved a debit to Taxes Receivable—Current and credits to Estimated Uncollectible Current Taxes (a contra-asset account) and to Revenue. Proprietary accounts use a contra-revenue account to report the effect of uncollectible accounts on revenues. When a contra-revenue account is used an adjusting entry is made at the end of the period to debit an account such as Provision for Uncollectible Accounts (contra-revenue) and credit an account such as Accumulated Provision for Uncollectible Accounts (contra-asset). For reporting purposes, the effect of the two recording methods is the same. That is, in the financial statements revenues will be shown net of adjustments for uncollectible accounts, rather than at the gross amount. GASB standards for recording and reporting differ from the FASB standards. Under the FASB standards an entity prepares an adjusting entry at the end of the period with a debit to an account such as Bad Debt Expense and a credit to the contra-asset account such as Allowance for Uncollectible Accounts. Under FASB the Bad Debt Expense is reported as an operating expense, rather than a reduction to the revenue account. That is, under FASB standards revenues are reported at a gross amount rather than at an amount net of uncollectible accounts. 7-5. Restricted assets are assets that have been segregated, pursuant to an agreement with an external party or by law or regulation, for a specified purpose and therefore are not available for the discretionary use of management. Items typically reported in the "Restricted Assets" section of the statement of fund net assets include assets set aside for retirement of revenue bonds in conformity with bond covenants and bond proceeds, grants, and contributions restricted for capital purposes. Customer deposits are commonly reported as restricted assets by government utilities that use proprietary fund accounting. 7-6. Enterprise funds must generally capitalize interest costs, while governmental funds are not allowed to capitalize interest costs. GASBS 39 does not allow interest on long-term debt to be allocated to the functions of government; therefore, governmental funds do not capitalize interest since in doing so interest becomes a part of the capital asset cost, and hence the depreciation expense calculation. Since depreciation is allocated to the functions of government, interest consequently would be allocated to government functions. In contrast, GASB requires that interest on self-constructed enterprise fund assets be capitalized in accordance with SFAS 34. The only exception to the requirement that enterprise funds capitalize interest on self-constructed assets is if the asset is financed with general long-term debt that will be paid with governmental fund resources. 7-7. FASB allows entities to prepare the statement of cash flows using either the indirect or the direct preparation method, while GASB requires the direct method. The information in the statement of cash flows is displayed using three categories under FASB 7-3 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Answers, Question 7-7 (Cont’d) standards—operating activities, investing activities and financing activities. GASB standards provide for four categories of cash flows—operating activities, noncapital financing activities, capital and related financing activities, and investing activities. Chapter 7 gives a fairly detailed description of the types of transactions reported in each of the four GASB categories. Notice that the types of activities reported in the two financing categories and the investing category have a number of differences when compared with the comparable FASB categories. 7-8. Regulatory accounting principles (RAP) are accounting principles established by any one of a number of state and/or federal entities. An example of a federal entity that establishes regulatory accounting principles is the Federal Energy Regulatory Commission (FERC). The purpose of RAP is to help ensure that reports submitted to regulatory agencies are in a format that helps regulators determine that entities subject to regulators’ oversight are complying with laws and regulations. A number of enterprise funds may be subject to certain RAP requirements, given that enterprise funds frequently provide utility type services, which tend to be subject to state and federal regulation. State and federal entities are working toward reconciliation of differences between RAP and GAAP, making reporting easier for entities subject to both sets of accounting principles. 7-9. GASB leaves the definition of operating and nonoperating revenues/expenses/income to management. However, guidance indicates that operating revenues and expenses are those related to the primary function or reason for the proprietary fund’s existence. The operating revenues generated by a proprietary fund are based on the goods or services provided by the proprietary fund. Consequently, operating expenses are those expenses incurred in provision of the fund’s primary goods or services. Nonoperating revenues and expenses are peripheral or incidental in nature to the primary function or objective of the proprietary fund. Generally, examples of nonoperating revenues include interest income, gains on sale of assets, tax revenues, and grants and gifts that can be used for operating activity. One reason for separating operating and nonoperating items is to help assess management performance. Additionally, GASB requires that operating revenues/expenses/income be separately identified on the statement on revenues, expenses and changes in fund net assets since the information is necessary for classifying activity as operating, noncapital financing, capital financing, or investing on the statement of cash flows. 7-10. A segment is an identifiable activity either within an enterprise fund or other stand alone entity. Segment information consists of providing key operating and balance sheet information for each segment for which reporting is required. Information about the segments is provided in condensed statement format in the notes to the financial 7-4 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Answers, Question 7-10 (Cont’d) statements. An entity must disclose segment information if the segment has one or more bonds or other debt instruments outstanding, with revenues pledged to support the debt. The intent is that segment information be provided to bondholders, analysts, and others needing information to determine the financial condition of the segment on which the bonded debt is dependent. Solutions to Cases 7-1. a. The financial statements suggest the Building Maintenance Fund is not being recorded and reported in accordance with GASB standards for internal service funds, as described in Chapter 7. In particular, there is no recognition of equipment and/or building on the balance sheet (of which there should be at least equipment, given the nature of the operation). As a consequence, depreciation also is not being charged and reported on the statement of revenues, expenditures and changes in fund balance. A look at the headers for the financial statements provides a clue that modified accrual accounting may be used rather than accrual accounting, explaining the lack of capital assets on the balance sheet. The preferred titles for the financial statements under accrual accounting would be statement of net assets and statement of revenues, expenses and changes in fund net assets. A look at the fund equity section of the balance sheet and operating statement also suggests that the Building Maintenance Fund is using modified accrual rather than accrual accounting. This is reflected in the use of the line item “fund balance” rather than net assets, segregated into (1) invested in capital assets, net of related debt, (2) restricted, and (3) unrestricted; and the matching of expenditures (rather than expenses) to revenues in the operating statement. b. As manager of a city department you should want to know the full cost of Building Maintenance Fund’s operations. Such information would aid in determining the appropriateness and fairness of the fund’s charges to departments. Although the financial statements indicate that revenues exceed expenditures only slightly, the statements fail to disclose the relationship between operating revenues and operating expenses. As such, they provide you with little useful information, even though as a city employee you might have a pretty good idea if the salaries, wages, and number of employees of the Building Maintenance Fund were in line with those of the rest of the city departments. Cash and Investments exceed current liabilities if one assumes that Accrued Annual Leave is a long-term liability and Other Accrued Liabilities are current liabilities. (If current liabilities were reported separately it wouldn't be necessary to guess which is current and which is long-term.) It would also be useful to know how accrued annual leave was computed, and how much of this will probably have to be paid each year. Finally, one should determine that the inventory figure does not include an excessive supply of materials that could be obtained readily from suppliers when needed. 7-5 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-1 (Cont’d) It is also possible that some managers of city departments that use the services of the Building Maintenance Fund may have little interest in the financial statements if the employees of that fund are doing a good job of keeping the city’s buildings well maintained, and the charges of that fund do not strain their maintenance budgets. If, however, they perceived the service to be poor or the charges to be excessive, the lack of full accrual financial information to objectively evaluate the Building Maintenance Fund manager’s performance could become a problem. 7-2. a. Since the Risk Management Pool is providing an insurance service to the departments of the General Fund, it should record its assessments like an exchange transaction with a debit to an account such as Due from General Fund (or Cash) and a credit to an account such as Billings for Services. The General Fund would recognize the service received from the Risk Management Pool with a debit to an Expenditures account and a credit to an account such as Due to Risk Management Pool (or Cash). b. Internal service funds are generally reported in the Governmental Activities column in the government-wide statements. GASB requires that all interfund activity be eliminated to prevent double counting of transactions. Since the Risk Management Pool and the General Fund would be reported in the same Governmental Activities column, the transaction would not be recorded at the government-wide level. c. At the government-wide level the assets attributed to General Fund functions and the assets of the Risk Management Pool would generally be combined and shown in the same Governmental Activities column on the statement of net assets. Internal service fund assets would also be included in the governmental activities information shown in the capital asset note disclosures. Therefore, from the government-wide perspective it would not make a difference if a portion of the Building was recorded in the Risk Management Pool. However, as explained in part d, it appears that the Risk Management Pool should record an expense for the entire amount of the outlays for the claims rather than debiting Buildings for the increase in value. d. In accordance with the information provided in the section “Internal Service Funds as Financing Devices” of this chapter, the Risk Management Pool should have recognized the claims from the General Fund as expenses and reimbursed the General Fund for the expenditures it incurred related to the building. Although the Risk Management Pool paid $100,000 of the invoices directly, that would not affect the accounting. The Risk Management Pool is not receiving an operational asset from this transaction; therefore, a correcting entry that debits an expense and credits Building would remove the asset from the Risk Management Pool ledger. 7-6 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont’d) 7-3. a. If the finance director and the head of the DTS wish to measure the full cost of operating the mass transit system, then it is important that the accrual basis of accounting, including depreciation, be used. Determination of full cost would facilitate measurement of operational efficiency and help determine whether the General Fund subsidy is reasonable in relation to benefits received. Further, the requirement to use budgetary accounting, including appropriation control, under special revenue fund accounting would detract from efficient operation of the mass transit system. Thus, sound management suggests the need to measure the full cost of operating the mass transit system and to use flexible budgeting as well managed business enterprises do. Enterprise fund accounting would measure full cost; special revenue fund accounting would not. Since the DTS’s operating revenues have covered only 45-50% of its operating costs, and apparently none of its capital costs since inception, taxpayers are heavily subsidizing the DTS operations. Because the DTS relies primarily on nonexchange resources for operations, taxpayers should have a say in the budget and operations of the DTS. The ability to have such a voice is through the budget process and scrutiny by elected officials. Taxpayer control over the DTS is increased when the DTS is placed in a special revenue fund. The information in the case provides no clearcut answer as to which fund type should be used to account for the mass transit system, since GASB standards require the use of an enterprise fund only if the government intends to cover the full cost of operations with user fees, or else bond financing to be repaid from enterprise fund revenues is used. Neither appears relevant in this case. b. c. Solutions to Exercises and Problems 7-1. Since each student has a different annual report, no two answers to this exercise will be exactly alike. Use this opportunity to discuss the value of government-wide financial statements to determine the “profitability” of proprietary activities and the extent of subsidies from resources arising from governmental activities. Airports are an example of enterprise funds that may or may not provide additional resources to subsidize general governmental services. 7-2. 1. 2. 3. 4. 5. b. c. d. c. b. 6. 7. 8. 9. 10. a. a. d. a. c. 7-7 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont’d) 7-3. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND GENERAL JOURNAL (NOT REQUIRED) Debits 1. WAGE EXPENSE 333,500 PAYROLL TAX EXPENSE 23,375 CASH 290,000 DUE TO FEDERAL GOVERNMENT 2. DUE TO FEDERAL GOVERNMENT 66,875 65,500 CASH 3. 65,500 UTILITY EXPENSE 23,500 DUE TO OTHER FUNDS 4. 23,500 OFFICE EXPENSES 10,500 CASH 5. 10,500 SERVICE SUPPLIES INVENTORY 157,500 ACCOUNTS PAYABLE 6. 157,500 COST OF PARTS AND SUPPLIES USED 152,300 SERVICE SUPPLIES INVENTORY 7. Credits DUE FROM OTHER FUNDS 152,300 588,000 BILLINGS TO DEPARTMENTS 588,000 7-8 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont'd) Debits 8. CASH Credits 578,200 DUE FROM OTHER FUNDS 578,200 (20,200 + 588,000 - 30,000) 9. DUE TO OTHER FUNDS 21,800 CASH 10. 21,800 ACCOUNTS PAYABLE 156,950 CASH 156,950 (12,700 + 157,500 - 13,250) 11. DEPRECIATION OF MACHINERY AND EQUIPMENT 30,000 ALLOWANCE FOR DEPRECIATION 12. 30,000 Closing Entries: BILLINGS TO DEPARTMENTS 588,000 WAGE EXPENSE 333,500 PAYROLL TAX EXPENSE 23,375 UTILITY EXPENSE 23,500 OFFICE EXPENSES 10,500 COST OF PARTS AND SUPPLIES USED 152,300 DEPRECIATION OF MACHINERY AND EQUIPMENT 30,000 OPERATING INCOME 14,825 7-9 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont'd) Debits OPERATING INCOME Credits 14,825 NET ASSETS—UNRESTRICTED NET ASSETS—INVESTED IN CAPITAL ASSETS NET ASSETS—UNRESTRICTED 7-10 14,825 30,000 30,000 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont'd) TOWN OF FREDERICKSBURG T- ACCOUNTS FOR CENTRAL DUPLICATING FUND (NOT REQUIRED) DUE FROM OTHER FUNDS CASH 9-30-10 15,000 578,200 (8) (1) 290,000 9-30-10 (2) 65,500 20,200 (7) (8) 578,200 588,000 (4) 10,500 (9) 21,800 (10) 156,950 SERVICE SUPPLIES INVENTORY 9-30-10 35,300 (5) MACHINERY AND EQUIPMENT (6) 152,300 9-30-10 300,000 157,500 ALLOW FOR DEPMACH & EQUIP 9-30-10 90,000 (11) 30,000 ACCOUNTS PAYABLE (10) 156,950 DUE TO FEDERAL GOVERNMENT 9-30-10 12,700 (5) (2) 21,800 9-30-10 1,500 157,500 (1) DUE TO OTHER FUNDS (9) 65,500 66,875 NET ASSETS—UNRESTRICTED 9-30-10 (3) 800 9-30-10 55,500 23,500 C.L. 14,825 C.L. 30,000 NET ASSETS—INVESTED IN CAP. ASSETS C.L. 30,000 BILLINGS TO DEPARTMENTS 9-30-10 210,000 CL. WAGE EXPENSE (1) 333,500 23,500 CL. 333,500 (1) 30,000 CL. 23,500 (6) 14,825 23,375 CL. 23,375 CL. 30,000 CL. 152,300 CL. 152,300 CL. 10,500 OFFICE EXPENSES (4) 14,825 OPERATING INCOME CL. 588,000 COST OF PARTS AND SUPPLIES USED DEPRECIATION OF MACH. AND EQUIP. (11) (7) PAYROLL TAX EXPENSE UTILITY EXPENSE (3) 588,000 7-11 10,500 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont'd) 7-3. a. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS FOR YEAR ENDED SEPTEMBER 30, 2011 BILLINGS TO DEPARTMENTS $588,000 OPERATING EXPENSES: WAGE EXPENSE $333,500 PAYROLL TAX EXPENSE 23,375 OFFICE EXPENSES 10,500 UTILITY EXPENSE 23,500 PARTS AND SUPPLIES USED 152,300 DEPRECIATION OF MACHINERY AND EQUIPMENT 30,000 TOTAL OPERATING EXPENSES 573,175 OPERATING INCOME 14,825 NET ASSETS, OCTOBER 1, 2010 265,500 NET ASSETS, SEPTEMBER 30, 2011 $280,325 b. On the basis of the operating statement for the year ended September 30, 2011, the pricing policy is achieving the goal of covering all operating expenses, including depreciation. The net income for the year is 2.52 percent of billings to departments, under the 3 percent maximum set for this fund. 7-12 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont'd) c. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF NET ASSETS AS OF SEPTEMBER 30, 2011 ASSETS: CURRENT ASSETS: CASH $ 48,450 DUE FROM OTHER FUNDS 30,000 SERVICE SUPPLIES INVENTORY 40,500 TOTAL CURRENT ASSETS $118,950 CAPITAL ASSETS: MACHINERY AND EQUIPMENT 300,000 LESS: ALLOWANCE FOR DEPRECIATION 120,000 TOTAL CAPITAL ASSETS 180,000 TOTAL ASSETS 298,950 LIABILITIES: ACCOUNTS PAYABLE 13,250 DUE TO FEDERAL GOVERNMENT 2,875 DUE TO OTHER FUNDS 2,500 TOTAL CURRENT LIABILITIES 18,625 NET ASSETS: NET ASSETS—INVESTED IN CAPITAL ASSETS 180,000 NET ASSETS—UNRESTRICTED 100,325 TOTAL NET ASSETS $ 280,325 7-13 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-3 (Cont’d) d. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: CASH RECEIVED FROM CUSTOMERS $578,200 CASH PAID TO: EMPLOYEES $(290,000) FEDERAL GOVERNMENT (W/T, FICA) SUPPLIERS (65,500) (167,450) (21,800) OTHER DEPARTMENTS (544,750) NET CASH PROVIDED BY OPERATIONS $ 33,450 NET INCREASE IN CASH AND CASH EQUIVALENTS 33,450 CASH AND CASH EQUIVALENTS, 10/1/2010 15,000 CASH AND CASH EQUIVALENTS, 9/30/2011 $ 48,450 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 14,825 ADJUSTMENTS: DEPRECIATION EXPENSEMACHINERY & EQUIPMENT 30,000 INCREASE IN INVENTORY (5,200) INCREASE IN RECEIVABLES FROM OTHER FUNDS (9,800) INCREASE IN ACCOUNTS PAYABLE 550 INCREASE IN DUE TO FEDERAL GOVERNMENT 1,375 INCREASE IN DUE TO OTHER FUNDS 1,700 NET CASH PROVIDED BY OPERATING ACTIVITIES 7-14 $ 33,450 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont'd) 7-4. a. CITY OF ASHVILLE CENTRAL GARAGE FUND GENERAL JOURNAL Debits 1. Internal Service Fund & Governmental Activities: INVENTORY OF SUPPLIES 92,000 VOUCHERS PAYABLE 2. Credits 92,000 Internal Service Fund: COST OF SUPPLIES USED 110,000 INVENTORY OF SUPPLIES 110,000 Governmental Activities: EXPENSES—GENERAL GOVERNMENT 110,000 INVENTORY OF SUPPLIES 3. 110,000 Internal Service Fund: SALARIES AND WAGES EXPENSE 235,000 CASH 235,000 Governmental Activities: EXPENSES—GENERAL GOVERNMENT CASH 235,000 235,000 7-15 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 a (Cont'd) Debits 4. Credits Internal Service Fund: UTILITIES EXPENSE 30,000 DUE TO OTHER FUNDS 3,000 CASH 27,000 Governmental Activities: EXPENSES—GENERAL GOVERNMENT 30,000 INTERNAL BALANCES 3,000 CASH 5. 27,000 Internal Service Fund: DEPRECIATION EXPENSEBUILDING 10,000 DEPRECIATION EXPENSEMACHINERY AND EQUIPMENT 9,000 ALLOWANCE FOR DEPRECIATIONBUILDING 10,000 ALLOWANCE FOR DEPRECIATIONMACHINERY AND EQUIPMENT 9,000 Governmental Activities: EXPENSESGENERAL GOVERNMENT ALLOWANCE FOR DEPRECIATIONBUILDING 19,000 10,000 ALLOWANCE FOR DEPRECIATIONMACHINERY AND EQUIPMENT 9,000 7-16 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 a (Cont'd) Debits 6. Credits Internal Service Fund: DUE FROM OTHER FUNDS 397,000 BILLINGS TO DEPARTMENTS 397,000 Governmental Activities: INTERNAL BALANCES 90,000 PROGRAM REVENUES—CHARGES FOR SERVICES—GENERAL GOVERNMENT 7. 90,000 Internal Service Fund: CASH 394,000 DUE FROM OTHER FUNDS 394,000 ($9,000 + $397,000 - $12,000 = $394,000) Governmental Activities: CASH 91,000 INTERNAL BALANCES 91,000 ($3,000 + $90,000 - $2,000 = $91,000) 8. Internal Service Fund & Governmental Activities: VOUCHERS PAYABLE 107,000 CASH 107,000 ($31,000 + $92,000 - $16,000 = $107,000) 7-17 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 a (Cont'd) Debits 9. Credits Internal Service Fund: Closing Entries: BILLINGS TO DEPARTMENTS 397,000 COST OF SUPPLIES USED 110,000 SALARIES AND WAGES EXPENSE 235,000 UTILITIES EXPENSE 30,000 DEPRECIATION EXPENSEBUILDING 10,000 DEPRECIATION EXPENSEMACHINERY AND EQUIPMENT 9,000 EXCESS OF NET BILLINGS OVER COSTS EXCESS OF NET BILLINGS OVER COSTS 3,000 3,000 NET ASSETS—UNRESTRICTED NET ASSETS—INVESTED IN CAPITAL ASSETS NET ASSETS—UNRESTRICTED 7-18 3,000 19,000 19,000 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 (Cont'd) b. CITY OF ASHVILLE CENTRAL GARAGE FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS FOR YEAR ENDED JUNE 30, 2011 BILLINGS TO DEPARTMENTS $397,000 OPERATING EXPENSES: COST OF SUPPLIES USED $110,000 SALARIES AND WAGES EXPENSE 235,000 UTILITIES EXPENSE 30,000 DEPRECIATION EXPENSE—BUILDING 10,000 DEPRECIATION EXPENSE—MACHINERY AND EQUIPMENT 9,000 TOTAL OPERATING EXPENSES 394,000 OPERATING INCOME 3,000 NET ASSETS, JULY 1, 2010 511,000 NET ASSETS, JUNE 30, 2011 $514,000 7-19 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 (Cont'd) c. CITY OF ASHVILLE CENTRAL GARAGE FUND STATEMENT OF NET ASSETS AS OF JUNE 30, 2011 ASSETS: CURRENT ASSETS: CASH $135,000 DUE FROM OTHER FUNDS* 12,000 INVENTORY OF SUPPLIES 72,000 TOTAL CURRENT ASSETS $219,000 CAPITAL ASSETS: LAND 50,000 BUILDING 250,000 LESS: ALLOWANCE FOR DEPRECIATION 30,000 MACHINERY AND EQUIPMENT 65,000 LESS: ALLOWANCE FOR DEPRECIATION 21,000 220,000 44,000 TOTAL CAPITAL ASSETS 314,000 TOTAL ASSETS 533,000 LIABILITIES: VOUCHERS PAYABLE 16,000 DUE TO OTHER FUNDS 3,000 TOTAL CURRENT LIABILITIES 19,000 NET ASSETS: NET ASSETS—INVESTED IN CAPITAL ASSETS 314,000 NET ASSETS—UNRESTRICTED 200,000 TOTAL NET ASSETS $514,000 *Under GASB standards, the $3,000 due to the Water and Sewer Utility Fund could also be shown net of the $2,000 due from the Water and Sewer Utility Fund. 7-20 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-4 (Cont'd) d. For the government-wide statement of activities, the internal service fund would be reported as a part of the governmental activities column. Since the primary funds served by the central garage fund are governmental funds, rather than enterprise funds, the internal service fund is appropriately combined with governmental activities at the governmentwide level. As shown by the closing entry, the internal service fund would report the $90,000 related to the revenue received from the enterprise fund and the $394,000 in expenses. Since these amounts exclude all activity that occurred between the internal service fund and governmental funds, they should be included in the governmental activities column. As indicated by journal entries 1-9, the central garage fund would recognize balances for its statement of net assets accounts, excluding all activity between the internal service fund and the governmental funds. 7-21 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont'd) 7-5. Debits 1. Credits NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT 534,000 NET ASSETS—UNRESTRICTED 534,000 (To adjust the net asset accounts for the effect of depreciation. Note: Depreciation Expense was closed to Net Assets—Unrestricted, this transaction removes the depreciation effect from Net Assets— Unrestricted and properly places the effect in the Net Assets—Invested in Capital Assets, Net of Related Debt.) 2. NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT 2,610 NET ASSETS—UNRESTRICTED 3. NET ASSETS—UNRESTRICTED 2,610 52,000 NET ASSETS—RESTRICTED 52,000 (Note: Construction Work in Progress is offset by the debt issued for construction. The remainder of the bond has not been used for its intended purpose—construction of the asset; therefore, it is restricted for future use.) 4. NET ASSETS—UNRESTRICTED 25,000 NET ASSETS—RESTRICTED 5. 25,000 NET ASSETS—UNRESTRICTED 5,000 NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT 5,000 7-22 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont'd) 7-6. a. CITY OF DALTON PARKING FACILITIES FUND STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2011 OPERATING INCOME: CHARGES FOR SERVICES $1,640,261 OPERATING EXPENSES: PERSONNEL EXPENSE $852,380 DEPRECIATION EXPENSE 578,861 UTILITIES EXPENSE 100,726 REPAIR AND MAINTENANCE EXPENSE 64,617 SUPPLY EXPENSE 17,119 TOTAL OPERATING EXPENSES 1,613,703 OPERATING INCOME 26,558 NONOPERATING REVENUE/EXPENSES: INTEREST INCOME 251,480 ( 874,909) INTEREST EXPENSE TOTAL NONOPERATING INCOME (EXPENSE) INCOME (LOSS) BEFORE TRANSFERS (623,429) (596,871) TRANSFERS OUT ( 11,409) CHANGE IN NET ASSETS (608,280) NET ASSETS, JANUARY 1, 2011 6,649,638 NET ASSETS, DECEMBER 31, 2011 $6,041,358 7-23 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-6 (Cont'd) b. CITY OF DALTON PARKING FACILILTIES FUND STATEMENT OF NET ASSETS AS OF DECEMBER 31, 2011 ASSETS: CURRENT ASSETS: CASH $ 869,168 ACCOUNTS RECEIVABLE (NET OF $72 IN ALLOWANCE FOR DOUBTFUL ACCOUNTS) 3,535 TOTAL CURRENT ASSETS $ 872,703 RESTRICTED CASH AND CASH EQUIVALENTS 993,322 CAPITAL ASSETS: LAND 3,021,637 BUILDINGS AND EQUIPMENT $23,029,166 LESS: ALLOWANCE FOR DEPRECIATION (5,623,315) 17,405,851 TOTAL CAPITAL ASSETS 20,427,488 TOTAL ASSETS 22,293,513 LIABILITIES: CURRENT LIABILITIES: ACCOUNTS & ACCRUED PAYABLES 312,830 6-MONTH NOTE PAYABLE 360,000 TOTAL CURRENT LIABILITIES 672,830 NONCURRENT LIABILITIES: BONDS PAYABLE 15,579,325 TOTAL LIABILITIES 16,252,155 7-24 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-6 (Cont'd) NET ASSETS: NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT 4,848,163 NET ASSETS—RESTRICTED 1,101,996 NET ASSETS—UNRESTRICTED 91,199 TOTAL NET ASSETS c. $6,041,358 CITY OF DALTON PARKING FACILITIES FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: CASH RECEIVED FROM CUSTOMERS $1,640,155 CASH PAID TO: EMPLOYEES $(750,828) SUPPLIERS (365,137) (1,115,965) NET CASH PROVIDED BY OPERATIONS $524,190 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: TRANSFER TO GENERAL FUND (11,409) CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES: PROCEEDS FROM SALE OF CAPITAL ASSETS 4,725 PRINCIPAL PAID ON CAPITAL DEBT (500,000) INTEREST PAID ON CAPITAL DEBT (874,909) NET CASH USED BY FINANCING ACTIVITIES (1,370,184) CASH FLOWS FROM INVESTING ACTIVITIES: INTEREST RECEIVED ON INVESTMENTS NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, 1/1/2011 7-25 251,480 (605,923) 2,468,413 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments CASH AND CASH EQUIVALENTS, 12/31/2011 $1,862,490 Ch. 7, Solutions, 7-6 (Cont'd) RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET END OF YEAR CASH AND CASH EQUIVALENTS IN CURRENT AND ACCRUED ASSETS RESTRICTED CASH AND CASH EQUIVALENTS TOTAL CASH AND CASH EQUIVALENTS BEGINNING OF YEAR $ 869,168 993,322 $1,862,490 $1,625,091 843,322 $2,468,413 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 26,558 ADJUSTMENTS: DEPRECIATION EXPENSEMACHINERY & EQUIPMENT 578,861 INCREASE IN ACCOUNTS RECEIVABLE (106) (81,123) DECREASE IN ACCOUNTS AND ACCRUED PAYABLE NET CASH PROVIDED BY OPERATING ACTIVITIES 7-7. a. $524,190 TOWN OF ELIZABETH CENTRAL STATION FUND GENERAL JOURNAL Debits 1. ACCOUNTS RECEIVABLE Credits 94,444 RENTAL SALES 94,444 CASH 90,210 ACCOUNTS RECEIVABLE 90,210 2. ADMINISTRATIVE SERVICES EXPENSE MAINTENANCE & REPAIRS EXPENSE SUPPLIES & MATERIALS EXPENSE UTILITIES EXPENSE 25,205 72,882 7,792 30,124 CASH 136,003 7-26 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-7 (Cont’d) Debits 3. CASH Credits 60,000 INTERFUND TRANSFER IN 60,000 4. DEPRECIATION EXPENSE 3,519 PROVISION FOR UNCOLLECTIBLE ACCOUNTS 667 ALLOWANCE FOR DEPRECIATION 3,519 ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS 5. RENTAL SALES 667 94,444 INTERFUND TRANSFER IN 60,000 ADMINISTRATIVE SERVICES EXPENSE 25,205 MAINTENANCE & REPAIRS EXPENSE 72,882 SUPPLIES & MATERIALS EXPENSE UTILITIES EXPENSE 7,792 30,124 DEPRECIATION EXPENSE 3,519 PROVISION FOR UNCOLLECTIBLE ACCOUNTS NET ASSETS—UNRESTRICTED 667 14,255 7-27 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-7 (Cont’d) b. TOWN OF ELIZABETH CENTRAL STATION FUND STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2011 OPERATING REVENUES: RENTAL INCOME (NET $667 PROVISION FOR UNCOLLECTIBLE ACCOUNTS) $ 93,777 OPERATING EXPENSES: ADMINISTRATIVE SERVICES $ 25,205 MAINTENANCE AND REPAIR 72,882 SUPPLIES AND MATERIALS 7,792 UTILITIES 30,124 DEPRECIATION 3,519 TOTAL OPERATING EXPENSES 139,522 OPERATING INCOME (LOSS) (45,745) TRANSFERS IN 60,000 CHANGE IN NET ASSETS 14,255 TOTAL NET ASSETS, OCTOBER 1, 2010 60,129 TOTAL NET ASSETS, SEPTEMBER 30, 2011 c. $ 74,384 No. There is no payment of interest by the central station fund, so it would appear there is no long-term debt. Thus, the activity of the fund is not financed with debt secured by the central station fund’s revenues. The central station fund is not currently covering the cost of providing services with the revenues it generates, having operated at a loss in the current 7-28 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-7 (Cont'd) year. At least based on the current year’s operations, it does not appear that there is a law requiring the central station fund to recover its costs with user charges. Additionally, it does not appear that the pricing policy is designed to recover all costs of the central station fund given the size of the current year’s operating loss (approaching 50% of operating revenues). d. As manager, you may want to know what if any circumstances resulted in such a sizable operating loss. For example, were there a large number of vacancies, and if so why? Traditionally, what type of support has the general fund provided the central station fund and why? If the central station fund is to be operated as a business, the pricing policy needs to be adjusted to ensure costs are recovered. If there are reasons why the government has decided not to recover costs, consideration needs to be given to dissolving the fund and transferring the activities to the general fund or closing/selling the central station. Since a large amount of support is being provided by taxpayers in the form of general fund revenues, it may be more appropriate to reflect the additional burden created by the central station in the general fund financial statements. 7-29 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions (Cont'd) 7-8. a. CITY OF BAY LAKE WATER UTILITY FUND GENERAL JOURNAL Debits 1. SALES OF WATER 500,000 ACCRUED UTILITY REVENUE 2. 500,000 ACCOUNTS RECEIVABLE 2,788,691 DUE FROM GENERAL FUND 193,866 SALES OF WATER 3. 2,982,557 CASH 260,000 INTEREST INCOME 178,000 ACCRUED INTEREST RECEIVABLE 4. 82,000 MANAGEMENT & ADMINISTRATION EXPENSE 360,408 MAINTENANCE & DISTRIBUTION EXPENSE 689,103 TREATMENT PLANT EXPENSE 695,237 ACCOUNTS PAYABLE 5. 1,744,748 CASH—RESTRICTED 2,427 CUSTOMER DEPOSITS 6. Credits 2,427 CASH 2,943,401 ACCOUNTS RECEIVABLE 2,733,870 DUE FROM GENERAL FUND 209,531 7-30 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-8, (Cont'd) Debits 7. ACCOUNTS PAYABLE 1,462,596 ACCRUED INTEREST PAYABLE 131,772 INTEREST EXPENSE 264,145 CURRENT PORTION OF LONG-TERM DEBT 400,000 MACHINERY & EQUIPMENT 583,425 CUSTOMER DEPOSITS 912 CASH 2,841,938 CASH—RESTRICTED 8. 912 CASH 475,000 CONTRIBUTION—CAPITAL GRANT 9. 475,000 ACCUMULATED PROVISION FOR UNCOLLECTIBLE ACCOUNTS 10,013 ACCOUNTS RECEIVABLE 10. 10,013 INTERFUND TRANSFER OUT 800,000 CASH 11. Credits 800,000 DEPRECIATION EXPENSE 600,132 UNCOLLECTIBLE ACCOUNTS 14,913 INTEREST EXPENSE 61,406 ACCUMULATED DEPRECIATION—BUILDINGS 240,053 ACCUMULATED DEPRECIATION—MACHINERY & EQUIPMENT 360,079 ACCUMULATED PROVISION FOR UNCOLLECTIBLE ACCOUNTS ACCRUED INTEREST PAYABLE 7-31 14,913 61,406 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-8, (Cont'd) Debits ACCRUED UTILITY REVENUE Credits 700,000 ACCRUED INTEREST RECEIVABLE 15,849 SALES OF WATER INTEREST INCOME 12. 700,000 15,849 REVENUE BOND PAYABLE 400,000 CURRENT PORTION OF LONG-TERM DEBT 13. SALES OF WATER 400,000 3,182,557 INTEREST INCOME 193,849 CONTRIBUTION—CAPITAL GRANT 475,000 MANAGEMENT & ADMINISTRATION EXPENSE 360,408 MAINTENANCE & DISTRIBUTION EXPENSE 689,103 TREATMENT PLANT EXPENSE 695,237 INTERFUND TRANSFERS OUT 800,000 INTEREST EXPENSE 325,551 DEPRECIATION EXPENSE 600,132 UNCOLLECTIBLE ACCOUNTS 14,913 NET ASSETS—UNRESTRICTED NET ASSETS—UNRESTRICTED NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT* 366,062 383,293 383,293 *Invested in Capital Assets, Net of Related Debt was increased by the purchase of $583,425 of machinery and equipment and a $400,000 decrease in the revenue bonds. The account was decreased by $600,132 in depreciation. 7-32 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-8, (Cont'd) b. CITY OF BAY LAKE WATER UTILITY FUND STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 OPERATING INCOME: SALES OF WATER (NET OF $14,913 PROVISION FOR UNCOLLECTIBLE ACCOUNTS) $3,167,644 OPERATING EXPENSES: MANAGEMENT & ADMINISTRATION $ 360,408 MAINTENANCE & DISTRIBUTION 689,103 TREATMENT PLANT 695,237 DEPRECIATION 600,132 TOTAL OPERATING EXPENSES 2,344,880 OPERATING INCOME 822,764 NONOPERATING REVENUE/EXPENSES: INTEREST INCOME 193,849 ( 325,551) INTEREST EXPENSE TOTAL NONOPERATING INCOME (EXPENSE) (131,702) INCOME BEFORE TRANSFERS & CONTRIBUTIONS 691,062 INTERFUND TRANSFERS OUT (800,000) CAPITAL CONTRIBUTIONS 475,000 CHANGE IN NET ASSETS 366,062 NET ASSETS, JULY 1, 2010 5,513,127 NET ASSETS, JUNE 30, 2011 $5,879,189 7-33 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-8, (Cont'd) c. CITY OF BAY LAKE WATER UTLITY FUND STATEMENT OF NET ASSETS JUNE 30, 2011 ASSETS: CURRENT ASSETS: CASH AND INVESTMENTS $ 1,811,482 ACCOUNTS RECEIVABLE (NET OF $18,267 PROVISION FOR UNCOLLECTIBLE ACCOUNTS) 346,777 ACCRUED UTILITY REVENUE 700,000 DUE FROM GENERAL FUND 13,646 ACCRUED INTEREST RECEIVABLE 15,849 TOTAL CURRENT ASSETS $ 2,887,754 RESTRICTED ASSETS: CASH 10,708 CAPITAL ASSETS: LAND $1,780,945 BUILDINGS (NET OF $3,660,053 IN ACCUMULATED DEPRECIATION 4,974,354 MACHINERY AND EQUIPMENT (NET OF $5,490,007 IN ACCUMULATED DEPRECIATION) 8,711,741 TOTAL CAPITAL ASSETS 15,467,040 TOTAL ASSETS 18,365,502 LIABILITIES: CURRENT LIABILITIES: ACCOUNTS PAYABLE 814,199 ACCRUED INTEREST PAYABLE 61,406 CURRENT PORTION OF LONG-TERM DEBT TOTAL CURRENT LIABILITIES 400,000 1,275,605 Ch. 7, Solutions, 7-8, (Cont'd) 7-34 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments LABILITIES PAYABLE FROM RESTRICTED ASSETS: CUSTOMER DEPOSITS 10,708 LONG-TERM LIABILITIES: REVENUE BOND PAYABLE 11,200,000 TOTAL LIABILITIES 12,486,313 NET ASSETS: NET ASSETS—INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT 3,867,040 NET ASSETS—UNRESTRICTED 2,012,149 TOTAL NET ASSETS d. $ 5,879,189 CITY OF BAY LAKE WATER UTILITY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: CASH RECEIVED FROM CUSTOMERS $2,943,401 CASH PAID TO: EMPLOYEES AND SUPPLIERS ( 1,462,596) NET CASH PROVIDED BY OPERATIONS $1,480,805 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: TRANSFER TO GENERAL FUND (800,000) CUSTOMER DEPOSITS 1,515 NET CASH USED BY NONCAPITAL FINANCING ACTIVITIES (798,485) 7-35 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Solutions, 7-8, (Cont'd) CASH FLOWS FROM CAPITAL & RELATED FINANCING ACTIVITIES: PROCEEDS FROM CAPITAL GRANT 475,000 PUCHASE OF MACHINERY & EQUIPMENT (583,425) PRINCIPAL PAID ON CAPITAL DEBT (400,000) INTEREST PAID ON CAPITAL DEBT (395,917) NET CASH USED BY FINANCING ACTIVITIES (904,342) CASH FLOWS FROM INVESTING ACTIVITIES: INTEREST RECEIVED ON INVESTMENTS 260,000 NET INCREASE IN CASH AND CASH EQUIVALENTS 37,978 CASH AND CASH EQUIVALENTS, JULY 1, 2010 1,775,019 CASH AND CASH EQUIVALENTS, JUNE 30, 2011 $1,812,997 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET END OF YEAR CASH AND CASH EQUIVALENTS IN CURRENT AND ACCRUED ASSETS RESTRICTED CASH AND CASH EQUIVALENTS TOTAL CASH AND CASH EQUIVALENTS BEGINNING OF YEAR $1,811,482 10,708 $1,822,190 $1,775,019 9,193 $1,784,212 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 822,764 ADJUSTMENTS: DEPRECIATION EXPENSEMACHINERY & EQUIPMENT UNCOLLECTIBLE ACCOUNTS 600,132 4,900 INCREASE IN ACCOUNTS RECEIVABLE (44,808) INCREASE IN ACCRUED UTILITY REVENUE (200,000) DECREASE IN DUE FROM GENERAL FUND 15,665 INCREASE IN ACCOUNTS AND ACCRUED PAYABLE NET CASH PROVIDED BY OPERATING ACTIVITIES Ch. 7, Solutions, (Cont'd) 7-36 282,152 $1,480,805 Chapter 07 - Accounting for the Business-type Activities of State and Local Governments 7-9. Some of the errors noted include: • If there are major enterprise funds, they should be reported in separate columns with all non-major enterprise funds reported in a column headed “other enterprise funds.” The “total enterprise funds” column would be shown after the “other enterprise funds” column. • There should not be a total column that combines internal service funds and enterprise funds. Internal service funds and enterprise funds are not combined since at the government-wide level only enterprise funds are generally reported as business-type activity. • GASB requires that operating and nonoperating revenues and expenses be identified. Investment income would generally be considered nonoperating revenue. Interest expense would generally be considered nonoperating expense. Loss on disposal of capital assets would be considered a nonoperating expense. • A transfer out would be shown in a section after the total of nonoperating revenues/expenses. • The special item should appear right before the change in net assets and after the transfer out. 7-10. 1. D 6. C 2. B 7. B 3. A 8. A 4. A 9. D 5. C 10. C 7-37 ...
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