Chapter+7+HW+Solutions+to+Cases - Solutions to Cases 7-1....

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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
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This note was uploaded on 06/21/2011 for the course BUS-A 335 taught by Professor Trax during the Summer '11 term at IUPUI.

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Chapter+7+HW+Solutions+to+Cases - Solutions to Cases 7-1....

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