Ives_SM_ch01_1 - Governmental ACCT

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Chapter 1 End of Chapter Materials Solutions REVIEW QUESTIONS Q 1 – 1 Not-for-profit organizations: (a) receive contributions of significant amounts of resources from resource providers who do not expect equivalent pecuniary return; (b) operate for purposes other than to provide goods and services at a profit; and (c) lack ownership interests like those of a business enterprise. Q 1 – 2 Governmental entities include: the federal government; general-purpose political subdivisions (such as states, counties, cities, and towns); special-purpose political subdivisions (such as school districts); and public corporations and bodies corporate and politic (such as state-operated toll roads and toll bridges). Other organizations created by governments by statute or under not-for-profit corporation laws are governmental if they possess one or more of the following characteristics: a. Their officers are popularly elected or a controlling majority of their governing body is appointed or approved by governmental officials; b. They have the power to enact and enforce a tax levy; c. They have the power to directly issue debt whose interest is exempt from federal tax; or d. There is a potential for a government to dissolve them unilaterally and assume their assets and liabilities. Q 1 – 3 Major environmental characteristics of governmental and not-for-profit organizations are: a. Organizational purposes . Governmental and not-for-profit entities exist to provide services to their constituents, not to maximize profits. A reported excess of revenues over expenditures does not mean that they have made a profit, have operated efficiently, or have served their constituents effectively. Therefore, financial reporting for these entities requires an emphasis on accountability. b. Sources of revenue and relationship with stakeholders . Governments derive revenues primarily from taxpayers. Individual taxpayers are involuntary resource providers whose tax payments may or may not bear a direct relationship to the services they want or need. Not- for-profit entities obtain significant resources from donors who receive no service or product in exchange, but who nonetheless are concerned with whether their donations are achieving the intended purposes. These relationships again emphasize a need for reporting models that emphasize accountability. c. Potential for longevity . Business enterprises are at risk of going out of business or being bought out. Governments, on the other hand, tend to exist in perpetuity because of the nature of the services they provide. This has caused governmental accounting standards-setters to take a longer term perspective regarding certain measurements. d.
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This note was uploaded on 11/20/2011 for the course ACCOUNTING Government taught by Professor Turn during the Spring '11 term at University of Houston.

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Ives_SM_ch01_1 - Governmental ACCT

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