ACIS+4124+5124+Solutions+Chapter+7

ACIS+4124+5124+Solutions+Chapter+7 - Chapter 07 -...

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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 7-1
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments Ch. 7, Answers, Question 7-4 (Cont’d)
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This note was uploaded on 03/28/2012 for the course ACIS 4124 taught by Professor Dr.easterwood during the Spring '12 term at Virginia Tech.

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ACIS+4124+5124+Solutions+Chapter+7 - Chapter 07 -...

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