Ch 7 answers contd 7 8 chapter 07 accounting for the

Ch. 7, Answers (Cont’d)
7-8

Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7.9. 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.
7.10.
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 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.
7-9

Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
Ch. 7, Solutions
Solutions to Cases
7-10

Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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. Furthermore, capital leases should be capitalized in a
proprietary fund. 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 position and statement of
revenues, expenses and changes in fund net position. Proprietary funds
also use contra-revenue accounts, rather than a bad debt
expense/expenditure. A look at the fund equity section of the balance