advanced accounting Chapter 18Solution Manual.docx
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advanced accounting Chapter 18Solution Manual.docx
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advancedaccountingChapter18SolutionManual
CHAPTER18
GOVERNMENTALENTITIES:
SPECIALFUNDSAND
GOVERNMENT-WIDEFINANCIALSTATEMENTS
ANSWERSTOQUESTIONS
Q18-1 Agovernmentalentitywoulduseaspecialrevenuefundratherthanageneralfundwhentheresourcesearmarkedforthefund,suchasfederalorstategovernmentgrantsorspecialtaxlevies,arerestrictedforspecificpurposes.
Q18-2 Operatingbudgetsarepreparedforthegeneralfund,specialrevenuefunds,anddebtservicefund.Capitalbudgetsarepreparedforthecapitalprojectsfund.
Q18-3 Interestonlong-termdebtisaccountedforinthedebtservicefundforonlytheinterestthatisdueandlegallypayableasanexpenditure.Interestisnotaccruedontheoutstandingbalanceofthelong-termdebt.
Q18-4 Themajordifferencesbetweenaspecialrevenuefundandanenterprisefundare
SpecialRevenue
Enterprise
Fund
Fund
Measurementfocus
Currentfinancialresources
Economicresources
Accountingbasis
Modifiedaccrual
Accrual
Budgetarybasis
Operatingbudget
Nonerequired
Long-termassets
No
Yes
Long-termdebt
No
Yes
Encumbrances
Yes
No
Financialstatements
Governmentaltype
Commercialtype
Q18-5 Thebasisofaccountingusedintheproprietaryfundsistheaccrualbasisbecausethefocusofthegovernmentalentityisoncapitalmaintenanceandincomedeterminationratherthanbudgetaryspendingauthority.
Q18-6 Thefinancialstatementsthatmustbepreparedforthegovernmentalfundsarethebalancesheetandthestatementofrevenues,expenditures,andchangesinfundbalances.Thefinancialstatementsthatmustbepreparedfortheenterprisefundsarethestatementofnetassets,thestatementofrevenues,expenses,andchangesinfundnetassets,andthestatementofcashflows.
Q18-7 Proceedsfromabondissueareaccountedforasanotherfinancingsourceinthefundthatissuedthebonds.However,somegovernmentshaveapolicythatthecapitalprojectsfundmaynotkeepanybondpremium,inwhichcasethebondpremiumistypicallytransferredtoadebtservicefund.Otherfinancingsourcesandusesarereportedseparatelybelowoperations,butabovespecialitems,onthegovernmentalfunds’statementofrevenues,expenditures,andchangesinfundbalance.
Q18-8 Apermanentfundisagovernmentalfundforwhichtheprincipalismaintained,buttheincomeinthefundcanbeusedbythegovernmentforitsprogramsthatbenefitallofitscitizens.Thebasisofaccountinginpermanentfundsisthemodifiedaccrualmethod.Private-purposetrustfundsareestablishedtobenefitspecificindividualsororganizations,asspecifiedbythedonor.Theseprivate-purposetrustfundsmayhaveanexpendableprincipal,ortheprincipalmaybenon-expendable.Theaccrualbasisofaccountingisusedforprivate-purposefunds.Thus,amajordifferencebetweenthesefundsisthespecificityofwhothebeneficiariesofthefundare.
Q18-9 GASB34specifiesthatonlygovernmentalandenterprisefundsdeterminedtobe“major”fundsneedtobeseparatelydisclosedintheirowncolumnsinthefundfinancialstatements.Therearetwoteststodeterminewhichindividualgovernmentalandenterprisefundsareconsideredmajoriftheymeetbothtests.Thegeneralfundisalwaysconsideredamajorfund.Thefirsttestistotalassets,liabilities,revenues,orexpenditures/expensesofthatindividualfundareatleast10percentormoreofthegovernmentalorenterprisecategory.Thesecondtestisthattotalassets,liabilities,revenues,orexpenditures/expensesoftheindividualgovernmentalorenterprisefundareatleast5percentofthetotalforallgovernmentalandenterprisefundscombined.Anyindividualfundsthatarenotconsideredmajorareaggregatedandpresentedinasinglecolumn.Managementmay,atanytime,separatelydiscloseeventhosenon-majorfundsforwhichtheyfeeltheadditionaldisclosurewillprovideinformationvaluabletothereadersofthefinancialstatements.
Q18-10 Becausethemeasurementfocusofthegovernmentalfundsisoncurrentfinancialresources,revenuewouldberecognizedinthegovernmentalfundsonlyifthedonateditemsareavailabletofinanceexpendituresofthecurrentperiod,Forexample,donatedlandwouldbeincludedincontributionrevenueofagovernmentalfundifthelandwassold,orthegovernmenthasenteredintoacontracttoselltheland,andthattheproceedsfromthesalewillbeavailabletofinanceexpendituresofthecurrentperiod.However,adonationtoagovernmentalfund,intheformoffinancialresourcesorcapitalassets,thathasarestrictionimposedbythedonorwhichmakesthedonationunavailabletofinancecurrentexpenditures,isnotincludedinthegovernmentalfund’sfinancialstatements.Ofcourse,onthegovernment-widestatementofactivities,alldonationswouldbeshown,atfairvalueonaseparatelinebelowgeneralrevenues.Specifically,endowmentandpermanentfundprincipaldonationsarereportedbelowgeneralrevenuesandabovespecialandextraordinaryitems.
Onthegovernmentalfundsfinancialstatements,specialandextraordinaryitemsarereportedbelowoperations,butabovethenetchangeinfundbalanceline,inthestatementofrevenues,expenditures,andchangesinfundbalance.Specialitemsarethosesignificanttransactionswithinthecontrolofmanagementthatareeitherunusualinnatureorinfrequentinoccurrence.Extraordinaryitemsaretransactionsoreventsthatarebothunusualandinfrequentinoccurrence.
Q18-11 Agencyfundsmustbeself-balancingwithassetsequalingliabilities.Therefore,agencyfundsdonothaveanetfundbalance.
Q18-12 Componentunitsareseparategovernmententitiesforwhichtheprimarygovernmentisfinanciallyaccountable.Thefinancialpresentationofthesecomponentunitsisdependentontheseparabilityfromtheprimarygovernment.Ifthecomponentunitisvirtuallyinseparable,thenthecomponentunit’sfinancialinformationisblendedintotheprimarygovernment’sfinancialstatements.However,ifthecomponentunitisdistinguishable,andhasitsowntaxingauthority,thenthecomponentunit’sfinancialinformationispresentedinaseparatecolumninthegovernment-widefinancialstatements.
Q18-13 TworeconciliationschedulesarerequiredbyGASB34.Thefirstreconcilesthefundbalancesreportedinthegovernmentalfundstothenetassetsofgovernmentalactivitiesreportedonthegovernment-widefinancialstatements.Forexample,internalservicefundsarenotagovernmentalfund,buttheaccountsforinternalservicefundsareblendedintothegovernmentalactivitiesthatarereportedonthegovernment-widefinancialstatements.Thesecondreconciliationschedulereconcilesthenetchangeinfundbalancesreportedinthegovernmentalfundsstatementstothechangeinnetassetsreportedinthegovernment-widefinancialstatements.ThesetworeconciliationschedulesarerequiredbyGASB34tobepresentedeitheronthefaceofthefundfinancialstatementsorinaseparatescheduleimmediatelyfollowingthefundfinancialstatements.
Q18-14 Thebudgetarycomparisonschedulereports,forthegeneralfundandanyothergovernmentalfundthathasalegallyadoptedbudget,theinitiallyapprovedbudget,thefinalbudgetoftheyear,andtheactualamounts,foreachlineiteminthestatementofrevenues,expenditures,andchangesinfundbalance.Avariancecolumnmayalsobeusedtocomparetheactualagainstthefinalbudget.Thisbudgetarycomparisonscheduleispartoftherequiredsupplementaryinformation(RSI)requiredbyGASB34.GASB41amendedGASB34forthosegovernmentsthatdonotusethegeneralfundandspecialrevenuefundstructurespecifiedinGASB34fortheirbudgetarypurposes.GASB41specifiedthatthosegovernmentswithsignificantperspectivedifferencesshouldprovideabudgetarycomparisonscheduleintheRSIbasedonthestructurethegovernmentusedforitslegallyadoptedbudget.
Q18-15 Thegovernment-widefinancialstatementspresenttheinfrastructureassets,suchasroads,bridges,tunnels,sewerandwatersystems,etc.,andotherlong-termassetsofthegovernmententity,suchasbuildings,equipment,vehicles,etc.Thecapitalassetsshouldbereportedathistoricalcostorfairvalueatthetimeofdonation,ifdonated.Becausethebasisofaccountingforthegovernment-widefinancialstatementsistheaccrualmethod,depreciationisrecordedontheotherlong-termassetsandthesearereportednetofdepreciation.Forinfrastructureassets,thegovernmentalentitymayelecttouseamodifiedapproachinwhichdepreciationisnotrecorded.Themodifiedapproachrequiresanassessmentofthecurrentconditionoftheinfrastructureassetsandanestimateoftheannualamountrequiredtomaintainandpreservetheinfrastructureassets.Inaddition,thegovernment-widefinancialstatementspresentthegenerallong-termdebtobligationsofthegovernmentalentityatthepresentvalueofthedebtprincipalandfutureinterest,justascomputedundertheaccrualbasisofaccountingthatisusedforcommercialentities.
SOLUTIONSTOCASES
C18-1BasisofAccountingandReportingIssues
a.Intheaccrualbasisofaccounting,revenueshouldberecognizedintheaccountingperiodinwhichitisearnedandbecomesmeasurable.
Inthemodifiedaccrualbasisofaccounting,revenueshouldberecognizedintheaccountingperiodinwhichitbecomesbothmeasurableandavailabletofinanceexpendituresofthefiscalperiod."Available"meanscollectiblewithinthecurrentperiodorsoonenoughthereaftertobeusedtopaycurrentperiodliabilities.
b.Forthegeneralfund,themodifiedaccrualbasisofaccountingshouldbeu
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