2-1. THE SOLUTION TO THIS AND THE FIRST EXERCISE OF CHAPTERS 1 AND 3 THROUGH 9

Chapter 02 - Overview of Financial Reporting for State and Local Governments 2-1 CHAPTER 2 Overview of Financial Reporting for State and Local Governments

2-1. THE SOLUTION TO THIS AND THE FIRST EXERCISE OF CHAPTERS 1 AND 3 THROUGH 9

WILL DIFFER FROM STUDENT TO STUDENT ASSUMING EACH HAS A DIFFERENT CAFR.

2-2.

A. A FINANCIAL REPORTING ENTITY IS A PRIMARY GOVERNMENT,

ORGANIZATIONS FOR WH ICH THE PRIMARY GOVERNMENT IS FINANCIALLY

ACCOUNTABLE, AND OTHER ORGANIZAT IONS FOR WHICH THE NATURE AND

SIGNIFICANCE OF THEIR RELATIONSHIP WITH THE PRIMARY GOVERNME NT

ARE SUCH THAT EXCLUS ION WOULD CAUSE THE REPORTING ENTITY'S

FINANCIAL STATEMENTS TO BE MISLEADING OR INCOMPLETE.

B. A PRIMARY GOVERNMENT IS A STATE GOVERNMENT OR GENERAL PURPOSE

LOCAL GOVERNMENT . AN EXAMPLE OF A PRIMARY GOVERNMENT WOULD BE

ANY STATE, MUNICIPALITY, OR COUNTY (GENERAL PURPOSE GOVE RNMENTS)

AND ANY SPECIAL-PURPOSE LOCAL GOVERN MENT THAT MEETS THE CERTAIN

CRITERIA. IN SOME STATES, SCHOOL DISRICTS ARE GENERALLY PRIMARY

GOVERNMENTS AS THE G OVERNING BOARDS ARE INDEPENDENTLY ELECTE D,

LEVY THEIR OWN TAXES, AND ARE FINANCIALLY INDEPENDENT.

C. A COMPONENT UNIT IS A LEGALLY SEPARATE ORGANIZATION FOR WHICH

THE ELECTED OFFICIALS OF THE PRIMARY GOVERNMENT ARE FINANCIA LLY

ACCOUNTABLE. IN ADDITION, A COMPONENT UNIT CAN BE ANOTHER

ORGANIZATION FOR WHI CH THE NATURE AND SIGNIFICANCE OF ITS

RELATIONSHIP WITH A PRIMARY GOVERNMENT ARE SUCH THAT EXCLUSION

WOULD CAUSE THE REPO RTING ENTITY'S FINANCIAL STATEMENTS TO BE

MISLEADING OR INCOMP LETE. AN EXAMPLE MIGHT BE A LIBRARY WITH A

SEPARATE BOARD APPOINTED BY A CITY COUNCIL AND IN WHICH THE CITY

COUNCIL MUST APPROVE ITS BUDGET AND MAKE UP ITS DEFICITS.

D. THE TWO PRIMARY METHO DS FOR REPORTING COMPONENT UNITS IN THE

FINANCIAL STATEMENTS OF A PRIMARY GOVERNMENT ARE BLENDING AND

DISCRETE PRESENTATION. BLENDING REPORTS THE COMPONENT UNIT AS

ONE OF THE FUNDS OF THE PRIMARY GOVERNMENT, WHICH THEN RESULTS IN

INCLUDING THE COMPON ENT UNIT AS PART OF THE BASIC FINANCIAL

STATEMENTS. BLENDING IS USED ONLY WHEN COMPONENT UNIT S ARE

SUFFICIENTLY INTERTWINED WITH THE PRIMARY GOVERNMENT THAT TH EY

ARE, IN SUBSTANCE, THE SAME AS THE PRIMARY GOVERNMENT. DISCRETE

PRESENTATION INVOLVE S REPORTING THE COMPONENT UNIT IN A COLUMN

TO THE RIGHT OF THE PRIMARY GOVERNMENT I N THE GOVERNMENT-WIDE

FINANCIAL STATEMENTS OF THE REPORTING ENTITY.

Essentials of Accounting for Governmental and Not-for-Profit Organizations 12th Edition Copley Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Chapter 02 - Overview of Financial Reporting for State and Local Governments 2-2 2-3.

A. THE THREE MAJOR SECTIONS OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT

ARE THE INTRODUCTORY, FINANCIAL, AND STATISTICAL SECTIONS.

B. THE GOVERNMENT-WIDE FINANCIAL STATEMENTS ARE THE STATEMENT OF NET

POSITION AND THE STATEMENT OF ACTIVITIES. GOVERNMENT-WIDE STATEMENTS

ARE PRESENTED USING THE ECONOMIC RESOURCES MEASUREMENT FO CUS AND THE

ACCRUAL BASIS OF ACCOUNTING.

C. THE GOVERNMENTAL FUND STATEMENTS ARE THE BALANCE SHEET AND THE

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES.

GOVERNMENTAL FUND STATEMENTS ARE PRESEN TED USING THE CURRENT

FINANCIAL RESOURCES MEASUREMENT FOCUS AN D MODIFIED ACCRUAL BASIS OF

ACCOUNTING.

D. THE PROPRIETARY FUND STATEMENTS ARE THE STATEMENT OF NET POSITION

(OR BALANCE SHEET), STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN

FUND NET POSITION, AND THE STATEMENT OF CASH FLOWS. THE PROPRIETARY

FUND STATEMENTS ARE PREPAR ED USING THE ECONOMIC RESOURCES

MEASUREMENT FOCUS AN D THE ACCRUAL BASIS OF ACCOUNTING.

E. THE FIDUCIARY FUND STATEMENTS ARE THE STATEMENT OF FIDUCIARY NET

POSITION AND THE STATEMENT OF CHANGES IN FIDUCIARY NET POSITION.

FIDUCIARY FUND STATEMENTS ARE PREPAR ED USING THE ECONOMIC RESOURCES

MEASUREMENT FOCUS AN D THE ACCRUAL BASIS OF ACCOUNTING.

• MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) IS CONSIDERED TO BE

REQUIRED SUPPLEMENTARY INFORMATION (RSI) AND IS PRESENTED IN THE

FINANCIAL SECTION AFTER THE AUDITOR'S REPORT. THE REMAINDER OF RSI IS

GENERALLY PRESENTED AFTER THE NOTES TO THE FINANCIAL STATEMENTS AND

INCLUDES (A) BUDGETARY COMPARISO N SCHEDULES, (B ) INFORMATION

REGARDING INFRASTRUC TURE ASSETS WHEN USING THE MODIFIED APPROACH (C)

SCHEDULES REQUIRED FOR DEFINED CONTRIBUTION PENSION PLANS, AND (D)

INFORMATION REQUIRED FOR EXTERNAL FINANCING POOLS.

Chapter 02 - Overview of Financial Reporting for State and Local Governments 2-3

2.4 THE GENERAL FUND IS ALWAYS CONSIDERED A MAJOR FUND. OTHER

GOVERNMENTAL FUNDS A RE CONSIDERED MAJOR WHEN BOTH OF THE FOLLOWING

CONDITIONS EXIST: (A) TOTAL ASSETS, LIABILITIES, REVENUES, OR EXPENDITURES

OF THAT INDIVIDUAL GOVERNMENTAL FUND CON STITUTE 10 PERCENT OF THE

TOTAL FOR THE GOVERN MENTAL FUNDS CATEGOR Y, AND (B) TOTAL ASSETS,

LIABILITIES, REVENUES, OR EXPENDITURES OF THAT INDIVIDUAL GOVERNM ENTAL

OR ENTERPRISE FUND ARE 5 PERCENT OF THE TOTAL OF THE GOVERNMENTA L AND

ENTERPRISE CATEGORIES, COMBINED. ADDITIONALLY, A GOVERNMENT MAY

DESIGNATE ANY FUND M AJOR IF REPORTING THAT FUND SEPARATELY W OULD BE

USEFUL. WHEN APPLYING THESE RULES, DEFERRED OUTFLOWS O F RESOURCES ARE

INCLUDED WITH ASSETS AND DEFERRED INFLOW S ARE INCLUDED WITH LIABILITIES.

AN ENTERPRISE FUND IS CONSIDERED MAJOR IF: (A) ASSETS, LIABILITIES,

REVENUES, OR EXPENSES ARE 10 PERCENT OR MORE OF THE TOTAL FOR ALL

ENTERPRISE FUNDS, AND (B) ITS ASSETS, LIABILITIES, REVENUES, OR EXPENSES ARE

5 PERCENT OR MORE OF THE TOTAL OF THE GOVERNMENTAL AND ENTERP RISE

CATEGORIES, COMBINED. WHEN APPLYING THESE RULES, DEFERRED OUTFLOWS O F

RESOURCES ARE INCLUD ED WITH ASSETS AND DEFERRED INFLOWS ARE INCLUDED

WITH LIABILITIES.

 OPERATING ACTIVITIES ARE THOSE ASSOCIATED WITH OPERATING INCO ME.

AS A RESULT, CASH FLOWS FROM INT EREST EXPENSE, INTEREST REVENUE

AND INVESTMENT INCOME DO NOT APPEAR IN THE OPERA TING ACTIVITIES

SECTION.

2-5 SEVERAL DIFFERENCES E XIST BETWEEN THE GASB FORMAT CASH FLOW

STATEMENT AND THE FASB FORMAT REQUIRED OF COMMERCIAL BUSINESSE S:

1) GASB REQUIRES GOVERNMENT S TO PREPARE CASH FLOWS FROM OPERATING

ACTIVITIES ON THE DIRECT METHOD.

2) THE RECONCILIATION OF INCOME TO CASH FLOW S FROM OPERATING

ACTIVITIES OF THE PROPRIETARY FUND, WHICH APPEARS IN TH E BOTTOM

SECTION OF THE STATE MENT, BEGINS WITH OPERATING INCOME, NOT NET

INCOME (OR TOTAL CHANGE IN NET POSITION).

3) THE STATEMENT HAS FOU R SECTIONS, RATHER THAN THE THR EE OBSERVED

IN FASB FORMAT STATEMENTS. THESE INCLUDE:

 NONCAPITAL RELATED FI NANCING ACTIVITIES INVOLVE THE BORROWING

AND PAYMENT (INCLUDING INTEREST) OF LOANS FOR PURPOSES OTHER THAN

FINANCING CAPITAL ADDITIONS – CHIEFLY, BORROWING FOR OPERA TIONS.

 CAPITAL AND RELATED F INANCING INCLUDE GRA NTS AND DEBT

TRANSACTIONS (INCLUDING INTEREST) USED TO FINANCE CAP ITAL

ADDITIONS.

 INVESTING ACTIVITIES INVOLVE THE ACQUISIT ION AND SALE OF

INVESTMENTS AS WELL AS CASH RECEIVED FROM INVESTMENT INCOME.

Chapter 02 - Overview of Financial Reporting for State and Local Governments 2-4

2-6. THE DIFFERENCE BETWEEN AS SETS AND LIABILITIES IS CALLED NET POSITION AND IS

REPORTED IN THREE CATEGORIES:

 NET INVESTMENT IN CAP ITAL ASSETS IS COMPUTED BY TAKI NG THE CAPITAL

ASSETS, LESS ACCUMULATED DE PRECIATION, AND DEDUCTING OUTST ANDING DEBT

THAT IS RELATED TO THE FINANCING OF CAPITAL ASSETS. LIABILITIES INCURRED

TO FINANCE OPERATION S (INCLUDING LONG-TERM LIABILITIES FOR COMPENSATED

ABSENCES OR EMPLOYEE BENEFITS) WOULD NOT BE DEDUCT ED.

 RESTRICTED NET POSITION INCLUDE RESOURCES T HAT ARE RESTRICTED BY: (A)

EXTERNAL PARTIES, INCLUDING CREDITORS, GRANTORS, CONTRIBUTORS, OR BY

LAWS OR REGULATIONS OF OTHER GOVERNMENTS , OR (2) LAWS OR

CONSTITUTIONAL PROVISIONS OF THE REPORTING GOVERNMENT.

 THE REMAINING AMOUNT , UNRESTRICTED NET POSITION, IS A “PLUG” FIGURE

THAT IS DETERMINED BY DEDUCT ING THE BALANCES OF THE OTHER TWO

CATEGORIES FROM THE OVERALL EXCESS OF ASSETS OVER LIABILITIES.