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Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-1 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CHAPTER 2: PRINCIPLES OF ACCOUNTING AND FINANCIAL
REPORTING FOR STATE AND LOCAL
GOVERNMENTS
OUTLINE
Number Topic Type/Task Status
(re: 16/e)
Questions:
2-1 Service activities categories Identify New 2-2 Reporting objectives Describe New 2-3 Modified accrual accounting Explain New 2-4 Fund categories Identify Revised 2-5 Purpose of funds Explain New 2-6 Deferred inflows and outflows of resources Define New 2-7 Expenses/Expenditures Identify New 2-8 Proprietary fund accounting Explain New 2-9 Fund balance classifications Identify New 2-10 Major fund criteria Identify Same
Cases:
2-11 Accounting and reporting principles Analysis Revised 2-12 Evaluation of basic financial statements Evaluate Same 2-13 Fund balance classifications Describe New
Exercises/Problems:
2-14 Examine the CAFR Examine Revised 2-15 Various Multiple Choice Items 1,3, 5, and 6 are new; other items are same 2-16 Matching fund types with fund categories Identify 2-4 2-17 Matching government-wide and fund financial Match 2-5 revised reporting characteristics 2-18 Matching transactions with funds Match 2-6 2-19 Fund balance classifications Analyze 9-5 revised 2-20 Determination of major funds Analysis; calculate 2-7 Accounting for Governmental and Nonprofit Entities 17th Edition Reck Solutions Manual Visit TestBankDeal.com to get complete for all chapters
Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-2 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CHAPTER 2: PRINCIPLES OF ACCOUNTING AND FINANCIAL
REPORTING FOR STATE AND LOCAL
GOVERNMENTS
Answers to Questions
2-1. The three categories of broad service activities of a general purpose government are governmental, business-type, and fiduciary. Governmental activities include administrative support and core government services. Business-type activities are activities that are generally intended to be self-supporting, such as public utilities.Fiduciary activities are those where the government acts as a trustee or agent for parties outside the government.
General Problem Information: Service activities categories
Learning Objective: 2-1
Topic: Activities of Government
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry
Level of Difficulty: Easy
2-2. The primary objective of government-wide financial reporting is to report on the government’s operational accountability so that users can evaluate whether the government is covering the cost of its services over the long run. Additionally, recall from Chapter 1 that operational accountability relates to how efficiently and effectively the government is using its resources in meeting its objectives. The objective of governmental fund financial reporting is to report on the government’s fiscal accountability. Thus, governmental fund financial reporting helps users evaluate the short run objective of whether financial resources were raised and spent in accordance with legal and budgetary restrictions. As can be seen from the objectives, the focus of the government-wide statements tends to be more long run and related to cost of services; whereas, the governmental fund financial statements tends to be short run and related to whether costs for services were incurred in accordance with restrictions.
General Problem Information: Reporting objectives
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry
Level of Difficulty: Medium
2-3. The modified accrual basis of accounting records revenues when they are measurable and available for use in paying current period obligations, while expenditures are recorded when an obligation has been incurred that will be paid from current financial resources.Because governmental fund financial statements focus on fiscal accountability, this basis of accounting allows for a focus on current sources and uses of financial resources as opposed to the more long-term view provided by accrual accounting.
Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-3 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Ch. 2, Answers, Question 2-3 (Cont’d)
General Problem Information: Modified accrual accounting
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
2-4. The three categories of funds are governmental, proprietary, and fiduciary. The fund
types included in each category are shown below:
Governmental Proprietary Fiduciary General Fund Special revenue funds Debt service funds Capital projects funds Permanent funds Enterprise funds Internal service funds Agency funds Investment trust funds Pension (and other employee benefit) trust funds Private-purpose trust funds
The basis of accounting used by governmental funds is modified accrual. Proprietary funds use the accrual basis of accounting as do fiduciary funds.
General Problem Information: Fund categories
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
2-5. Governmental accounting systems must provide both reporting in accordance with GAAP and reporting to determine and demonstrate compliance with finance-related legal and contractual requirements. To ensure that both GAAP and compliance reporting requirements are met, a separate accounting mechanism is used. The mechanism that is used is fund accounting, which makes it possible to ensure that the compliance reporting requirement is met.
A fund is a separate reporting entity that may be established by imposition of grant or contract provisions by external parties, by constitutional provisions or legislation, or by discretionary action of the reporting government.
General Problem Information: Purpose of funds
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Understand
Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-4 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Ch. 2, Answers, Question 2-5 (Cont’d)
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
2-6. Deferred outflows of resources are resources that have been consumed but are applicable to a future reporting period (e.g., costs related to a debt refunding). Deferred outflows increase net position. Deferred inflows of resources are resources that have been acquired but are applicable to a future period (e.g. resources received but unavailable for use until a future period). Deferred inflows decrease net position. These accounts, used only when required by a GASB standard, represent timing differences between the actual outflow or inflow of cash and the time period to which they apply.
General Problem Information: Deferred inflows and outflows of resources
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
2-7 Expenditures report actual outlays of funds, whether for an operating cost or the purchase of an asset. Expenses focus on costs necessary to generate revenues or fund operations, and may be a result of the using up or expiration of an asset, even if no cash was paid out.
General Problem Information: Expenses/Expenditures
Learning Objective: 2-2
Topic: Financial Reporting Model
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
2-8. Both enterprise funds and internal service funds are classified as proprietary funds. These two types of funds are operated in a manner similar to for-profit businesses. The reasons they are operated similar to for-profit businesses is because of the types of customers they serve and the fact that they are largely self-supporting. Enterprise funds are used for activities where services are provided to and paid for by the public. Internal service funds are used for centralized types of activities, where services are provided to and reimbursed by other governmental units.
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