OF ACCOUNTING FOR - For ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND

1-1 S olution’s Manual With Test Bank For

ESSENTIALS

OF ACCOUNTING FOR

GOVERNMENTAL

AND

NOT-FOR-PROFIT ORGANIZATIONS:

14TH

EDITION

PREPARED BY:

PAUL

A. COPLEY

M

ARY L ORETTA MANKTELOW

All Chapters Solutions Manual Supplement

files download link at the end of Solutions Manual Part 1: Solutions’s Manual: Pages 1-282 Part 2: Test Bank : Pages 283-978 1 / 4

CHAPTER 1

Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations

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

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

1-2.

1)ORGANIZATIONAL PURPOSES: WHILE THE PURPOSE OF A COMMERCIAL BUSINESS

IS TO GENERATE A PROFIT FOR THE BENEFIT OF ITS OWNERS , GOVERNMENTS EXIST

FOR THE WELL BEING OF CITIZENS BY PROVIDING PUBLIC SERVICES – WHETHER OR

NOT THE SERVICES ARE PROFITABLE UNDERTAKINGS .

2)SOURCES OF REVENUES: GOVERNMENTS DERIVE MANY OF THEIR RESOURCES

FROM TAXES. INDIVIDUALS AND BUSINESSES PAY TAXES TO AVOID PENALTY , NOT

VOLUNTARILY BECAUSE THEY PERCEIVE GOVERNMENT SERVICES TO BE OF VALUE

AND FAIRLY PRICED. SINCE TAXES DO NOT INVOLVE AN EARNINGS PROCESS , THE

TIMING OF THE RECOGNITION OF TAX REVENUE IS NOT ALWAYS CLEAR .

3)POTENTIAL FOR LONGEVITY: BECAUSE THE U.S. AND STATE CONSTITUTIONS

GRANT STATE AND LOCAL GOVERNMENTS THE ABILITY TO TAX , GOVERNMENTS

VERY RARELY GO OUT OF BUSINESS. THIS LONG-TERM VIEW OF OPERATIONS

CHANGES THE FOCUS OF ACCOUNTING FROM ONE OF NEAR -TERM RECOVERY OF

AMOUNTS INVESTED IN ASSETS TO A LONGER -TERM FOCUS ON THE SUSTAINABILITY

OF SERVICES AND THE ABILITY TO MEET FUTURE DEMAND .

4)RELATIONSHIP WITH STAKEHOLDERS: TAXES ARE CREATED THROUGH THE

LEGISLATIVE PROCESS BY OFFICIALS ELECTED BY THE CITIZENS . BECAUSE CITIZENS

AND BUSINESSES ARE THEN REQUIRED TO PAY THESE TAXES , GOVERNMENTS HAVE

AN OBLIGATION TO DEMONSTRATE ACCOUNTABILITY FOR THESE PUBLIC FUNDS .

5)ROLE OF THE BUDGET: GOVERNMENT BUDGETS ARE EXPRESSIONS OF PUBLIC

POLICY AND OFTEN CARRY THE AUTHORITY OF LAW , PREVENTING PUBLIC OFFICIALS

FROM SPENDING OUTSIDE THEIR BUDGETARY AUTHORITY . THE INCREASED

IMPORTANCE OF BUDGETS IS REFLECTED IN GOVERNMENT FINANCIAL REPORTS BY A

REQUIRED REPORT COMPARING BUDGETED AND ACTUAL AMOUNTS .

1-3.THE THREE STANDARDS SETTING BODIES IN QUESTION ARE THE FEDERAL ACCOUNTING

STANDARDS ACCOUNTING ADVISORY BOARD (FASAB), THE GOVERNMENTAL

ACCOUNTING

STANDARDS BOARD (GASB), AND THE FINANCIAL ACCOUNTING

STANDARDS

BOARD (FASB). THE FASAB ESTABLISHES ACCOUNTING AND REPORTING

STANDARDS FOR THE FEDERAL GOVERNMENT AND ITS AGENCIES UNLESS OBJECTED TO

BY ONE OF THE

"PRINCIPALS" (THE DIRECTOR OF THE OFFICE OF MANAGEMENT AND

BUDGET,

THE COMPTROLLER GENERAL OF THE UNITED STATES (GAO), AND THE

SECRETARY OF THE TREASURY ).

WHEN THE "PRINCIPALS" APPROVE, THE FASAB

STANDARDS BECOME

GAAP. THE GASB SETS ACCOUNTING AND FINANCIAL

REPORTING STANDARDS FOR STATE AND LOCAL GOVERNMENTAL ORGANIZATIONS ,

INCLUDING THOSE NOT-FOR-PROFIT ORGANIZATIONS THAT ARE DETERMINED TO BE

STATE AND LOCAL GOVERNMENTS .

THE FASB SETS ACCOUNTING AND FINANCIAL

REPORTING STANDARDS FOR

PROFIT SEEKING BUSINESSES AND FOR

NONGOVERNMENTAL ,

NOT-FOR-PROFIT ENTITIES.

..1-2

Part 1: Solutions’s Manual 2 / 4

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations

1-4.THE DEFINITION OF A GOVERNMENT, AS AGREED TO BY THE FASB AND THE GASB IS

AS FOLLOWS:

“PUBLIC CORPORATIONS AND BODIES CORPORATE AND POLITIC ARE GOVERNMENTAL

ORGANIZATIONS. OTHER ORGANIZATIONS ARE GOVERNMENTAL ORGANIZATIONS IF

THEY HAVE ONE OR MORE OF THE FOLLOWING CHARACTERISTICS :

1. POPULAR ELECTION OF OFFICERS OR APPOINTMENT (OR APPROVAL) OF A

CONTROLLING MAJORITY OF THE MEMBERS OF THE ORGANIZATION ’S

GOVERNING BODY BY OFFICIALS OF ONE OR MORE STATE OR LOCAL

GOVERNMENTS;

2. THE POTENTIAL FOR UNILATERAL DISSOLUTION BY A GOVERNMENT WITH THE

NET ASSETS REVERTING TO A GOVERNMENT , OR

3. THE POWER TO ENACT AND ENFORCE A TAX LEVY .

FURTHERMORE, ORGANIZATIONS ARE PRESUMED TO BE GOVERNMENTAL IF THEY HAVE

THE ABILITY TO ISSUE DIRECTLY (RATHER THAN THROUGH A STATE OR MUNICIPAL

AUTHORITY) DEBT THAT PAYS INTEREST EXEMPT FROM FEDERAL TAXATION .

..

1-3 3 / 4

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations

1-5. THE SOURCES OF AUTHORITATIVE GAAP FOR STATE AND LOCAL GOVERNMENTS ARE :

− CATEGORY A: GASB STATEMENTS (AND INTERPRETATIONS)

− CATEGORY B: GASB IMPLEMENTATION GUIDES, GASB TECHNICAL

BULLETINS AND LITERATURE OF THE AMERICAN INSTITUTE OF CERTIFIED

PUBLIC ACCOUNTANTS (AICPA) SPECIFICALLY CLEARED BY THE GASB

IF THE ACCOUNTING TREATMENT FOR A GIVEN TRANSACTION IS NOT SPECIFIED BY A

STATEMENT IN CATEGORY A, A STATE AND LOCAL GOVERNMENT SHOULD CONSIDER

WHETHER IT IS COVERED BY ONE OF THE SOURCES IDENTIFIED IN CATEGORY B. IF THE

ACCOUNTING TREATMENT IS NOT SPECIFIED WITHIN ONE OF THESE AUTHORITATIVE

SOURCES, THE GOVERNMENT SHOULD CONSIDER WHETHER THE TRANSACTION IS

SUFFICIENTLY SIMILAR TO ONES COVERED BY ONE OF THE AUTHORITATIVE SOURCES

THAT A SIMILAR ACCOUNTING TREATMENT CAN BE APPLIED . IF NOT, THE

GOVERNMENT MAY USE NON -AUTHORITATIVE SOURCES FOR GUIDANCE, INCLUDING:

− GASB CONCEPT STATEMENTS,

− FASB, FASAB, OR INTERNATIONAL STANDARDS BOARD

PRONOUNCEMENTS,

− AICPA LITERATURE NOT SPECIFICALLY CLEARED BY THE GASB,

− OTHER SOURCES PROVIDED BY PROFESSIONAL ORGANIZATIONS ,

REGULATORY AGENCIES, TEXTBOOKS, AND PUBLISHED ARTICLES, OR

− PREVALENT PRACTICES THAT EVOLVED AMONG GOVERNMENTS WITHOUT

SPECIFIC AUTHORITATIVE ACTION.

..1-4

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