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Transcript of Chapter 7- Accounting for Governmental and Nonprofit Entities_16th_sm
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-1
CHAPTER 7: ACCOUNTING FOR THE BUSINESS-TYPE
ACTIVITIES OF STATE AND LOCAL GOVERNMENTS
OUTLINE Number Topic Type/Task Status
(re: 15/e) Questions: 7-1 Internal service and enterprise funds Explain 7-1 revised 7-2 Use of enterprise funds Describe New 7-3 Budgetary control of internal service funds Explain Same 7-4 Accounting for capital leases Compare New 7-5 Restricted assets of enterprise funds Describe Same 7-6 Components of net position Describe, explain New 7-7 Cash flows in proprietary funds Contrast Same 7-8 Operating and nonoperating revenues/expenses Describe Q7-9 7-9 Regulatory accounting Describe, explain Q7-8 7-10 Segment information Define Same Cases:
7-1 Building maintenance fund Assess 7-1 revised 7-2 Risk management internal service fund Explain, analyze Same 7-3 Mass transit system Evaluate Same 7-4 Enterprise fund golf course management Evaluate New Exercises/Problems:
7-1 Examine the CAFR Examine Same 7-2 Various Multiple Choice 7-2 revised 7-3 Central Duplicating Internal Service Fund JEs, FS Same 7-4 Central Garage ISF City of Ashville JEs, FS Same 7-5 Net position classifications FS New 7-6 City of Dalton Parking Facilities Fund FS 7-6 revised 7-7 Town of Elizabeth Central Station Fund JEs, FS, assess Same 7-8 City of Bay Lake Water Utility Fund JEs, FS Same 7-9 Von County proprietary funds statement of
revenues, expenses and changes in fund net position
Analysis 7-9 revised
7-10 Enterprise fund statement of cash flows FS New
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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CHAPTER 7: ACCOUNTING FOR THE BUSINESS-TYPE ACTIVITIES OF STATE AND LOCAL GOVERNMENTS
Answers to Questions 7-1. Internal service funds and enterprise funds are presented in three proprietary fund
financial statementsa statement of revenues, expenses and changes in fund net position; a statement of net position; and a statement of cash flows. Those enterprise funds considered to be major funds are presented in separate columns of the proprietary fund financial statements, with non-major enterprise funds aggregated in an Other Enterprise Funds column. All internal service funds are aggregated and reported in a single column on the fund statements. At the government-wide level the internal service funds balances are essentially collapsed into the Government Activities column of the government-wide statements. Enterprise funds are considered business-type activities and are reported in the Business-type Activities column of the government-wide statements.
Internal service funds and enterprise funds are both proprietary funds and are presented as
such in the funds financial statements. However, since the transactions of internal service funds primarily involve sales of goods or services to the General Fund and other funds that compose the governmental activities of a government, their financial balances are included in a single column of the proprietary fund financial statements.
7-2. Under GASB Codification Section 1300.109, a government must report business-type
activities in an enterprise fund if any of the following criteria are met: (1) The activity is financed with debt that is secured solely by a pledge of the revenues from fees and charges of an activity; (2) Laws or regulations require that the activitys costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (3) Pricing policies are designed to recover the costs of the activity, including capital costs.
7-3. Disagree. The main purchasers of the internal service funds services are the citys governmental funds. As shown in Illustration 7-1, the city commission has budgetary authority over the General Fund and other budgetary funds that will be using internal services. Through its approval of the budgets for these funds, the commission is able to control the resources flowing to the citys internal service funds.
7-4. The definition of a capital lease is the same for governmental funds and proprietary funds;
however, accounting at the fund level differs. Assets acquired under a capital lease agreement by a governmental fund result in a debit to Expenditures and a credit to OFS-Capital Lease Agreements in the year of acquisition. Capital lease assets are capitalized in proprietary funds, and the associated long-term liability, Capital Lease Obligation, is credited. In subsequent years, governmental funds will continue to debit Expenditures and credit Cash for capital lease payments, while proprietary funds will allocate a portion of lease payments between lease and interest and accordingly record a debit to Capital Lease Obligation, a debit to Interest Expense, and a credit to Cash. Capital lease assets in proprietary funds are also depreciated each year. At the government-wide level, accounting is the same as that described for proprietary funds.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Answers (Contd) 7-5. Restricted assets are assets that have been segregated, pursuant to an agreement with an
external party or by law or regulation, for a specified purpose and therefore are not available for the discretionary use of management. Items typically reported in the "Restricted Assets" section of the statement of fund net position include assets set aside for retirement of revenue bonds in conformity with bond covenants and bond proceeds, grants, and contributions restricted for capital purposes. Customer deposits are commonly reported as restricted assets by government utilities that use proprietary fund accounting.
7-6. GASBS 63 provides the following three components for the classification of net position:
net investment in capital assets, restricted, and unrestricted. Net investment in capital assets is calculated as the total of gross capital assets, net of accumulated depreciation, less any outstanding debt related to the acquisition or construction of capital assets. If debt has been incurred for construction or acquisition of a capital asset, but the proceeds of the debt have not been spent by year-end, that debt is excluded in calculating net investment in capital assets. Restricted net position represents those net resources with restrictions on use imposed by law or external parties; while unrestricted net position represents the residual amount of net position after separately identifying net investment in capital assets and restrictions.
7-7. FASB allows entities to prepare the statement of cash flows using either the indirect or
the direct preparation method, while GASB requires the direct method. The information in the statement of cash flows is displayed using three categories under FASB standardsoperating activities, investing activities, and financing activities. GASB standards provide for four categories of cash flowsoperating activities, noncapital financing activities, capital and related financing activities, and investing activities. Chapter 7 gives a fairly detailed description of the types of transactions reported in each of the four GASB categories. Notice that the types of activities reported in the two financing categories and the investing category have a number of differences when compared with the comparable FASB categories.
7-8. GASB leaves the definition of operating and nonoperating revenues/expenses/income to
management. However, guidance indicates that operating revenues and expenses are those related to the primary function or reason for the proprietary funds existence. The operating revenues generated by a proprietary fund are based on the goods or services provided by the proprietary fund. Consequently, operating expenses are those expenses incurred in provision of the funds primary goods or services. Nonoperating revenues and expenses are peripheral or incidental in nature to the primary function or objective of the proprietary fund. Generally, nonoperating revenues include such items as interest income, gains on sale of assets, tax revenues, and grants and gifts that can be used for operating activity. One reason for separating operating and nonoperating items is to help assess management performance. Additionally, GASB requires that operating revenues/expenses/income be separately identified on the statement of revenues, expenses and changes in fund net position since the information is necessary for classifying activity as operating, noncapital financing, capital and related financing, or investing on the statement of cash flows.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Answers (Contd) 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.
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Ch. 7, Solutions Solutions to Cases 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 sheet and operating statement also suggests that the Building Maintenance Fund is using modified accrual rather than accrual accounting. This is reflected in the use of the line item fund balance rather than net position, segregated into (1) net investment in capital assets, (2) restricted, and (3) unrestricted; and the matching of expenditures (rather than expenses) to revenues in the operating statement. Finally, internal service fund financial statements typically include a statement of cash flows.
b. As manager of a city department you should want to know the full cost of the
Building Maintenance Funds operations. Such information would aid in determining the appropriateness and fairness of the funds charges to departments. Although the financial statements indicate that revenues exceed expenditures only slightly, the statements fail to disclose the relationship between operating revenues and operating expenses. As such, they provide you with little useful information, even though as a city employee you might have a pretty good idea if the salaries, wages, and number of employees of the Building Maintenance Fund are in line with those of the rest of the city departments. Cash and Investments exceed current liabilities if one assumes that Accrued Annual Leave is a long-term liability and Other Accrued Liabilities are current liabilities. (If current liabilities were reported separately it wouldn't be necessary to guess which is current and which is long-term.) It would also be useful to know how accrued annual leave was computed, and how much of this will probably have to be paid each year. Finally, one should determine that the inventory figure does not include an excessive supply of materials that could be obtained readily from suppliers when needed.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Solutions, Case 7-1 (Contd)
It is also possible that some managers of city departments that use the services of
the Building Maintenance Fund may have little interest in the financial statements if the employees of that fund are doing a good job of keeping the citys buildings well maintained, and the charges of that fund do not strain their maintenance budgets. If, however, managers perceived the service to be poor or the charges to be excessive, the lack of full accrual financial information to objectively evaluate the Building Maintenance Fund managers performance could become a problem.
7-2. a. Since the Risk Management Pool is providing an insurance service to the
departments of the General Fund, it should record its assessments like an exchange transaction with a debit to an account such as Due from General Fund (or Cash) and a credit to an account such as Billings for Services. The General Fund would recognize the service received from the Risk Management Pool with a debit to an Expenditures account and a credit to an account such as Due to Risk Management Pool (or Cash).
b. Internal service funds are generally reported in the Governmental Activities
column in the government-wide statements. GASB requires that all interfund activity be eliminated to prevent double counting of transactions. Since the Risk Management Pool and the General Fund would be reported in the same Governmental Activities column, the transaction would not be recorded at the government-wide level.
c. At the government-wide level the assets attributed to General Fund functions and
the assets of the Risk Management Pool would generally be combined and shown in the same Governmental Activities column on the statement of net position. Internal service fund assets would also be included in the governmental activities information shown in the capital asset note disclosures. Therefore, from the government-wide perspective it would not make a difference if a portion of the building was recorded in the Risk Management Pool. However, as explained in part d, it appears that the Risk Management Pool should record an expense for the entire amount of the outlays for the claims rather than debiting Buildings for the increase in value.
d. In accordance with the information provided in the section Internal Service
Funds as Financing Devices of this chapter, the Risk Management Pool should have recognized the claims from the General Fund as expenses and reimbursed the General Fund for the expenditures it incurred related to the building. Although the Risk Management Pool paid $100,000 of the invoices directly, that would not affect the accounting. The Risk Management Pool is not receiving an operational asset from this transaction; therefore, a correcting entry that debits an expense and credits Building would remove the asset from the Risk Management Pool ledger.
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Ch. 7, Solutions (Contd)
7-3. a. If the finance director and the head of the DTS wish to measure the full cost of operating the mass transit system, then it is important that the accrual basis of accounting, including depreciation, be used. Determination of full cost would facilitate measurement of operational efficiency and help determine whether the General Fund subsidy is reasonable in relation to benefits received. Further, the requirement to use budgetary accounting, including appropriation control, under special revenue fund accounting would detract from efficient operation of the mass transit system. Thus, sound management suggests the need to measure the full cost of operating the mass transit system and to use flexible budgeting as well managed business enterprises do. Enterprise fund accounting would measure full cost; special revenue fund accounting would not.
b. Since the DTSs operating revenues have covered only 45-50% of its operating costs, and apparently none of its capital costs since inception, taxpayers are heavily subsidizing the DTS operations. Because the DTS relies primarily on nonexchange resources for operations, taxpayers should have a say in the budget and operations of the DTS. The ability to have such a voice is through the budget process and scrutiny by elected officials. Taxpayer control over the DTS is increased when the DTS is placed in a special revenue fund.
c. The information in the case provides no clearcut answer as to which fund type
should be used to account for the mass transit system, since GASB standards require the use of an enterprise fund only if the government intends to cover the full cost of operations with user fees, or else bond financing to be repaid from enterprise fund revenues is used. It should also be noted that GASB Codification Section 1300.105 specifies that a special revenue fund should be used when specific revenue sources are expected to comprise a substantial portion of the inflows reported in the fund. Neither piece of guidance is definitive in this case.
7-4. a. By definition, a General Fund is used to account and report all financial resources
not accounted for and reported in another fund (GASB Codification 1300.104); whereas, business-type activities must be reported in an enterprise fund if GASB Codification Section 1300.109 criteria are met. In this case, there is no evidence that the golf course is financed with debt that is secured solely by a pledge of the golf course revenues or that laws require fees to cover costs and capital charges. Hence, the golf course could be accounted for in either fund, subject to administrative approval.
Enterprise funds are used to account for business-type activities that offer goods
and services to the public for a fee. When a golf course is operated in an enterprise fund, there is an expectation that the fund will be self-supporting and also retain equity for capital maintenance. If a golf course is operated within a
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Solutions, Case 7-4 (Contd) General Fund, there no requirement to produce a net income; however, taxpayers
who do not utilize the golf course are often unhappy subsidizing the facility with tax dollars. If a government does subsidize with tax dollars, it is important to demonstrate that the golf course provides a public benefit to the community, perhaps by offering free golf lessons to at-risk youth or undertaking a marketing campaign that highlights the beauty of the public resource.
b. This exercise is intended to have students consider the options provided. Their
questions might include: (1) Status Quo. Do the citizens support subsidies for the golf course? Is th
decline in revenue a short or long-term problem? Can rates be raised or are there other revenue sources that could make the fund self-supporting? How big are the ongoing losses expected to be? If the county selects this option, will administrators decide to maintain an enterprise fund, which may require subsidies from General Fund revenues during periods of loss, or to return operations to the General Fund?
(2) Concession Agreements or Management Contracts. Would the management company or outside vendor maintain the facility at an acceptable level? How is the contract to be negotiated are costs just competitive in the short-term and then increase (low-balling)? What happens if the services are not acceptable? Which operations should be retained?
(3) Operating Lease. How does this offer differ in structure from option 2? Which is more beneficial to the county? Is it better to retain ownership of the golf course or sell it?
(4) Selling the Golf Course. Do any potential buyers exist? Would they upgrade the golf facility to an extent not affordable to the county? What benefit is derived from selling the golf course other than the one time cash infusion and possible operating cost savings?
Solutions to Exercises and Problems 7-1. Since each student has a different annual report, no two answers to this exercise will be
exactly alike. Use this opportunity to discuss the value of government-wide financial statements to determine the profitability of proprietary activities and the extent of subsidies from resources arising from governmental activities. Airports are an example of enterprise funds that may or may not provide additional resources to subsidize general governmental services.
7-2. 1. b. 6. a.
2. c. 7. a. 3. d. 8. d. 4. b. 9. a. 5. b. 10. d.
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Ch. 7, Solutions (Contd)
7-3. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND GENERAL JOURNAL (NOT REQUIRED) Debits Credits
1. WAGE EXPENSE 333,500
PAYROLL TAX EXPENSE 23,375
CASH 290,000
DUE TO FEDERAL GOVERNMENT 66,875
2. DUE TO FEDERAL GOVERNMENT 65,500
CASH 65,500
3. UTILITY EXPENSE 23,500
DUE TO OTHER FUNDS 23,500
4. OFFICE EXPENSES 10,500
CASH 10,500
5. SERVICE SUPPLIES INVENTORY 157,500
ACCOUNTS PAYABLE 157,500
6. COST OF PARTS AND SUPPLIES USED 152,300
SERVICE SUPPLIES INVENTORY 152,300
7. DUE FROM OTHER FUNDS 588,000
BILLINGS TO DEPARTMENTS 588,000
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Ch. 7, Solutions, 7-3 (Cont'd)
Debits Credits
8. CASH 578,200
DUE FROM OTHER FUNDS 578,200
(20,200 + 588,000 - 30,000)
9. DUE TO OTHER FUNDS 21,800
CASH 21,800
10. ACCOUNTS PAYABLE 156,950
CASH 156,950
(12,700 + 157,500 - 13,250)
11. DEPRECIATION OF MACHINERY AND
EQUIPMENT 30,000
ALLOWANCE FOR DEPRECIATION 30,000
12. Closing Entries:
BILLINGS TO DEPARTMENTS 588,000
WAGE EXPENSE 333,500
PAYROLL TAX EXPENSE 23,375
UTILITY EXPENSE 23,500
OFFICE EXPENSES 10,500
COST OF PARTS AND SUPPLIES USED 152,300
DEPRECIATION OF MACHINERY AND EQUIPMENT 30,000
OPERATING INCOME 14,825
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Ch. 7, Solutions, 7-3 (Cont'd)
Debits Credits
OPERATING INCOME 14,825
NET POSITIONUNRESTRICTED 14,825
NET POSITIONNET INVESTMENT IN CAPITAL
ASSETS 30,000
NET POSITIONUNRESTRICTED 30,000
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Solutions, 7-3 (Cont'd)
TOWN OF FREDERICKSBURG T- ACCOUNTS FOR CENTRAL DUPLICATING FUND (NOT REQUIRED) CASH DUE FROM OTHER FUNDS
9-30-13 15,000 (1) 290,000 9-30-13 20,200 (8) 578,200
(8) 578,200 (2) 65,500 (7) 588,000
(4) 10,500
(9) 21,800
(10) 156,950
SERVICE SUPPLIES INVENTORY MACHINERY AND EQUIPMENT
9-30-13 35,300 (6) 152,300 9-30-13 300,000
(5) 157,500
ALLOW FOR DEPMACH & EQUIP
9-30-13 90,000
(11) 30,000
ACCOUNTS PAYABLE DUE TO FEDERAL GOVERNMENT
(10) 156,950 9-30-13 12,700 (2) 65,500 9-30-13 1,500
(5) 157,500 (1) 66,875
DUE TO OTHER FUNDS NET POSITIONUNRESTRICTED
(9) 21,800 9-30-13 800 9-30-13 55,500
(3) 23,500 C.L. 14,825
C.L. 30,000
NET POSITIONNET INVEST IN CAP. ASSETS BILLINGS TO DEPARTMENTS
C.L. 30,000 9-30-13 210,000 CL. 588,000 (7) 588,000
WAGE EXPENSE PAYROLL TAX EXPENSE
(1) 333,500 CL. 333,500 (1) 23,375 CL. 23,375
UTILITY EXPENSE COST OF PARTS AND SUPPLIES USED
(3) 23,500 CL. 23,500 (6) 152,300 CL. 152,300
DEPRECIATION OF MACH. AND EQUIP. OFFICE EXPENSES
(11) 30,000 CL. 30,000 (4) 10,500 CL. 10,500
OPERATING INCOME
CL. 14,825 CL. 14,825
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
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Ch. 7, Solutions, 7-3 (Cont'd) 7-3. a. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR YEAR ENDED SEPTEMBER 30, 2014 BILLINGS TO DEPARTMENTS $588,000
OPERATING EXPENSES:
WAGE EXPENSE $333,500
PAYROLL TAX EXPENSE 23,375
OFFICE EXPENSES 10,500
UTILITY EXPENSE 23,500
PARTS AND SUPPLIES USED 152,300
DEPRECIATION OF MACHINERY
AND EQUIPMENT 30,000
TOTAL OPERATING EXPENSES 573,175
OPERATING INCOME 14,825
NET POSITION, OCTOBER 1, 2013 265,500
NET POSITION, SEPTEMBER 30, 2014 $280,325
b. On the basis of the operating statement for the year ended September 30, 2014,
the pricing policy is achieving the goal of covering all operating expenses,
including depreciation. The net income for the year is 2.52 percent of billings
to departments, under the 3 percent maximum set for this fund.
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Ch. 7, Solutions, 7-3 (Cont'd)
c. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2014 ASSETS:
CURRENT ASSETS:
CASH $ 48,450
DUE FROM OTHER FUNDS 30,000
SERVICE SUPPLIES INVENTORY 40,500
TOTAL CURRENT ASSETS $118,950
CAPITAL ASSETS:
MACHINERY AND EQUIPMENT 300,000
LESS: ALLOWANCE FOR DEPRECIATION 120,000
TOTAL CAPITAL ASSETS 180,000
TOTAL ASSETS 298,950
LIABILITIES:
ACCOUNTS PAYABLE 13,250
DUE TO FEDERAL GOVERNMENT 2,875
DUE TO OTHER FUNDS 2,500
TOTAL CURRENT LIABILITIES 18,625
NET POSITION:
NET POSITIONNET INVESTMENT IN CAPITAL ASSETS 180,000
NET POSITIONUNRESTRICTED 100,325
TOTAL NET POSITION $ 280,325
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Ch. 7, Solutions, 7-3 (Contd)
d. TOWN OF FREDERICKSBURG CENTRAL DUPLICATING FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $578,200
CASH PAID TO:
EMPLOYEES $(290,000)
FEDERAL GOVERNMENT (W/T, FICA) (65,500)
SUPPLIERS (167,450)
OTHER DEPARTMENTS (21,800) (544,750)
NET CASH PROVIDED BY OPERATIONS $ 33,450
NET INCREASE IN CASH AND
CASH EQUIVALENTS 33,450
CASH AND CASH EQUIVALENTS, 10/1/2013 15,000
CASH AND CASH EQUIVALENTS, 9/30/2014 $ 48,450
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 14,825
ADJUSTMENTS:
DEPRECIATION EXPENSEMACHINERY & EQUIPMENT 30,000
INCREASE IN INVENTORY (5,200)
INCREASE IN RECEIVABLES FROM OTHER FUNDS (9,800)
INCREASE IN ACCOUNTS PAYABLE 550
INCREASE IN DUE TO FEDERAL GOVERNMENT 1,375
INCREASE IN DUE TO OTHER FUNDS 1,700
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 33,450
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Ch. 7, Solutions (Contd)
7-4.
CITY OF ASHVILLE CENTRAL GARAGE FUND GENERAL JOURNAL Debits Credits
1. Internal Service Fund & Governmental Activities:
INVENTORY OF SUPPLIES 92,000
VOUCHERS PAYABLE 92,000
2. Internal Service Fund:
COST OF SUPPLIES USED 110,000
INVENTORY OF SUPPLIES 110,000
Governmental Activities:
EXPENSESGENERAL GOVERNMENT 110,000
INVENTORY OF SUPPLIES 110,000
3. Internal Service Fund:
SALARIES AND WAGES EXPENSE 235,000
CASH 235,000
Governmental Activities:
EXPENSESGENERAL GOVERNMENT 235,000
CASH 235,000
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Ch. 7, Solutions, 7-4 (Cont'd)
Debits Credits
4. Internal Service Fund:
UTILITIES EXPENSE 30,000
DUE TO OTHER FUNDS 3,000
CASH 27,000
Governmental Activities:
EXPENSESGENERAL GOVERNMENT 30,000
INTERNAL BALANCES 3,000
CASH 27,000
5. Internal Service Fund:
DEPRECIATION EXPENSEBUILDING 10,000
DEPRECIATION EXPENSEMACHINERY
AND EQUIPMENT 9,000
ALLOWANCE FOR DEPRECIATIONBUILDING 10,000
ALLOWANCE FOR DEPRECIATIONMACHINERY
AND EQUIPMENT 9,000
Governmental Activities:
EXPENSESGENERAL GOVERNMENT 19,000
ALLOWANCE FOR DEPRECIATIONBUILDING 10,000
ALLOWANCE FOR DEPRECIATIONMACHINERY
AND EQUIPMENT 9,000
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Ch. 7, Solutions, 7-4 (Cont'd)
Debits Credits
6. Internal Service Fund:
DUE FROM OTHER FUNDS 397,000
BILLINGS TO DEPARTMENTS 397,000
Governmental Activities:
INTERNAL BALANCES 90,000
PROGRAM REVENUESCHARGES FOR
SERVICESGENERAL GOVERNMENT 90,000
7. Internal Service Fund:
CASH 394,000
DUE FROM OTHER FUNDS 394,000 ($9,000 + $397,000 - $12,000 = $394,000)
Governmental Activities:
CASH 91,000
INTERNAL BALANCES 91,000 ($3,000 + $90,000 - $2,000 = $91,000)
8. Internal Service Fund & Governmental Activities:
VOUCHERS PAYABLE 107,000
CASH 107,000 ($31,000 + $92,000 - $16,000 = $107,000)
only count for Water Fund, since GF & SRF to ISF consider interfund
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Ch. 7, Solutions, 7-4 (Cont'd)
Debits Credits
9. Internal Service Fund:
Closing Entries:
BILLINGS TO DEPARTMENTS 397,000
COST OF SUPPLIES USED 110,000
SALARIES AND WAGES EXPENSE 235,000
UTILITIES EXPENSE 30,000
DEPRECIATION EXPENSEBUILDING 10,000
DEPRECIATION EXPENSEMACHINERY
AND EQUIPMENT 9,000
EXCESS OF NET BILLINGS OVER COSTS 3,000
EXCESS OF NET BILLINGS OVER COSTS 3,000
NET POSITIONUNRESTRICTED 3,000
NET POSITIONNET INVESTMENT IN
CAPITAL ASSETS 19,000
NET POSITIONUNRESTRICTED 19,000
depreciation
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Ch. 7, Solutions, 7-4 (Cont'd)
b. CITY OF ASHVILLE CENTRAL GARAGE FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR YEAR ENDED JUNE 30, 2014 BILLINGS TO DEPARTMENTS $397,000
OPERATING EXPENSES:
COST OF SUPPLIES USED $110,000
SALARIES AND WAGES EXPENSE 235,000
UTILITIES EXPENSE 30,000
DEPRECIATION EXPENSEBUILDING 10,000
DEPRECIATION EXPENSEMACHINERY
AND EQUIPMENT 9,000
TOTAL OPERATING EXPENSES 394,000
OPERATING INCOME 3,000
NET POSITION, JULY 1, 2013 511,000
NET POSITION, JUNE 30, 2014 $514,000
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Ch. 7, Solutions, 7-4 (Cont'd)
c. CITY OF ASHVILLE CENTRAL GARAGE FUND STATEMENT OF NET POSITION AS OF JUNE 30, 2014 ASSETS:
CURRENT ASSETS:
CASH $135,000
DUE FROM OTHER FUNDS* 12,000
INVENTORY OF SUPPLIES 72,000
TOTAL CURRENT ASSETS $219,000
CAPITAL ASSETS:
LAND 50,000
BUILDING $250,000
LESS: ALLOWANCE FOR DEPRECIATION 30,000 220,000
MACHINERY AND EQUIPMENT 65,000
LESS: ALLOWANCE FOR DEPRECIATION 21,000 44,000
TOTAL CAPITAL ASSETS 314,000
TOTAL ASSETS 533,000
LIABILITIES:
VOUCHERS PAYABLE 16,000
DUE TO OTHER FUNDS 3,000
TOTAL CURRENT LIABILITIES 19,000
NET POSITION:
NET INVESTMENT IN CAPITAL ASSETS 314,000
UNRESTRICTED 200,000
TOTAL NET POSITION $514,000
*Under GASB standards, the $3,000 due to the Water and Sewer Utility Fund could also be shown net of the $2,000 due from the Water and Sewer Utility Fund.
333-19kdepreciation
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-22
Ch. 7, Solutions, 7-4 (Cont'd)
d. For the government-wide statement of activities, the internal service fund
would be reported as a part of the Governmental Activities column. Since
the primary funds served by the Central Garage Fund are governmental
funds, rather than enterprise funds, the internal service fund is
appropriately combined with governmental activities at the government-
wide level. As shown by the closing entry, the internal service fund would
report the $90,000 related to the revenue received from the enterprise
fund and the $394,000 in expenses. Since these amounts exclude all
activity that occurred between the internal service fund and governmental
funds, they should be included in the Governmental Activities column.
As indicated by journal entries 1-9, the Central Garage Fund would
recognize balances for its statement of net position accounts, excluding
all activity between the internal service fund and the governmental funds.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-23
Ch. 7, Solutions (Cont'd) 7-5.
TOWN OF FALMOUTH SKATING RINK ENTERPRISE FUND PARTIAL STATEMENT OF NET POSITION AS OF DECEMBER 31, 2014 NET POSITION:
NET POSITIONNET INVESTMENT IN CAPITAL ASSETS $ 864,700
NET POSITIONRESTRICTED 252,000
NET POSITIONUNRESTRICTED 1,080,551
TOTAL NET POSITION $2,197,251
Calculations
Net investment in capital assets:
Beginning balance $679,800
- Depreciation 54,000
- Sale of equipment 26,100
+ Capital lease payment 15,000
+ New equipment (zamboni) 250,000
Ending balance $864,700
Restricted:
Beginning balance $ 0
+ Restricted for construction ($500,000-248,000) 252,000
Ending balance $252,000
Unrestricted:
Beginning balance $1,354,692
+ Net income 162,759
- Increase in net investment in capital assets 184,900
- Increase in restricted 252,000
Ending balance $1,080,551
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-24
Ch. 7, Solutions (Cont'd)
7-6. a. CITY OF DALTON PARKING FACILITIES FUND STATEMENT OF REVENUE, EXPENSES, AND
CHANGES IN FUND NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2014
OPERATING INCOME:
CHARGES FOR SERVICES $1,640,261
OPERATING EXPENSES:
PERSONNEL EXPENSE $852,380
DEPRECIATION EXPENSE 578,861
UTILITIES EXPENSE 100,726
REPAIR AND MAINTENANCE EXPENSE 64,617
SUPPLY EXPENSE 17,119
TOTAL OPERATING EXPENSES 1,613,703
OPERATING INCOME 26,558
NONOPERATING REVENUE/EXPENSES:
INTEREST INCOME 251,480
INTEREST EXPENSE (874,909)
TOTAL NONOPERATING INCOME (EXPENSE) (623,429)
INCOME (LOSS) BEFORE TRANSFERS (596,871)
TRANSFERS OUT (11,409)
CHANGE IN NET POSITION (608,280)
NET POSITION, JANUARY 1, 2014 6,649,638
NET POSITION, DECEMBER 31, 2014 $6,041,358
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-25
Ch. 7, Solutions, 7-6 (Cont'd)
b. CITY OF DALTON PARKING FACILITIES FUND STATEMENT OF NET POSITION AS OF DECEMBER 31, 2014 ASSETS:
CURRENT ASSETS:
CASH $ 760,494
ACCOUNTS RECEIVABLE (NET OF $72
IN ALLOWANCE FOR DOUBTFUL ACCOUNTS) 3,535
TOTAL CURRENT ASSETS $ 764,029
RESTRICTED CASH AND CASH EQUIVALENTS 1,101,996
CAPITAL ASSETS:
LAND 3,021,637
BUILDINGS AND EQUIPMENT $23,029,166
LESS: ALLOW. FOR DEPRECIATION (5,623,315) 17,405,851
TOTAL CAPITAL ASSETS 20,427,488
TOTAL ASSETS 22,293,513
LIABILITIES:
CURRENT LIABILITIES:
ACCOUNTS & ACCRUED PAYABLES 312,830
6-MONTH NOTE PAYABLE 360,000
TOTAL CURRENT LIABILITIES 672,830
NONCURRENT LIABILITIES:
BONDS PAYABLE 15,579,325
TOTAL LIABILITIES 16,252,155
NET POSITION:
NET INVESTMENT IN CAPITAL ASSETS 4,848,163
RESTRICTED 1,101,996
UNRESTRICTED 91,199
TOTAL NET POSITION $6,041,358
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-26
Ch. 7, Solutions, 7-6 (Cont'd)
c. CITY OF DALTON PARKING FACILITIES FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $1,640,155
CASH PAID TO:
EMPLOYEES $(750,828)
SUPPLIERS (365,137) (1,115,965)
NET CASH PROVIDED BY OPERATIONS $524,190
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:
TRANSFER TO GENERAL FUND (11,409)
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF CAPITAL ASSETS 4,725
PRINCIPAL PAID ON CAPITAL DEBT (500,000)
INTEREST PAID ON CAPITAL DEBT (874,909)
NET CASH USED BY FINANCING ACTIVITIES (1,370,184)
CASH FLOWS FROM INVESTING ACTIVITIES:
INTEREST RECEIVED ON INVESTMENTS 251,480
NET DECREASE IN CASH AND CASH EQUIVALENTS (605,923)
CASH AND CASH EQUIVALENTS, 1/1/2014 2,468,413
CASH AND CASH EQUIVALENTS, 12/31/2014 $1,862,490
RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET
END BEGINNING OF YEAR OF YEAR CASH AND CASH EQUIVALENTS IN CURRENT AND ACCRUED ASSETS $ 760,494 $1,516,417 RESTRICTED CASH AND CASH EQUIVALENTS 1,101,996 951,996 TOTAL CASH AND CASH EQUIVALENTS $1,862,490 $2,468,413
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-27
Ch. 7, Solutions, 7-6 (Cont'd)
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 26,558
ADJUSTMENTS:
DEPRECIATION EXPENSEMACHINERY & EQUIPMENT 578,861
INCREASE IN ACCOUNTS RECEIVABLE (106)
DECREASE IN ACCOUNTS AND ACCRUED PAYABLE (81,123)
NET CASH PROVIDED BY OPERATING ACTIVITIES $524,190 7-7. a. TOWN OF ELIZABETH CENTRAL STATION FUND GENERAL JOURNAL Debits Credits
1. ACCOUNTS RECEIVABLE 94,444
RENTAL SALES 94,444
CASH 90,210
ACCOUNTS RECEIVABLE 90,210
2. ADMINISTRATIVE SERVICES EXPENSE 25,205
MAINTENANCE & REPAIRS EXPENSE 72,882
SUPPLIES & MATERIALS EXPENSE 7,792
UTILITIES EXPENSE 30,124
CASH 136,003
3. CASH 60,000
INTERFUND TRANSFER IN 60,000
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-28
Ch. 7, Solutions, 7-7 (Contd) Debits Credits
4. DEPRECIATION EXPENSE 3,519
PROVISION FOR UNCOLLECTIBLE ACCOUNTS 667
ALLOWANCE FOR DEPRECIATION 3,519
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS 667
5. RENTAL SALES 94,444
INTERFUND TRANSFER IN 60,000
ADMINISTRATIVE SERVICES EXPENSE 25,205
MAINTENANCE & REPAIRS EXPENSE 72,882
SUPPLIES & MATERIALS EXPENSE 7,792
UTILITIES EXPENSE 30,124
DEPRECIATION EXPENSE 3,519
PROVISION FOR UNCOLLECTIBLE ACCOUNTS 667
NET POSITIONUNRESTRICTED 14,255
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-29
Ch. 7, Solutions, 7-7 (Contd) b.
TOWN OF ELIZABETH CENTRAL STATION FUND
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2014
OPERATING REVENUES:
RENTAL INCOME (NET $667 PROVISION
FOR UNCOLLECTIBLE ACCOUNTS) $ 93,777
OPERATING EXPENSES:
ADMINISTRATIVE SERVICES $ 25,205
MAINTENANCE AND REPAIR 72,882
SUPPLIES AND MATERIALS 7,792
UTILITIES 30,124
DEPRECIATION 3,519
TOTAL OPERATING EXPENSES 139,522
OPERATING INCOME (LOSS) (45,745)
TRANSFERS IN 60,000
CHANGE IN NET POSITION 14,255
TOTAL NET POSITION, OCTOBER 1, 2013 60,129
TOTAL NET POSITION, SEPTEMBER 30, 2014 $ 74,384
c. No. There is no payment of interest by the Central Station Fund, so it would
appear there is no long-term debt. Thus, the activity of the fund is not
financed with debt secured by the Central Station Funds revenues. The
Central Station Fund is not currently covering the cost of providing services
with the revenues it generates, having operated at a loss in the current
HOALine
HOALine
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-30
Ch. 7, Solutions, 7-7 (Cont'd)
year. At least based on the current years operations, it does not appear that
there is a law requiring the Central Station Fund to recover its costs with
user charges. Additionally, it does not appear that the pricing policy is
designed to recover all costs of the Central Station Fund given the size of
the current years operating loss (approaching 50% of operating revenues).
d. As manager, you may want to know what if any circumstances resulted in
such a sizable operating loss. For example, were there a large number of
vacancies, and if so why? Traditionally, what type of support has the General
Fund provided the Central Station Fund and why? If the Central Station Fund
is to be operated as a business, the pricing policy needs to be adjusted to
ensure costs are recovered. If there are reasons why the government has
decided not to recover costs, consideration needs to be given to dissolving
the fund and transferring the activities to the General Fund or closing/selling
the station. Since a large amount of support is being provided by taxpayers
in the form of General Fund revenues, it may be more appropriate to reflect
the additional burden created by the central station in the General Fund
financial statements.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-31
Ch. 7, Solutions (Cont'd) 7-8. a. CITY OF BAY LAKE WATER UTILITY FUND GENERAL JOURNAL
Debits Credits
1. SALES OF WATER 500,000
ACCRUED UTILITY REVENUE 500,000
2. ACCOUNTS RECEIVABLE 2,788,691
DUE FROM GENERAL FUND 193,866
SALES OF WATER 2,982,557
3. CASH 260,000
INTEREST INCOME 178,000
INTEREST RECEIVABLE 82,000
4. MANAGEMENT & ADMINISTRATION EXPENSE 360,408
MAINTENANCE & DISTRIBUTION EXPENSE 689,103
TREATMENT PLANT EXPENSE 695,237
ACCOUNTS PAYABLE 1,744,748
5. CASHRESTRICTED 2,427
CUSTOMER DEPOSITS 2,427
6. CASH 2,943,401
ACCOUNTS RECEIVABLE 2,733,870
DUE FROM GENERAL FUND 209,531
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-32
Ch. 7, Solutions, 7-8 (Cont'd) Debits Credits
7. ACCOUNTS PAYABLE 1,462,596
INTEREST PAYABLE 131,772
INTEREST EXPENSE 264,145
CURRENT PORTION OF LONG-TERM DEBT 400,000
MACHINERY & EQUIPMENT 583,425
CUSTOMER DEPOSITS 912
CASH 2,841,938
CASHRESTRICTED 912
8. CASH 475,000
CONTRIBUTIONCAPITAL GRANT 475,000 9. ACCUMULATED PROVISION FOR UNCOLLECTIBLE
ACCOUNTS 10,013
ACCOUNTS RECEIVABLE 10,013
10. INTERFUND TRANSFER OUT 800,000
CASH 800,000
11. DEPRECIATION EXPENSE 600,132
UNCOLLECTIBLE ACCOUNTS 14,913
INTEREST EXPENSE 61,406
ACCUMULATED DEPRECIATIONBUILDINGS 240,053
ACCUMULATED DEPRECIATIONMACHINERY
& EQUIPMENT 360,079
ACCUMULATED PROVISION FOR
UNCOLLECTIBLE ACCOUNTS 14,913
INTEREST PAYABLE 61,406
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-33
Ch. 7, Solutions, 7-8 (Cont'd) Debits Credits
ACCRUED UTILITY REVENUE 700,000
ACCRUED INTEREST RECEIVABLE 15,849
SALES OF WATER 700,000
INTEREST INCOME 15,849
12. REVENUE BOND PAYABLE 400,000
CURRENT PORTION OF LONG-TERM DEBT 400,000
13. SALES OF WATER 3,182,557
INTEREST INCOME 193,849
CONTRIBUTIONCAPITAL GRANT 475,000
MANAGEMENT & ADMINISTRATION EXPENSE 360,408
MAINTENANCE & DISTRIBUTION EXPENSE 689,103
TREATMENT PLANT EXPENSE 695,237
INTERFUND TRANSFERS OUT 800,000
INTEREST EXPENSE 325,551
DEPRECIATION EXPENSE 600,132
UNCOLLECTIBLE ACCOUNTS 14,913
NET POSITIONUNRESTRICTED 366,062
NET POSITIONUNRESTRICTED 383,293 NET POSITIONNET INVESTMENT IN CAPITAL
ASSETS* 383,293
*Net investment in capital assets was increased by the purchase of $583,425 of machinery and equipment and a $400,000 decrease in the revenue bonds. The account was decreased by $600,132 in depreciation.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-34
Ch. 7, Solutions, 7-8 (Cont'd) b. CITY OF BAY LAKE WATER UTILITY FUND STATEMENT OF REVENUE, EXPENSES, AND
CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2014
OPERATING INCOME:
SALES OF WATER (NET OF $14,913 PROVISION
FOR UNCOLLECTIBLE ACCOUNTS) $3,167,644
OPERATING EXPENSES:
MANAGEMENT & ADMINISTRATION $ 360,408
MAINTENANCE & DISTRIBUTION 689,103
TREATMENT PLANT 695,237
DEPRECIATION 600,132
TOTAL OPERATING EXPENSES 2,344,880
OPERATING INCOME 822,764
NONOPERATING REVENUE/EXPENSES:
INTEREST INCOME 193,849
INTEREST EXPENSE ( 325,551)
TOTAL NONOPERATING INCOME (EXPENSE) (131,702)
INCOME BEFORE TRANSFERS & CONTRIBUTIONS 691,062
INTERFUND TRANSFERS OUT (800,000)
CAPITAL CONTRIBUTIONS 475,000
CHANGE IN NET POSITION 366,062
NET POSITION, JULY 1, 2013 5,513,127
NET POSITION, JUNE 30, 2014 $5,879,189
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-35
Ch. 7, Solutions, 7-8 (Cont'd) c. CITY OF BAY LAKE WATER UTLITY FUND STATEMENT OF NET POSITION JUNE 30, 2014 ASSETS: CURRENT ASSETS: CASH AND INVESTMENTS $ 1,811,482 ACCOUNTS RECEIVABLE (NET OF $18,267 PROVISION FOR UNCOLLECTIBLE ACCOUNTS) 346,777 ACCRUED UTILITY REVENUE 700,000 DUE FROM GENERAL FUND 13,646 ACCRUED INTEREST RECEIVABLE 15,849 TOTAL CURRENT ASSETS $ 2,887,754 RESTRICTED ASSETS: CASH 10,708 CAPITAL ASSETS: LAND $1,780,945 BUILDINGS (NET OF $3,660,053 IN ACCUMULATED DEPRECIATION 4,974,354 MACHINERY AND EQUIPMENT (NET OF $5,490,007 IN ACCUMULATED DEPRECIATION) 8,711,741 TOTAL CAPITAL ASSETS 15,467,040 TOTAL ASSETS 18,365,502 LIABILITIES: CURRENT LIABILITIES: ACCOUNTS PAYABLE 814,199 INTEREST PAYABLE 61,406 CURRENT PORTION OF LONG-TERM DEBT 400,000 TOTAL CURRENT LIABILITIES 1,275,605 LIABILITIES PAYABLE FROM RESTRICTED ASSETS: CUSTOMER DEPOSITS 10,708 LONG-TERM LIABILITIES: REVENUE BOND PAYABLE 11,200,000 TOTAL LIABILITIES 12,486,313 NET POSITION: NET INVESTMENT IN CAPITAL ASSETS 3,867,040 UNRESTRICTED 2,012,149 TOTAL NET POSITION $ 5,879,189
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-36
Ch. 7, Solutions, 7-8 (Cont'd)
d. CITY OF BAY LAKE WATER UTILITY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES: CASH RECEIVED FROM CUSTOMERS $2,943,401 CASH PAID TO: EMPLOYEES AND SUPPLIERS ( 1,462,596) NET CASH PROVIDED BY OPERATIONS 1,480,805 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: TRANSFER TO GENERAL FUND $(800,000) CUSTOMER DEPOSITS 1,515 NET CASH USED BY NONCAPITAL FINANCING ACTIVITIES (798,485) CASH FLOWS FROM CAPITAL & RELATED FINANCING ACTIVITIES: PROCEEDS FROM CAPITAL GRANT 475,000 PUCHASE OF MACHINERY & EQUIPMENT (583,425) PRINCIPAL PAID ON CAPITAL DEBT (400,000) INTEREST PAID ON CAPITAL DEBT (395,917) NET CASH USED BY CAPITAL & RELATED FINANCING ACTIVITIES (904,342) CASH FLOWS FROM INVESTING ACTIVITIES: INTEREST RECEIVED ON INVESTMENTS 260,000 NET INCREASE IN CASH AND CASH EQUIVALENTS 37,978 CASH AND CASH EQUIVALENTS, JULY 1, 2013 1,775,019 CASH AND CASH EQUIVALENTS, JUNE 30, 2014 $1,812,997 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET END BEGINNING OF YEAR OF YEAR CASH AND CASH EQUIVALENTS IN CURRENT AND ACCRUED ASSETS $1,811,482 $1,775,019 RESTRICTED CASH AND CASH EQUIVALENTS 10,708 9,193 TOTAL CASH AND CASH EQUIVALENTS $1,822,190 $1,784,212
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-37
Ch. 7, Solutions, 7-8 (Cont'd)
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATIONS OPERATING INCOME $ 822,764 ADJUSTMENTS: DEPRECIATION EXPENSEMACHINERY & EQUIPMENT 600,132 UNCOLLECTIBLE ACCOUNTS 4,900 INCREASE IN ACCOUNTS RECEIVABLE (44,808) INCREASE IN ACCRUED UTILITY REVENUE (200,000) DECREASE IN DUE FROM GENERAL FUND 15,665 INCREASE IN ACCOUNTS AND ACCRUED PAYABLE 282,152 NET CASH PROVIDED BY OPERATING ACTIVITIES $1,480,805
7-9. Some of the errors noted include:
If there are major enterprise funds, they should be reported in separate
columns with all non-major enterprise funds reported in a column
headed Other Enterprise Funds. The Total Enterprise Funds
column would be shown after the Other Enterprise Funds column.
There should not be a total column that combines internal service funds
and enterprise funds. Internal service funds and enterprise funds are
not combined since at the government-wide level only enterprise funds
are generally reported as business-type activity.
GASB requires that operating and nonoperating revenues and expenses
be identified.
Investment income would generally be considered nonoperating
revenue.
Interest expense would generally be considered nonoperating
expense.
Loss on disposal of capital assets would be considered a
nonoperating expense.
A transfer out would be shown in a section after the total of
nonoperating revenues/expenses. It would not be referred to as an
other financing use (OFU).
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-38
Ch. 7, Solutions, 7-9 (Cont'd)
The special item should appear right before the change in net position
and after the transfer out.
GASBS 63 changed proprietary fund equity terminology from Net
Assets to Net Position.
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Chapter 07 - Accounting for the Business-type Activities of State and Local Governments
7-39
Ch. 7, Solutions (Cont'd) 7-10.
INGLIS CITY ENTERPRISE FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 CASH FLOWS FROM OPERATING ACTIVITIES:
CASH RECEIVED FROM CUSTOMERS $2,915,500
CASH PAID TO:
SUPPLIERS $(1,642,100)
EMPLOYEES (479,300)
OTHER (89,200) (2,210,600)
NET CASH PROVIDED BY OPERATIONS $704,900
CASH FLOWS FROM NONCAPITAL FINANCING
ACTIVITIES:
GRANT FROM STATE 50,000
TRANSFER TO GENERAL FUND (25,000)
NET CASH PROVIDED BY NONCAPITAL
FINANCING ACTIVITIES 25,000
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF CAPITAL ASSETS 57,500
DEBT PAYMENT (525,000)
NET CASH USED BY CAPITAL FINANCING ACTIVITIES (467,500)
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF INVESTMENTS (75,000)
INTEREST RECEIVED ON INVESTMENTS 42,400
NET CASH PROVIDED BY INVESTING ACTIVITIES (32,600)
NET INCREASE IN CASH AND CASH EQUIVALENTS 229,800
CASH AND CASH EQUIVALENTS, 1/1/2014 895,635
CASH AND CASH EQUIVALENTS, 12/31/2014 $1,125,435