1. Describe the purpose of fund accounting and identify the major fund categories used in governmental accounting.

2. Discuss the difference in timing recognition of revenue and expenditures using the accrual basis of accounting and the modified accrual basis of accounting. Choose one of the fund categories and explain how the different methods are applied.

Exercise P2-2

(Identification of activities with funds and identifying funds with the appropriate measurement focus and basis of accounting)

Jasmin City is a small city on the Canadian border of the United States. Because of its colorful history and fine restaurants, it is a tourist destination. Jasmin uses separate funds to account for the following activities. For each of the activities listed, state (a) the type of fund that Jasmin City will use, (b) the measurement focus and basis of accounting of each fund, and (c) the fund-level financial statements required for each fund.

1. The citys day-to-day operating activities.

2. Sources of financing and expenditures related to the construction of an office building.

3. Payment of debt service on long-term bonds issued to build the office building.

4. A central activity that acquires supplies and sells them to the various city agencies.

5. A city-owned utility that buys and sells electricity to its residents.

6. A fund that accumulates resources to pay pensions to city employees.

7. An activity that invests funds on behalf of two small neighboring cities.

8. Disposition of sales taxes collected by the city on behalf of the county where it is located.

Exercise P2-4

(Identification of activities with particular governmental-type funds)

Using only the governmental-type funds, indicate which would be used to record each of the following transactions and events:

GF General Fund

SRF Special Revenue Fund

DSF Debt Service Fund

CPF Capital Projects Fund

PF Permanent Fund

___ 1. The city transferred cash to the fund used to accumulate resources to pay bond principal

and interest.

___ 2. The city received its share of a state sales tax that is legally required to be used to finance library operations.

___ 3. The city sent property tax bills to homeowners to help pay for day-to-day operating costs.

___ 4. The city paid for five fire engines, using resources accumulated in a fund to pay for capital assets.

___ 5. The city received a grant from the state to build an addition to the city hall.

___ 6. The city received the proceeds of general obligation bonds to finance the construction of a new police station.

___ 7. The mayor was paid his monthly salary.

___ 8. Expenditures for the operation of the Police Department were recorded.

___ 9. Parks admissions fees, dedicated for use in day-to-day maintenance of the city park system, were collected.

___ 10. The city paid a contractor who had completed a report on the potential for improving

police deployment as a way to reduce the crime rate.

___ 11. The city workers were paid their weekly salaries.

___ 12. The city retired some of its outstanding bonds, using money accumulated for that purpose.

___ 13. A federal grant was received to help pay for the cost of constructing the new city hall.

___ 14. The city received a donation from a taxpayer with the stipulation that it be invested and kept in perpetuity, so that the income from the investments could be used to buy library books.

___ 15. The city received income from the investments made in the previous activity.