32 Select the best answer. 1. Internal service funds are reported as a. business-type activities in government-wide statements and governmental funds in fund statements b. proprietary funds in fund statements and governmental activities in government-wide statements c. business-type activities in government-wide statements and proprietary funds in fund statements d. governmental funds in fund statements and governmental activities in government-wide statements 2. In which of the following statements would depreciation not be reported? a. internal service fund statement of revenues, expenses, and changes in fund net assets b. government-wide statement of activities c. capital projects fund statement of revenues, expenditures, and changes in fund balance d. enterprise fund statement of revenues, expenses, and changes in fund net assets 3. Which of the following is required supplementary information? a. explanation of accounting principles used in preparing the financial statements b. schedule of changes in capital assets c. budgetary comparison d. ten-year trend of assessed property values 4. Which of the following is not required to be incorporated into the budgetary comparison? a. expenditures per the originally adopted budget b. expenditures per the amended budget c. actual expenditures d. variance between the actual expenditures and those per the amended budget 5. The managements discussion and analysis (MD&A) is most likely to include information on a. service efforts and accomplishments b. market values of government-owned capital assets c. the condition of infrastructure assets d. financial performance during the period covered by the financial statements 6. Which of the following is not one of the three main categories of funds? a. governmental funds b. permanent funds c. proprietary funds d. fiduciary funds 7. Major funds include a. all governmental funds plus proprietary funds that have fund balances greater than 10 percent of those of all proprietary funds combined b. the general fund, special revenue funds, capital projects funds, and debt service funds c. the general fund plus all funds that have assets greater that 50 percent of those of the general fund d. the general fund plus other funds in which total assets, revenues, or expenditures/ expenses of the fund are at least 10 percent of the corresponding total for the relevant fund category (governmental or enterprise) and also at least 5 percent of the corresponding total for all governmental and enterprise funds combined 8. The assets and liabilities of nonmajor governmental funds would be a. aggregated and reported in the governmental funds balance sheet in a single column b. excluded from the government-wide statement of net assets c. shown only in notes to the financial statements d. reported as required supplementary information 9. Which of the following would not be reported on a government-wide statement of activities? a. a transfer of cash from the general fund to a debt service fund b. costs incurred by the recreation department for electricity purchased from the cityowned electric utility c. depreciation on traffic lights d. interest on bonds issued by the electric utility department 10. Which of the following is not required to be included in a governments basic financial statements or required supplementary information? a. a reconciliation between proprietary fund financial statements and the business-type activities column of the government-wide financial statements b. a reconciliation between governmental fund financial statements and the governmental activities column of the government-wide financial statements c. a reconciliation between revenues reported on the basis of GAAP and those reported on a budgetary basis d. a comparison between actual expenditures and expenditures per the amended budget 33 Even at this early stage of the course it is possible to reconstruct journal entries from a balance sheet. The Sherill Utility District was recently established. Here is its balance sheet, after one year. Sherill Utility District Balance Sheet as of End of Year 1 (in millions) Capital Gen- Proj- Debt eral ects Service Fund Fund Fund Totals Assets: Cash $30 $ 30 Investments $90 $20 110 Total Assets $30 $90 $20 $140 Liabilities and Fund Balances: Fund Balances $30 $90 $20 $140 Note the following additional information: a. The general fund received all of its revenue, $150 million, from taxes (all collected). It had operating expenditures, excluding transfers to other funds, of $100 million (all paid for). b. The general fund transferred $20 million to the debt service fund. Of this, $15 million was to repay the principal on bonds outstanding; $5 million was for interest. c. The district issued $130 million in bonds to finance construction of plant and equipment. Of this, it expended $40 million. 1. Prepare journal entries to summarize these activities in the appropriate funds. You need not make closing entries. Do not be concerned as to the specific titles of accounts to be debited or credited (e.g., whether a transfer from one fund to another should be called a transfer, an expense or an expenditure, or whether proceeds from bonds should be called bond proceeds or revenues.) 2. Comment on how the districts governmentwide (full accrual) statement of net assets would differ from the balance sheet presented. 34 Fund Fund The transactions of the authority are accounted for in the following governmental fund types: General fundTo account for all revenues and expenditures not required to be accounted for in other funds. Capital projects fundTo account for financial 1. Recast the balance sheets of the two funds into a single consolidated balance sheet. Show separately, however, the restricted and the unrestricted portions of the consolidated fund balance account (not each individual asset and liability). Be sure to eliminate interfund payables and receivables. 2. Which presentation, the unconsolidated or the consolidated, provides more complete information? Explain. Which presentation might be seen as misleading? Why? What, if any, advantages do you see to the presentation that is less complete and more misleading? 35 Consolidated balances are not substitutes for individual fund balance sheets. The combined governmental fund balance sheet of the town of Paris is presented on next page. Per schedules included in the notes to the financial statements, the town had $1,450 of capital assets (net of accumulated depreciation) and $1,315 in long-term liabilities associated with the capital assets. 1. Recast the balance sheets in the form of a single consolidated, full accrual balance sheet. 2. Put yourself in the place of an analyst. The town mayor presents you with the consolidated balance sheet. He asserts that the towns financial position is excellent, as measured by the exceedingly healthy fund balance. Based on your having seen the combined balance sheet that shows the individual fund types, why might you be skeptical of his claim? 3. Comment on why a consolidated balance sheet is no substitute for a combined balance sheet that reports on major funds. 36 Exploring Vero Beachs financial report Refer to the financial statements of the City of Vero Beach that are included in this chapter. 1. Per the government-wide statement of activities, how much did the city incur in expense for police? Of this amount, how much had to be covered from general tax and other unrestricted revenues? 2. Per the governmental funds statement of revenues, expenditures, and changes in fund balances, how much did the city incur in expenditures for police? How do you account for the difference between this amount and your response to question 1? 3. Per the government-wide statement of activities, what was the ending balance in net assets associated with governmental activities? Is this consistent with the government-wide statement of net assets? 4. How much was transferred (net) from businesstype to governmental activities during the year? 5. How much in taxes did the city direct to the support of business-type activities? 6 Vero Beachs statement include a schedule (Table 3-6) 7. As noted in the text, government-wide statements are on a full accrual basis and therefore the statement of activities includes charges for depreciation. Orlandos government-wide statement of activities reports $1.8 million of unallocated depreciation (i.e., not allocated to specific functions or programs) for governmental activities. How much depreciation did Orlando allocate to specific functions or programs of governmental activities? 9. Over 90 percent of the total amount of capital assets reported in the government-wide statement of net assets are devoted to business-type activities. What is the most likely explanation as to why the proportion of capital assets directed to business-type activities is greater than that devoted to governmental activities