Question 1 (15 marks)

(a) Define governmental organizations as agreed upon by the FASB and GASB.

(1 mark)

(b) Elaborate the purpose of fund accounting.

(1.5 mark)

(c) On 1^st April, 2020, University City, Sharjah purchased a cricket stadium from a private operator for $4,500,000, of which $2,250,000 was provided by a one-time contribution from the General Fund, and $2,250,000 was provided by a loan from the Emirates National Bank of Dubai, secured by a note.

The loan has an annual interest rate of 8 per cent, payable semiannually on October 1 and April 1; principal payments of $750,000 are to be made annually, beginning on April 1, 2021. The City has a calendar year as its fiscal year.

During the year ended December 31, 2020, the following transactions occurred related to the University City, Sharjah cricket stadium:

1.The amounts were received from the City General Fund and the Emirates National Bank of Dubai.

2.A loan was provided in the amount of $975,000 from the Water Utility Fund to provide working capital.

3.The purchase of the cricket stadium was recorded. Based on an appraisal, it was decided to allocate $1,125,000 to the land, $1,575,000 to improvements other than buildings (the stadium), and $675,000 to the building.

4.Charges to coaches during the season amounted to $1,785,000, all received in cash.

5.Salaries paid to employees amounted to $900,000, all paid in cash, of which $675,000 was cost of services and $225,000 was administration.

6.Supplies purchased amounted to $300,000; all but$37,500was used. Cash was paid for the supplies, all of which was for cost of sales and services.

7.Administrative expenses amounted to $138,750, paid in cash.

8.The first interest payment was made to the Emirates National Bank of Dubai.

9.The short-term loan was repaid to the Water Utility Fund.

10.Depreciation of $161,250 for the Dug-out and $52,500 on the building was recorded for the nine months they were in operation.

11.Interest was accrued for the year.

12.Closing entries were prepared.

Required:

a.Prepare entries to record the transactions.

b.Prep a Statement of Revenues, Expenses, and Changes in Fund Net Position for the year ended December 31, 2020, for the University City, Sharjah, Cricket Stadium.

c.Identify the types of nonexchange revenues that are most likely to result in differences in the timing of recognition between the accrual and modified accrual bases of accounting.