Ch17_Test Bank Jeter Advanced Accounting 3rd Edition

Chapter 17

Introduction to Fund Accounting

Multiple Choice

1. Governmental units include all of the following except

a. counties.

b. school districts.

c. industrial development districts.

d. voluntary health and welfare organizations.

2. Which type of fund entities are used to account for the activities of nonbusiness organizations that

are similar to those of business enterprises?

a. Expendable fund entities

b. Proprietary fund entities

c. Budgetary fund entities

d. Restricted fund entities

3. When budgeted expenditures are enacted into law, they are referred to as

a. estimated expenditures.

b. encumbrances.

c. appropriations.

d. expenditures.

4. The term used to describe the application of accounting to expendable fund entities is the

a. accrual method.

b. cash method.

c. modified cash method.

d. modified accrual method.

5. The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to

a. Appropriations.

b. Expenditures.

c. Encumbrances.

d. both Appropriations and Encumbrances.

6. The entry to record the receipt of office equipment previously encumbered includes a debit to

a. Office Equipment.

b. Encumbrances.

c. Reserve for Encumbrances.

d. both Office Equipment and Reserve for Encumbrances.

7. In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory"

account is used under

a. the consumption method.

b. the purchase method.

c. both the consumption and purchase methods.

d. none of these.

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Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd

Edition

17-2

8. The two basic statements prepared for expendable fund entities are a balance sheet and a(n)

a. income statement.

b. statement of revenue.

c. statement of expenditures and encumbrances.

d. none of these.

9. If a credit was made to the fund balance in the process of recording a budget for a governmental

unit, it can be assumed that

a. estimated expenses exceed actual revenues.

b. actual expenses exceed estimated expenses.

c. estimated revenues exceed appropriations.

d. appropriations exceed estimated revenues.

10. The "reserve for encumbrances—prior year" account represents amounts recorded by a

governmental unit for

a. anticipated expenditures in the next year.

b. expenditures for which purchase orders were made in the prior year but disbursement will be in

the current year.

c. excess expenditures in the prior year that will be offset against the current-year budgeted

amounts.

d. unanticipated expenditures of the prior year that become evident in the current year.

11. Which of the following requires the use of the encumbrance system?

a. Capital projects fund

b. Debt service fund

c. Internal service fund

d. Enterprise fund

12. The following related entries were recorded in sequence in the general fund of a municipality:

1. Encumbrances 15,000

Reserve for Encumbrances 15,000

2. Reserve for Encumbrances 15,000

Encumbrances 15,000

3. Expenditures 15,350

Vouchers Payable 15,350

The sequence of entries indicates that

a. an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was

cancelled and a liability for the item was acknowledged.

b. an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350

for which a liability was acknowledged upon receipt.

c. encumbrances were anticipated but later failed to materialize and were reversed. A liability of

$15,350 was incurred.

d. the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged.




Chapter 17 Introduction to Fund Accounting

17-3

13. The reserve for encumbrances account is properly considered to be a

a. current liability if payable within a year; otherwise, long-term debt.

b. fixed liability.

c. floating debt.

d. reservation of the fund's equity.

14. Customers' meter deposits which cannot be spent for normal operating purposes would be classified

as restricted cash in the balance sheet of which fund?

a. Internal Service

b. Trust

c. Agency

d. Enterprise

15. What journal entry should be made at the end of the fiscal year to close out encumbrances for which

goods and services have not been received?

a. Debit reserve for encumbrance and credit encumbrances.

b. Debit reserve for encumbrances and credit fund balance.

c. Debit fund balance and credit encumbrances.

d. Debit encumbrances and credit reserve for encumbrances.

16. The GASB has the responsibility for establishing financial accounting standards for all of the

following entities except:

a. state and local government entities.

b. veterans hospitals.

c. school districts.

d. civic organizations.

17. The expendable fund entity’s measurement focus is on:

a. the flow of current financial resources.

b. the flow of economic resources.

c. the flow of revenue, expenses, and net income.

d. none of the above.

18. Under GASB Statement No. 34, a government-wide financial statement should include a:

a. statement of revenues & expenses.

b. statement of activities.

c. statement of financial position.

d. notes to the financial statements.

19. In accounting for expendable fund entities, revenue is ordinarily not recognized until:

a. it can be objectively measured and it is available to finance expenditures of the current period.

b. a transaction has taken place and the earnings process is complete.

c. it has been received in cash.

d. none of the above.

20. The Expenditures account of a governmental unit is debited when:

a. the budget is recorded.

b. supplies are ordered.

c. supplies encumbered are received.

d. the supplies invoice is paid.





Edition

17-4

Problems

17-1 During 2011, the City of Paola was involved in the following transactions:

1. A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of

$1,550,000 was approved by the city council.

2. Statements of property tax assessments totaling $1,100,000 were mailed to property owners.

Experience indicates that 2% of assessed taxes will be uncollectible.

3. Equipment costing $85,000 was purchased, and old equipment was sold for $15,000 at the end

of its estimated useful life.

4. The city manager signed a contract to purchase a machine costing $25,000.

5. The city received a statement from the state indicating that the city's portion of the state sales

tax is $50,000.

6. The machine ordered in (4) above is delivered and accepted. The invoice in the amount of

$26,000 was approved for payment.

Required:

Prepare the journal entries needed to account for the preceding transactions.





17-5

17-2 On December 31, 2011, the following account balances, among others, were included in the

preclosing trial balance of the General Fund of the City of Ottawa.

Estimated Revenue $2,960,000

Expenditures 1,950,000

Encumbrances 530,000

Expenditures—2010 300,000

Reserve for Encumbrances (1) 830,000

Appropriations 2,850,000

Revenue 3,220,000

Reserve for Supplies Inventory (2) 600,000

Supplies Inventory 600,000

Unreserved Fund Balance 300,000

(1) The balance in this account was $270,000 on January 1, 2011. Purchase orders outstanding on

December 2011 total $530,000.

(2) Supplies on hand on December 31, 2011, amount to $380,000.

Required:

1. What was the balance in the Unreserved Fund Balance account on December 31, 2010?

What was the total Fund Balance on December 31, 2010?

2. Prepare the necessary adjusting and closing entries for the year ended December 31, 2011.

Ottawa uses the purchase method to account for supplies.

17-3 The trial balance for the General Fund of the City of Girard as of December 31, 2010, is presented

below:

CITY OF GIRARD

The General Fund

Adjusted Trial Balance

December 31, 2010

Debit Credit

Cash $216,000

Property Tax Receivable 31,000

Estimated Uncollectible Taxes $ 80,000

Due from Trust Fund 41,000




$288,000 $288,000

Transactions for the year ended December 31, 2011 are summarized as follows:

1. The City Council adopted a budget for the year with estimated revenue of $720,000 and

appropriations of $710,000.

2. Property taxes in the amount of $495,000 were levied for the current year. It is estimated that

$20,000 of the taxes levied will prove to be uncollectible.





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17-6

3. Proceeds from the sale of equipment in the amount of $32,000 were received by the General

Fund. The equipment was purchased four years ago with resources of the General Fund at a cost

of $200,000. On the date it was purchased, it was estimated that the equipment had a useful life

of six years.

4. Licenses and fees in the amount of $90,000 were collected.

5. The total amount of encumbrances against fund resources for the year was $595,000.

6. Vouchers in the amount of $445,000 were authorized for payment. This was $11,000 less than

the amount originally encumbered for these purchases.

7. An invoice in the amount of $19,000 was received for goods ordered in 2010. The invoice was

approved for payment.

8. Property taxes in the amount of $425,000 were collected.

9. Vouchers in the amount of $385,000 were paid.

10. Forty-one thousand dollars was transferred to the General Fund from the Trust Fund.

11. The City Council authorized the write-off of $15,000 in uncollected property taxes.

Required:

1. Prepare entries, in general journal form, to record the transactions for the year ended

December 31, 2011.

2. Prepare the necessary closing entries for the year ending December 31, 2011.





17-7

17-4 The following information regarding the fiscal year ended June 30, 2011, was drawn from the

accounts and records of the Chase County general fund:

Revenues and other asset inflows:

Property taxes $6,000,000

Licenses and permits 750,000

State grants 150,000

Collection of interfund advance to other fund 80,000

Proceeds from sale of equipment 40,000

Expenditures and other asset outflows:

General government $2,250,000

Public safety 1,130,000

Judicial system 600,000

Health 900,000

Equipment purchases 370,000

Payment to debt service fund to cover future debt

service on general government bonds 570,000

Total fund balance, July 1, 2010 $1,200,000

Required:

Prepare a statement of revenues, expenditures, and changes in fund balance for the Chase County

general fund for the year ended June 30, 2011.

17-5 The unadjusted trial balance for the general fund of the City of Iola at June 30, 2011, is as follows:

Debits

Cash $170,000

Due from agency fund 25,000


Estimated revenues 800,000

Expenditures 610,000

Property taxes receivable 110,000

Credits

Allowance for uncollectible taxes 8,000

Appropriations 790,000

Unreserved fund balance 30,000

Reserve for encumbrances 60,000

Revenues 840,000

Vouchers payable 107,000

Supplies on hand at June 30, 2011, totaled $8,000. The $120,000 encumbrance relates to equipment

ordered but not received by fiscal year-end.

Required:

Prepare a balance sheet for the general fund of the City of Iola at June 30, 2011.





Edition

17-8

17-6 At the beginning of 2011, the City of Wichita reported an Unreserved Fund Balance of $890,000 and

a supplies inventory balance of $280,000. During the year, Wichita purchased $360,000 in supplies

and used $350,000 worth. The city will report a reserve for supplies inventory.

Required:

a. Prepare the journal entries needed to account for the supplies under the consumption

method.

b. Prepare the necessary journal entries under the purchases method.

c. What would the December 31, 2011, balance in the Unreserved Fund Balance be under the

consumption method, assuming that the only transactions of the fund are those involving the

supplies?

17-7 The following account balances, among others, were included in the preclosing trial balance of the

General Fund of the City of Baxter on December 31, 2011.

Appropriations $2,350,000

Cash 180,000

Due from Other Funds 170,000

Due to Other Funds 70,000


Estimated Revenue 2,480,000


Expenditures – 2010 200,000


Reserve for Encumbrances – 2010 210,000

Revenue 2,400,000

Taxes Receivable 400,000

Transfers from Other Funds 250,000

Transfers to Other Funds 350,000



Required:

a. Prepare the necessary closing entries on December 31, 2011.

b. Calculate the amount of both the unreserved fund balance and the total fund balance in the

balance sheet (1) on December 31, 2010, and (2) on December 31, 2011.

Short Answer

1. Fund entities may be classified as expendable fund entities, fiduciary fund entities, and proprietary

fund entities. Distinguish among expendable, fiduciary, and proprietary fund entities.

2. Expendable fund entities prepare closing entries at the end of each period just as business

enterprises do. Describe the necessary closing entries for expendable funds.

Short Answer Questions from the Textbook

1. What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?

2. Define a fund as the term is applied in accounting for the activities of governmental units and other

nonbusiness organizations.





17-9

3. What is the significance of the ―unreserved fundbalance‖ of an expendable fund entity?

4. What are the major classifications of increases and decreases in expendable fund resources?

5. What are the revenue-recognition criteria for expendable fund entities? How do these criteria differ

from revenue-recognition criteria for profit-oriented enterprises?

6. Expenditures may be classified by function, activity, object, or organizational unit. Give an ex-

ample of each classification for a municipality. Which classification is the most appropriate for

external financial reporting?

7. Distinguish between an appropriation, an en-cumbrance, an expenditure, and a disbursement.

8. Distinguish between an expense and an expenditure.

9. Explain and justify the difference between the treatment of estimated uncollectible taxes in fund

accounting and the treatment of estimated bad debts in commercial accounting.

10. Explain the purposes of encumbrance accounting. Might encumbrance accounting be used by

commercial enterprises?

11. Is the year-end balance in the Reserve for En-cumbrances account a liability? Explain.

12. What columns would you suggest for a subsidiary ledger account in order that it might be a

subsidiary not only to the ―appropriations‖ control account but also the ―encumbrances‖ and the

―expenditures‖ control accounts?

13. Why is depreciation on fixed assets not recorded in the records of expendable fund entities?

14. How does the adoption of a budget for a general fund entity differ from the adoption of a budget by

a commercial unit?

15. Describe the principal financial statements used to report on the activities and status of expendable

fund entities.

16. Why may it be difficult or impossible for a governmental unit to determine the total cost of

performing a particular activity or function?

Business Ethics Question from the Textbook

At State College, where football has long reigned asking and fans are near fanatical in their attendance, the

frenzy for football tickets has recently reached an all-time high. With requests for home game tickets at an

unprecedented level, prices on everything from parking passes to hotel rooms to home rentals have soared

beyond belief. Parking passes were going for $500 on eBay, and hotel rates have doubled—and in some

cases nearly tripled—reaching as high as $650 per night at some hotels.

1. What are the moral or ethical issues in charging what people will pay for rooms and tickets to at-

tend a State College football game?

2. Why not let the economic forces of supply and demand determine prices in our capitalistic

system?





Edition

17-10

ANSWER KEY

Multiple Choice

1. d

2. b

3. c

4. d

5. a

6. c

7. b

8. d

9. c

10. b

11. a

12. b

13. d

14. d

15. c

16. d

17. a

18. b

19. a

20. c

Problems

17-1 1. Estimated Revenue 1,500,000



2. Property Tax Receivable 1,100,000

Estimated Uncollectible Prop. Taxes 22,000

Revenue 1,078,000


Cash 85,000

Cash 15,000

Revenue 15,000



5. Due from State 50,000

Revenue 50,000

6. Reserve for Encumbrances 25,000

Encumbrances 25,000

Expenditures 26,000






17-11

17-2 1. Unreserved fund balance per trial balance $ 300,000

Add: Appropriations 2,850,000

Less: Estimated Revenues (2,960,000)

Unreserved fund balance as of December 31, 2010 $ 190,000

Unreserved fund balance as of December 31, 2010 $ 190,000

Reserve for encumbrances – 12/31/10 270,000

Reserve for supplies inventory 600,000

Total fund balance – 12/31/10 $1,060,000

2. Adjusting and Closing Entries

Revenue 3,220,000



Reserve for Supplies Inventory 220,000

Supplies Inventory 220,000








17-3 1. Journal Entries

1. Estimated Revenue 720,000



2. Property Tax Receivable 495,000

Estimated Uncollectible Taxes 20,000

Revenue 475,000

3. Cash 32,000

Revenue 32,000

4. Cash 90,000

Revenue 90,000







Edition

17-12





7. Expenditures – 2010 19,000


8. Cash 425,000


9. Vouchers Payable 385,000

Cash 385,000

10. Cash 41,000

Due from Trust Fund 41,000

11. Estimated Uncollectible Taxes 15,000


2. Closing Entries

1. Revenue 597,000


Estimated Revenue 720,000

2. Reserve for Encumbrances – 2010 20,000



3. Appropriations 710,000








17-13

17-4

Chase County

General Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For the Year Ended June 30, 2011

Revenues:

Property taxes $6,000,000

Licenses and permits 750,000

State grants 150,000

Total revenues $6,900,000

Expenditures:

General government 2,250,000

Public safety 1,130,000

Judicial system 600,000

Health 900,000

Equipment purchases 370,000

Total expenditures 5,250,000

Excess of revenues over expenditures 1,650,000

Other financing sources (uses):

Operating transfers out-debt service fund (570,000)

Special items:

Proceeds from sale of equipment 40,000

Net change in fund balance 1,120,000

Fund Balance-beginning 1,200,000

Fund Balance-ending $2,320,000





Edition

17-14

17-5

City of Iola

General Fund

Balance Sheet

June 30, 2011

Assets:

Cash $170,000

Property taxes receivable (net of

estimated uncollectible taxes of $8,000) 102,000

Due from other funds 25,000

Supplies 8,000

Total assets $ 305,000

Liabilities and Fund Balance:

Vouchers payable 107,000

Fund balance unreserved 130,000

Reserve for encumbrances 60,000

Reserve for inventory 8,000

Total fund balance 198,000

Total liabilities and fund balance $305,000

Computation of Unreserved Fund Balance:

Pre-closing balance $ 30,000

Add:

Revenues 840,000


Deduct:



Estimated revenues 800,000

Post-closing balance $130,000

17-6

A. Expenditures 360,000

Cash 360,000

Inventory 8,000

Expenditures 8,000



B. Expenditures 360,000

Cash 360,000

Inventory 8,000






17-15

C. 1/1 Balance $890,000

Use of Supplies (350,000)

Setting up of Reserve (8,000)

12/31 Unreserved Fund Balance $532,000

17-7

A. Closing Entries

1. Unreserved Fund Balance 80,000

Revenue 2,400,000


2. Reserve for Encumbrances – 2010 210,000



3. Appropriations 2,350,000




4. Transfers from Other Funds 250,000


Transfers to Other Funds 350,000

B. Budget entry on January 1, 2011

Estimated Revenues 2,480,000



Unreserved fund balance per 12/31/11 preclosing trial balance $ 280,000

Less credit to unreserved fund balance on 1/1/11 from budget entry 130,000

Unreserved fund balance on 12/31/10 150,000

Reserve for encumbrances 12/31/10 210,000

Total fund balance per balance sheet 12/31/10 $ 360,000

Unreserved fund balance per 12/31/11 pre-closing trial balance $280,000

Closing entries ($10,000 + $90,000 - $80,000 - $100,000) (80,000)

Unreserved fund balance 12/31/11 200,000

Reserve for encumbrances 12/31/11 250,000

Total fund balance per balance sheet 12/31/11 $450,000





Edition

17-16

Short Answer

1. Expendable fund entities consist of net financial resources that are dedicated to a specified use.

Separate expendable fund entities are established based on the purpose for which financial resources

may/must be used. Fiduciary fund entities are used to follow the activities in which the government

acts as an agent for resources that belong to others such as employee pension plans. Fiduciary funds

include both trust and agency funds.

Proprietary fund entities are used to account for the activities of nonbusiness organizations that are

similar to those of business enterprises, such as a municipal water utility.

2. Closing entries for expendable funds include the following:

a. Revenues are closed against estimated revenues with the difference recorded in unreserved fund

balance.

b. Appropriations are closed against expenditures and encumbrances. Any difference is recorded in

the unreserved fund balance.

c. Expenditures made for prior years’ encumbrances are closed against the reserve for

encumbrances for that specific year.

d. Transfers to and from other funds are closed against unreseved fund balance.

Short Answer Questions from the Textbook Solutions

1. The performance of services by nonbusiness organizations is based on social need rather than on the

profit motive and there is no conscious or deliberate effort by such organizations to derive a profit from

their operations.

Nonbusiness organizations are not operated for the financial benefit of a specific individual or

group of individuals and those who contribute resources to nonbusiness organizations do not

necessarily benefit proportionately or at all from the services provided by such organizations.

There is no proprietary interest in nonbusiness organizations and the equity interest in the net

assets of such organizations cannot be sold or exchanged.

2. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and

other financial resources together with all related liabilities and residual equities or balances,

and changes therein, which are segregated for the purpose of carrying on specific activities or

attaining certain objectives in accordance with special regulations, restrictions, or limitations.

3. At any particular point in time the unreserved fund balance of an expendable fund entity

represents the balance of financial resources that are available for expenditure for the specified

purposes or objectives for which the fund was created.

4. Major classifications of increases in expendable fund resources are revenues, debt issue proceeds and

transfers from other funds. Decreases in expendable fund resources are classified as expenditures or as

transfers to other funds.

5. In accounting for expendable funds entities revenue is recognized when (1) it can be objectively

measured and (2) it is available to finance expenditures of the current period. In contrast, in accounting

for profit-oriented enterprises revenue is ordinarily not recognized until (1) it can be objectively

measured and (2) the earnings process is complete or substantially complete.





17-17

6. Municipality:

Functions – Public Safety

Activity – Vice Control

Organization Unit – Police Department

Object – Travel

Functional and activity classifications are recommended for external financial reporting.

7. An appropriation is an authorization enacted by a legislative body or granted by a governing board to

make expenditures for a specified purpose.

An encumbrance is an obligation in the form of a purchase order or other commitment that reduces

appropriation authority and is formally recorded in the accounting records.

An expenditure is a decrease in the net financial resources of a fund entity incurred to carry out

the activities or objectives of the fund.

A disbursement represents the payment of cash for an expenditure. Such payments may precede the

expenditure (an advance), coincide with the expenditure (a direct payment), or follow the expenditure

(the payment of a liability).

8. An expense is associated with accounting for profit oriented enterprises or proprietary funds and may be

defined as an expired cost consumed in the production of revenue. An expenditure is associated with

accounting for expendable funds entities and is a decrease in the net financial resources of a fund entity

incurred to carry out the activities or objectives of the fund.

9. In accounting for commercial activities, estimated uncollectible receivables are treated as an

expense in the determination of net income. In accounting for expendable fund entities,

estimated uncollectible taxes are treated as a direct reduction of revenue in the determination of

the inflow of financial resources. The estimate of uncollectible taxes is treated as a direct

reduction of revenue rather than as an expenditure since the failure to collect taxes is not an

outflow of financial resources but rather is a reduction in the inflow of financial resources.

Since there is no appropriation for the amount of estimated uncollectible taxes, it is properly

accounted for as a reduction of revenue rather than as an expenditure.

10. Since the amount of an appropriation cannot be legally exceeded, the placing of purchase orders and the

signing of contracts are critical events in controlling the expenditures of expendable fund entities. The

financial resources of a fund are said to be encumbered when a transaction is entered into that requires

performance on the part of another party before the nonprofit entity becomes liable to perform (expend

financial resources) its part of the transaction. Encumbrance accounting formally records the reduction

of appropriation authority resulting from purchase orders and similar commitments and thus serves to

provide an accounting safeguard against the expenditure of financial resources in excess of

appropriations.

There would be no reason to prevent a commercial enterprise from using encumbrance

accounting so long as the balance in reserve for encumbrances was offset by the balance in the

encumbrances account for reporting purposes. However, the compelling need for encumbrance





Edition

17-18

accounting arising from the penalties provided by law for government administrators who

expend funds in excess of those appropriated is not a factor in the operation and administration

of commercial enterprises.

11. The balance in the Reserve for Encumbrances account is not a liability. Rather it represents the

estimated amount of net financial resources of the fund entity that will be needed in the subsequent year

to liquidate obligations entered into under the authority of the current year’s appropriation. As such it

represents a restriction on the availability of fund resources for future appropriation rather than a

liability and is properly reported in the financial statements as a portion (reserved) of the total fund

balance.

12. There should be columns for the following balances: Appropriations, Encumbrances,

Expenditures, Total Encumbrances and Expenditures, and Unencumbered Balance.

13. Assets acquired with the resources of an expendable fund entity do not represent expendable

financial resources but rather reflect the purposes for which the financial resources have been

used. Thus, they are recorded and reported as expenditures of, rather than as assets of, the

expendable fund entity. Depreciation is not accounted for in the records of an expendable fund

entity for the same reasons that fixed assets are excluded from the records of such entities.

Expenditures, not expenses, are measured in fund accounting.

Acquisitions of fixed assets require the use of financial resources and are accounted for as

expenditures. Depreciation of such assets is not a use of the financial resources of an

expendable fund entity and thus is not properly recorded in the accounts of such entities.

Inclusion of depreciation expense in the operating statement of an expendable fund entity

would confuse two fundamentally different measurements - expenditures and expenses.

14. The adoption of a budget for a general fund is a legislative process that is highly formalized and which

results in the formal recording of the budgeted amounts (appropriations) within the framework of the

double entry accounting system. The adoption of a budget by a commercial unit is also a planning and

control device, but the adoption process and the subsequent application of the budget is seldom as

formalized or as rigid as it is in governmental accounting.

15. There are two principal financial statements recommended for expendable fund entities: (1) a

Comparative Balance Sheet and (2) a Comparative Statement of Revenue, Expenditures and

Other Changes in Fund Balance. These two statements may be accompanied by schedules that

present detailed financial data which support and amplify the information summarized in the

formal financial statements. Supporting schedules may also be used to present budgetary data or

to demonstrate compliance with legal provisions.

16. In order to determine the total cost of performing a particular function or activity, the total

expenditures for such functions or activities would have to be adjusted by reducing the amount

of capital expenditures included therein and by adding depreciation expenses relating to the

dissipation of services embodied in capital assets utilized to support the function or activity.

Since capital acquisitions are not distinguished from other expenditures in the records of

expendable fund entities and since depreciation is not calculated within the framework of the

records of expendable fund entities there may be no reasonable basis for determining the

amount or classification of these adjustments.





17-19

Business Ethics Question from the Textbook Solution

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students'

awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or

conflicting viewpoints.

Issues to be considered: If pricing is a function of cost, then businesses charging excessive prices can be

viewed as following excessive, even obscene pricing strategies. Also, there are others visiting the city who

are not attending the football game and who might adversely affected (for example, individuals with medical

emergencies, ill family members, etc.). On the other hand, the goal of business is to make a profit and take

advantage of market opportunities. As long as people are aware of the practices, many might argue that the

pricing strategy is appropriate.




Ch17_Test Bank Jeter Advanced Accounting 3rd Edition

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