Chap 017

Chapter 17 - Accounting for State and Local Governments (Part Two)

CHAPTER 17ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS

(PART TWO)

Chapter Outline

I. Government entities often obtain property by lease rather than by purchase.A. Leases are recorded as either capital leases or operating leases based upon the

criteria first established to record for-profit businesses by FASB Statement 13.

B. Based on this standard, a lease that meets any one of the following criteria is a capital lease:a. The lease transfers ownership of the property to the lessee by the end of the

lease term.b. The lease contains an option to purchase the leased property at a bargain price.c. The lease term is equal to or greater than 75 percent of the economic life

of the leased property.d. The present value of minimum lease payments equals or exceeds 90 percent of

the fair value of the leased property.C. For a state or local government, a capital lease is recorded as follows:

a. In the government-wide financial statements, the lease is reported as an asset and liability at the present value of the minimum leases payments and then depreciation expense (on the asset) and interest expense (on the liability) are recognized.

b. In the fund-based financial statements for the government funds, the present value of the minimum lease payments is recorded as an expenditure and an other financing source. Later interest and principal payments are recorded as expenditures. No depreciation is reported because capital assets are not recognized in the governmental funds.

II. Governments often establish solid waste landfills for the use of the citizens. These facilities can be recorded within the proprietary funds, if a user fee is assessed, or as part of the general fund if the landfill is open to the public without a charge.A. A landfill can eventually create a large liability for the government because of closure

costs and post-closure maintenance and monitoring.B. On government-wide financial statements, recognition of this liability is based on

accrual accounting and the economic resource measurement focus. Thus, the liability is recognized proportionally as the available space becomes filled. If the landfill is recorded as an Enterprise Fund, this same reporting is also appropriate for fund-based financial statements.

C. If the landfill is reported within the General Fund, the liability is only reported on the fund-based statements when a claim to current financial resources comes into existence.

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III. Many governments incur a liability for compensated absences (vacations, for example, and sick pay) earned by employees such as school teachers and police officers.A. Government-wide financial statements require recognition of this liability and expense

as incurred based on accrual accounting and the economic resource measurement focus.

B. Fund-based financial statements record a liability only if the claim is to be paid from current financial resources (such as a specified period into the subsequent year).

IV. Works of Art and Historical TreasuresA. Artworks, historical treasures, and similar assets should be capitalized at cost (or fair

value at the date of donation) in government-wide financial statements.B. An expense rather than an asset can be recorded but only if the item does not

generate economic benefits and meets the following three criteria.a. Held for public exhibition, education, or research in furtherance of public service,

rather than financial gain.b. Protected, kept unencumbered, cared for, and preserved.c. Subject to the policy that revenues generated from sales of items in the collection

be used to add to the collection.C. If capitalized, depreciation is not required if this type of asset is considered to be

inexhaustible.D. On fund-based financial statements for the governmental funds, an expenditure is

recognized for any acquisitions because such assets are not current financial resources.

V. Infrastructure Assets and Depreciation A. Newly-acquired infrastructure assets (such as roads, bridges, and sidewalks) are

capitalized at historical cost in the government-wide financial statements and recorded as an expenditure in the fund-based financial statements.

A. Major general infrastructure assets put into service since 1980 are also capitalized although an estimation of current book value may be necessary.

B. Depreciation of all capital assets other than land and inexhaustible artworks is required. Thus, infrastructure items are also subject to depreciation.

C. However, the “modified approach” allows the expensing of maintenance costs in lieu of depreciation for infrastructure assets if certain criteria are met.a. A minimum acceptable condition level is established for a network of infrastructure

assets and documentation is provided to verify that this minimum level has been maintained.

b. An asset management system must be in place to monitor the condition of the items in this system of assets.

VI. Primary governments must produce a comprehensive annual financial report (CAFR) which includes general purpose external financial statements. These statements are divided into three distinct sections.

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A. Management’s discussion and analysis (MD&A) which provides a broad range of information to help decision-makers evaluate the operations and financial position of the government entities.

B. Financial statementsa. Government-wide financial statements.b. Fund-based financial statements.c. Notes to the financial statements.

C. Required supplementary information.

VII. For governmental accounting, a primary government is a city, town, county, state or the like. In producing its CAFR, it may also have to report component units.A. In addition, a special purpose government (such as a school board, university, or water

commission) qualifies as a primary government if it meets the following three criteria:a. It has a separately elected governing body.b. It is legally independentc. It is fiscally independent of any other state and local governments

B. Any agency, board, of the like that meets either of the following two criteria are also reported within the CAFR of the primary government even though they are independent operations. They are known as component units.a. It must be fiscally dependent upon the primary organization orb. The primary government must appoint a voting majority of the governing board and

either be able to impose its will on the board or the organization provides a financial benefit or imposes a financial burden on the primary government.

C. Once identified, component units can be discretely presented in a separate column to the right of the government-wide statements or blended with the primary government as if it made up a part of the primary organization.

VIII. Public colleges are required to meet GASB standards, whereas private colleges are required to meet FASB standards.A. Private colleges generally depend more on tuition and usually have greater

endowments. B. Governments provide the major support for public colleges.C. GASB No. 35 requires the application of GASB No. 34 to public colleges. However,

many of these schools assume that they function solely as an Enterprise Fund (open to the public for a user charge). Thus, these schools are allowed to produce fund-based financial statements without need for government-wide statements. The government-wide statements are viewed as redundant.

Answer to Discussion Question

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Is It Part of the County?

In financial accounting for a for-profit organization, the boundary for the reporting entity and its various activities (or subsidiaries) is relatively easy to determine. US GAAP provides the basis for inclusion in the consolidated financial statements, which includes all entities over which a company has control.

In accounting for state and local governments, the distinction is not so clear. What constitutes a reporting entity? Obviously, a primary government such as a city or county is a reporting entity. What about other governmental operations and activities that exist separate from a primary government? When do those operations qualify as special purpose governments and when should they be viewed as component units to be reported along with a primary government?

A special purpose government is also a primary government for reporting purposes. To qualify, it must have a separately elected governing body, be legally independent, and also be fiscally independent. Fiscal independence constitutes setting its own budget, levying taxes, and/or issuing bonds without outside approval. Here, the industrial development commission is not fiscally independent of Harland County. Harland County has the ability to impose its will on the separate organization by its right to approve the commission’s budget. Therefore, the industrial development commission is not a special purpose government.

Is the industrial development commission a component unit? An activity is classified as a component unit if it is fiscally dependent on a primary government. Here, because the commission’s budget must be approved by the county government, the commission would appear to qualify as a component unit for Harland County.

Can the commission also be a component unit of the state? There is not fiscal dependence but a component unit does exist if the primary government appoints a voting majority of the board and (a) the primary government can impose its will on that board or (b) the separate organization provides a financial benefit for the primary government or imposes a financial burden. The state does appoint 15 out of 20 of the board members. Appointment of that number of board members does indicate state control. However, there is no evidence or information here that indicates that the state can impose its will on the board or that the separate organization provides a financial benefit or imposes a financial burden on the state. Therefore, unless other information becomes available indicating that one these requirements is present, the industrial commission is not a component unit of the state. However, because of the appointment of the majority of the board, the commission is a related organization to the state. In that case, the state must disclose the nature of the relationship in its financial statements.

Answers to Questions

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1. State and local governments apply FASB Statement Number 13, “Accounting for Leases,” to determine whether a lease is a capital lease or an operating lease. A lease that meets any one of the following criteria is held to be a capital lease:a. The lease transfers ownership of the property to the lessee by the end of the lease

term.b. The lease contains an option to purchase the leased property at a bargain price.c. The lease term is equal to or greater than 75 percent of the estimated economic life of

the leased property.d. The present value of rental or other minimum lease payments equals or exceeds 90

percent of the fair value of the leased property.

2. Within the government-wide financial statements, the accounting for capitalized leases is the same as for-profit enterprises. The asset and liability are initially recorded at the present value of the minimum lease payments. Accrual accounting and the economic resource measurement basis are appropriately followed. The equipment is increased along with the liability obligation. Subsequently, both depreciation expense and interest expense must be recognized. The entries in the fund-based financial statements are the same if a proprietary fund is involved.

The recording of a capital lease in one of the governmental funds (within the fund-based statements) involves the following three steps:

a. The initial entry reports the present value of the liability as an other financing resource.

b. The present value is also recorded as an expenditure consistent with the current financial resources approach being used.

c. When each subsequent lease payment is made, the debt and interest are both recorded as expenditures.

3. In government-wide financial statements, the lease payment is treated the same as it is in for-profit organizations: part of the payment is considered interest and reported as an expense with the rest viewed as a payment of the lease obligation.

In fund-based financial statements, the recording is the same as above if a proprietary fund is involved.

However, the fund-based recording of a capital lease payment in the governmental funds involves the recording of expenditures for both the debt and the interest.

4. Solid waste landfills can be a significant source of liability for local governments. The federal government has strict rules on groundwater monitoring and post-closure activities. These legal obligations can involve large payments over an extended period of time even after the landfill is closed.

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5. Government-wide financial statements recognize expenses on the accrual and economic resource measurement basis. Therefore, seven percent of the expected landfill closure liability cost is accrued during the current year as an expense along with the related liability.

In the fund-based financial statements, the entry is the same as above if an Enterprise Fund is involved.

In the fund-based statements, if the landfill is recorded in the General Fund, the only charge to expenditures is for any current payment, if it is made, or for any claim against current financial resources. The eventual liability is ignored unless it will be paid from current financial resources.

6. Government-wide financial statements recognize expenses on the accrual and economic resource measurement basis. At the end of the first year, 11 percent is multiplied times the expected closing and other related costs and that figure is recognized as both an expense and a liability. Current costs are used for this estimation. At the end of the second year, 24 percent is multiplied times the expected costs (which may have changed since the end of year one) and the liability to be reported is then raised to this new amount. It is the change in the liability that creates the amount of expense to be reported for the second year.

For fund-based financial statements, assuming the landfill is reported in the General Fund, no recording is made unless (a) an actual payment is made because of the eventual closure or (b) some part of that liability represents a claim to current financial resources in this period.

7. The amount accrued, $2,000 in this case, should be recorded on the government-wide

financial statements as an expense at the end of 2010 along with the related liability. It is a liability and should be reported.

As a governmental fund transaction, the fund-based financial statements only include an amount as a liability at the end of 2010 if it is to be paid early enough in 2011 (such as within 60 days) to require the use of current financial resources held at the end of 2010 (which does not appear to be the case).

8. Because of the accrual recorded on the government-wide financial statements at the end of 2010, the actual payment simply reduces both cash and the liability balance.

On the fund-based financial statements, assuming no accrual was reported in 2010, the payment in 2011 is a reduction in cash along with the recognition of an expenditure.

If the amount is paid with proprietary funds, it is treated the same as in government-wide statements.

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9. Governments should capitalize donated works of art, historical treasures, and similar assets at the fair value at the date of the gift. However, if no charge is assessed for admission to see the art, it is difficult to consider it an asset in a traditional sense because it generates no economic benefit for the government. Thus, the artwork does not have to be capitalized if all of the following criteria are met:a. Held for public exhibition, education, or research in furtherance of public service, rather

than financial gain.b. Protected, kept unencumbered, cared for, and preserved.c. Subject to an organizational policy that requires the proceeds from sales of collection

items to be used to acquire other items for collections.

If capitalized, depreciation is only required if the asset is viewed as exhaustible (the asset is used up by display, education, or research). Otherwise, depreciation is not required.

10. Revenue still must be reported because of the donation. If the government chooses not to

record the qualifying asset in the government-wide financial statements, an expense is reported in place of the asset whether purchased or received as a gift. If the item is received by donation, the revenue portion of the entry is still required.

11. The modified approach is an alternative to depreciating infrastructure assets. This approach allows the government to expense all maintenance costs rather than record depreciation but only if certain guidelines are met. The government must accumulate certain information about particular infrastructure assets within either a network or subsystem of a network. The government must establish a minimum acceptable level for the network or subsystem of the network and maintain documentation that this level is being maintained. An asset management system has to be in place to monitor and provide records of the infrastructure assets. The ongoing condition is assessed and an annual estimation made of the cost of maintaining and preserving the infrastructure to meet the established condition levels.

Government officials must decide whether this amount of work should be carried out simply to avoid the recording of depreciation.

12. If the modified approach is applied, depreciation of infrastructure assets is not recorded but all maintenance is expensed. Certain disclosures are required on the government-wide financial statements. This includes disclosure that the government is accumulating certain information about particular infrastructure assets within either a network or subsystem of a network. The disclosure must include specific information about the minimum acceptable level for the network or subsystem of the network and that this level is being maintained and monitored by an asset management system.

13. A Management’s Discussion and Analysis (MD&A) similar to profit-making financial statements is now required for state and local governments.The MD&A is presented before the financial statements and provides the following information:

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(1) A brief discussion of the financial statements and information provided and their relationships to each other.

(2) Condensed financial information at least includinga. Total capital and other assetsb. Total long-term and other liabilitiesc. Total net assets, including amounts invested, in capital assets net of debt, restricted

and unrestricted amounts. d. Program revenues, by major source.e. General revenues, by major source.f. Total revenues.g. Program expenses, by function.h. Total expensesi. Excess or deficiency before contributions to term and permanent fund principal,

special and extraordinary items, and transfers.j. Contributionsk. Special and extraordinary itemsl. Transfersm. Change in net assets n. Ending net assets

(3) Overall financial position and results of operations(4) Balances and transactions analyses with explanation of significant changes(5) Analysis of significant variations between original and final budget amounts(6) Description of significant capital asset and long-term debt activity(7) Information about the modified approach for infrastructure assets(8) Any known facts, decisions, or conditions that are expected to significantly impact on

financial position or results of operations.

14. The Comprehensive Annual Financial Report (CAFR) includes three sectionsa. Introductory Section

1. Letter of transmittal2. Organizational chart3. List of principal officers

b. Financial Section1. MD&A (Management’s Discussion & Analysis)2. General purpose financial statements3. Auditor’s report4. Other required supplementary information

c. Statistical Section

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15. A general purpose government is a traditional government such as a city, county, or state. A special purpose government (such as school system) can also be a primary government for reporting purposes if certain requirements are met.

Classification as a special purpose government requires meeting three criteria:a. It has a separately elected governing body.b. It is legally independent. It can sue and be sued and buy, sell, and lease property. c. It is fiscally independent of other state and local governments. It can determine its own

budget, levy and set tax rates, and issue bonded debt without outside approval.

16. Classification as a component unit requires an organization to meet one of two criteria:a. The activity is fiscally dependent on a primary government. It cannot determine its own

budget, levy and set tax rates, and issue bonded debt without outside approval.

or

b. An outside primary government appoints a voting majority of the governing board of the activity. The primary government must also be able to do one or more of the following: impose its will on the board of the component organization, or provide a financial benefit to the component organization, or the component organization provides a financial benefit to the primary government.

17. If blended, component units are included in the primary government as if they were part of the government (one of its own funds). The component unit is legally separate but so intertwined and substantially the same as the primary government so that inclusion is necessary for appropriate presentation.

A discretely presented component unit is shown separately on the far right side of the government-wide financial statements because the organization is not substantially the same as the government and can stand alone.

18. The two government-wide financial statements are the Statement of Net Assets and the Statement of Activities.

The Statement of Net Assets includes:a. All assets and long-term liabilities.b. Capital assets net of accumulated depreciation including newly acquired infrastructure

assets.c. The primary government is divided into governmental activities and business-type

activities.

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d. The internal balances reflect inter-activity transactions between governmental activities and business-type activities. These balances are offset in coming up with totals for the government.

e. Discretely presented component units are shown to the far right of the statement.

The Statement of Activities includes:a. Expenses reported by function for governmental activities, business-type activities and

component units.b. Interest expense on long-term debt, often shown as a functionc. Related program revenues including charges for services, operating grants and

contributions, and capital grants and contributions.d. Net expense or net revenue for each function.e. Net expense or net revenue for each category of the government.f. General revenues for governmental activities, business-type revenues, or component

units.g. Special items that are significant transactions or other events within the control of

management that are either unusual or infrequent in nature.h. Transfers between governmental activities and business-type activities.

19. The two fund-based financial statements for the governmental funds are the Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balance. The Balance Sheet measures current financial resources and uses modified accrual accounting and includes:a. Separate columns are included for the general fund and every other major fund that

report current financial resources and claims against current financial resourcesb. Non-major funds are combined and reported as “other governmental funds.”c. Totals for government funds.d. Fund Balance classified as nonspendable, restricted, committed, assigned, or

nonassigned

The Statement of Revenues, Expenditures, and Changes in Fund Balance includes:a. The general fund and each major fund in separate columns, with all other funds

combined in another column.b. Revenues.c. Expenditures.d. Other financing sources and uses.e. Special items.f. A reconciliation between the ending change in fund balances and the ending change in

net assets for governmental activities.

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20. Program revenues are those revenues derived from a specific program (such as parks and recreation) or from outsiders seeking to contribute to the cost of that function. They include charges rendered for services, operating grants and contributions, and capital grants and contributions.

General revenues are those from the population as a whole including property taxes, sales taxes, unrestricted grants, and investment income. They are not traced to any individual program, activity, or function.

This distinction is important because program revenues are matched with expenses for each activity providing a net expense or net revenue figure for each to disclose the cost or the benefit of that activity.

21. The net expense or net revenue format allows the readers of a government’s financial statements to determine the relative financial burden (or benefit) that each of its reporting functions has on its taxpayers. In other words, the users of the statement can determine what it costs for the government to provide benefits such as public safety or library.

22. On government-wide financial statements, internal service funds are combined with the governmental activities (or business-type activities if more appropriate). Their placement is based on the identity of the functions that they primarily serve. If an internal service fund is mainly used to serve one or more governmental funds, then it should be included with the governmental activities.

23. Fiduciary funds are not reported on government-wide financial statements because these resources must be used for a purpose outside of the primary government. Fiduciary funds do produce statements to be included with the fund-based financial statements.

24. From a reporting perspective, FASB sets accounting standards for private colleges while GASB sets standards for public colleges and universities. Operationally, public universities receive signficant funding from the government (usually a state government), whereas private universities rely more on tuition charges and endowment income. Because of the ability to generate funding from the government, public colleges generally have smaller endowments.

25. Many public colleges and universities make the assumption that they are solely an Enterprise Fund because they are open to the public but have a user charge (tuition and other fees). For proprietary funds, government-wide financial statements and fund-based financial statements are quite similar. Consequently, the authoritative guidelines allow such schools to produce only fund-based financial statements and avoid the redundancy of also creating government-wide statements.

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Answers to Problems

1. A

2. D ($49,000 expenditure on the first day of the capital lease and then $70,000 more in the form of payments made over the life of the lease)

3. B

4. D

5. A

6. D

7. C

8. C

9. A

10. C

11. B

12. C

13. A

14. B

15. A

16. D

17. B

18. B

19. A

20. C

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21. B

22. C

23. A

24. A

25. C

26. C

27. (12 Minutes) (Accounting for lease on government-wide financial statements and fund-based financial statements)

The lease signed by the Enterprise Fund is accounted for in the same way on the government-wide financial statements (as a business-type activity) and the fund-based financial statements (as a Proprietary Fund).

Leased Asset (present value) $28,750Depreciation Expense (6 year life) 4,792

Accumulated Depreciation 4,792Interest Expense (10 percent of $28,750) 2,875Reduction in Liability ($6,000 payment less 2,875 interest) 3,125Liability ($28,750 less $3,125) 25,625

The lease signed by the General Fund will be accounted for in the following manner for the government-wide financial statements (as a governmental activity).

Leased Asset (present value) $33,350Depreciation Expense (5 year life) 6,670Accumulated Depreciation 6,670Interest Expense (10 percent of $33,350) 3,335Reduction in Liability ($8,000 payment less 3,335 interest) 4,665Liability ($33,350 less $4,665) 28,685

This same lease will be accounted for in the following manner on the fund-based financial statements (as a General Fund).

Initial Recording:

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—Expenditures $33,350—Other Financing Sources 33,350Payment of $8,000:—Expenditures-Interest 3,335---Expenditures-Principal 4,665

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28. (12 Minutes) (Journal entries for lessee on government-wide financial statements and fund-based financial statements)

a.GOVERNMENT-WIDE FINANCIAL STATEMENTS (the two leases are combined here)

January 1, 2010Assets—Capital Lease 49,600

Capital Lease Obligation49,600

December 31, 2010Capital Lease Obligation 6,048Interest Expense ($49,600 x 12%) 5,952

Cash 12,000

Depreciation Expense—Governmental 1,900Accumulated Depreciation (10-year life) 1,900

Depreciation Expense—Business-type 7,650Accumulated Depreciation (4-year life) 7,650

b.FUND-BASED FINANCIAL STATEMENTS

Enterprise FundJanuary 1, 2010Assets—Capital Lease 30,600

Capital Lease Obligation 30,600

December 31, 2010Capital Lease Obligation 5,328Interest Expense ($30,600 x 12%) 3,672

Cash 9,000

Depreciation Expense 7,650Accumulated Depreciation— Capital Lease (4-year life) 7,650

General FundExpenditures—Leased Assets 19,000

Other Financing Sources—Capital Lease 19,000

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Expenditures—Interest ($19,000 x 12%) 2,280

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Expenditures—Principal 720Cash 3,000

29. (15 Minutes) (Journal entries for lessee on government-wide financial statements and fund-based financial statements)

a. GOVERNMENT-WIDE FINANCIAL STATEMENTSJanuary 1, 2010Truck—Capital Lease 87,800

Cash 22,000Capital Lease Obligation 65,800

December 31, 2010 Interest Expense ($65,800 x 8%) 5,264

Capital Lease Obligation 16,736

Cash 22,000

Depreciation Expense 17,560Accumulated Depreciation (5-year life)

17,560

December 31, 2011 (obligation is now $49,064 or $65,800 less $16,736)Interest Expense ($49,064 x 8%) 3,925Capital Lease Obligation 18,075

Cash 22,000

Depreciation Expense 17,560Accumulated Depreciation

17,560

b.FUND-BASED FINANCIAL STATEMENTSGeneral FundJanuary 1, 2010Expenditures—Leased Asset 87,800

Other Financing Sources—Capital Lease 87,800

Expenditures—Lease Obligation 22,000Cash 22,000

December 31, 2010 Expenditures—Interest 5,264Expenditures—Lease Obligation 16,736

Cash 22,000

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December 31, 2011Expenditures—Interest 3,925Expenditures—Lease Obligation 18,075

Cash 22,000

c.FUND-BASED FINANCIAL STATEMENTS

Proprietary Fund (should be same as handling in government-wide statements) January 1, 2010Truck—Capital Lease 87,800

Cash 22,000Capital Lease Obligation 65,800

December 31, 2010Interest Expense ($65,800 x 8%) 5,264Capital Lease Obligation 16,736

Cash 22,000

Depreciation Expense 17,560Accumulated Depreciation 17,560

December 31, 2011Interest Expense ($49,064 x 8%) 3,925Capital Lease Obligation 18,075

Cash 22,000


30. (15 Minutes) (Journal entries for landfill on government-wide financial statements and fund-based financial statements)

a.GOVERNMENT-WIDE FINANCIAL STATEMENTSAccounted for as an Enterprise Fund (within the Business-type Activities)

December 31, 2010

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Expense—Landfill Closure (3% of $1.9 million) 57,000Landfill Closure Liability 57,000

Landfill Closure Liability 50,000Cash 50,000

December 31, 2011Expense—Landfill Closure (9% of $2.1 million less $57,000) 132,000

Landfill Closure Liability 132,000


b. GOVERNMENT-WIDE FINANCIAL STATEMENTS (same as above in a.)

Accounted for within the General Fund (a Governmental Activities)

December 31, 2010Expense—Landfill Closure 57,000






Cash 50,000

c.FUND-BASED FINANCIAL STATEMENTS (same as above in a.)Accounted for as an Enterprise Fund (within the Proprietary Funds)



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d.FUND-BASED FINANCIAL STATEMENTS Accounted for within the General Fund (a Governmental Funds)

December 31, 2010Expenditures—Landfill Closure 50,000

Cash 50,000

December 31, 2011Expenditures—Landfill Closure 50,000

Cash 50,000

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31. (7 Minutes) (Reporting a landfill in both government-wide financial statements and fund-based financial statements)

a. GOVERNMENT-WIDE FINANCIAL STATEMENTSDecember 31, 2010

Expense—Landfill Closure 1,296,000

Landfill Closure Liability 1,296,000

b. FUND-BASED FINANCIAL STATEMENTSDecember 31, 2010

Despite the huge eventual liability, nothing is reported at the end of 2010 because there is not yet a claim to any current financial resources.

32. (10 Minutes) (Reporting compensated absences by the government-wide financial statements and the fund-based financial statements)

a. GOVERNMENT-WIDE FINANCIAL STATEMENTSDecember 31, 2010Expenses—Compensated Absences 1,200

Liability—Compensated Absences 1,200

January 2011Liability—Compensated Absences 1,200

Cash 1,200

b. FUND-BASED FINANCIAL STATEMENTS

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December 31, 2010—This vacation is taken early enough in the following year to necessitate the use of 2010 financial resources.

Expenditures—Compensated Absences 1,200Liability—Compensated Absences 1,200

January 2011Liability—Compensated Absences 1,200

Cash 1,200

c. December 31, 2010—It is assumed that this vacation is taken late enough in the following year so as not to affect any 2010 current financial resources. Therefore, there is no entry in 2010. There is not a claim that will require current financial resources.

Late in 2011Expenditures—Compensated Absences 1,200

Cash 1,200

33. (8 Minutes) (Reporting the donation of an artwork)

a. GOVERNMENT-WIDE FINANCIAL STATEMENTS (recognize donation at fair value)

Museum Piece—Artwork 300,000 Revenue—Donation 300,000

b. GOVERNMENT-WIDE FINANCIAL STATEMENTS (Depreciation recognized)

Museum Piece—Artwork 300,000 Accumulated Depreciation—Museum Piece (30,000)

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Book Value 270,000

Revenue—Donation 300,000

Depreciation Expense 30,000

c. GOVERNMENT-WIDE FINANCIALSTATEMENTS (gift not recognized as asset)

Revenue – Donation 300,000 Expense – Artwork 300,000

34. (5 Minutes) (Purchase of artwork with capitalization required)

a. GOVERNMENT-WIDE FINANCIAL STATEMENTS (Governmental Activities)

December 31, 2010Museum Piece—Artwork 60,000

Cash 60,000


b. FUND-BASED FINANCIAL STATEMENTS (General Fund)

December 31, 2010Expenditures—Artwork 60,000

Cash 60,000

35. (6 Minutes) (Accounting for infrastructure in government-wide financial statements)

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GOVERNMENT-WIDE FINANCIAL STATEMENTS

One possibility: Infrastructure assets are capitalized with depreciation recorded

Infrastructure Assets—Street Lights 100,000Cash 100,000

Subsequent EntriesDepreciation Expense 10,000

Accumulated Depreciation —Infrastructure Assets 10,000

Maintenance Expense—Infrastructure Assets 6,300Cash 6,300

(if this work extends the life of the assets beyond the original expectation, the debit here would be to Accumulated Depreciation.)


Second possibility: Infrastructure assets capitalized with government using the modified approachInfrastructure Assets—Street Lights 100,000

Cash 100,000

Subsequent Entries (no depreciation reported)Maintenance Expense—Infrastructure Assets 6,300

Cash 6,300


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36. (12 Minutes) (The reporting of a special purpose government and a component unit)

a. The major criterion for inclusion in a government’s comprehensive annual financial report is financial accountability.

b. An activity is viewed as a special purpose government if it meets the following criteria:

1. Has a separately elected governing board2. Is legally separate3. Is fiscally independent of other governments

c. Legal separation is usually demonstrated by having corporate powers such as the right to buy and sell property as well as the right to sue and be sued. Corporate powers depend on state law so that determination of legal separation may differ from one state to another.

d. The fiscal independence of a government is indicated by having authority to do specific actions:

1. Determine and modify its budget without having to get the approval of another government

2. Levy taxes and set rate fees without having to get the approval of another government

3. Issue bonded debt without having to get the approval of another government

e. A component unit is any activity that is legally separate from a primary government but so closely tied to that government that some inclusion in the government’s CAFR is warranted. The account balances of the component unit are included along with the financial statements of the primary government. However, these reported figures are normally discretely presented separate from the balances of the primary government. The financial information for the components is usually reported to the right of the primary government. All component units may be shown individually, combined into a single column, or combined into separate columns for governmental and business-type operations. As indicated in (g) below, blending is also a possible way of reporting a component unit by including the activity as if it were fund of the separate government.

17-25


f. One of the criteria for identifying a component unit includes the primary government’s ability to impose its will on the component unit. A primary government is assumed to have this ability if it can (1) remove an appointed board member at will, (2) modify or approve budgets, (3) override decisions of the board, or (4) hire as well as dismiss the individuals in charge of the day-to-day activities of the component unit.

g. Normally, as indicated above, the financial position and operations of a component unit are shown separately from the primary government. However, if the component unit is sufficiently intertwined with the primary government it is included within the government figures (as if it were a fund). Inclusion in this manner is referred to as blending.

37. (15 Minutes) (Journal entries for an enterprise fund)

Enterprise Fund1/1/10 Cash 90,000

Other Financial Sources— Capital Contribution 90,000

2/1/10 Cash 130,000Notes Payable 130,000

3/1/10 No Journal Entry—Only a Committment4/1/10 Truck 110,000

Cash 110,0005/1/10 Cash 20,000

Deferred Revenue 20,0006/1/10 Prepaid Rent 12,000

Cash 12,0007/1/10 Accounts Receivable 13,000

Revenues--Services 13,000Cash 11,000

Accounts Receivable 11,0008/1/10 Interest Expense

(130,000 x 12% x 6/12) 7,800

Notes Payable 2,200Cash 10,000

9/1/10 Salaries Expense 18,000Cash 18,000

Deferred Revenue 18,000

Revenue--Grant 18,000

10/1/10 Maintenance Expense 1,000

17-26


Cash 1,00011/1/10 Salaries Expense 10,000

Cash 10,000 Deferred Revenue 2,000

Revenue—Grant 2,00012/31/10 Accounts Receivable 19,000

Revenues--Services 19,000Cash 3,000

Accounts Receivable 3,000

ADJUSTING ENTRIES12/31/10 Interest Expense

(127,800 x 12% x 5/12) 6,390Interest Payable 6,390

12/31/10 Depreciation Expense(110,000 x 1/10 x 9/12) 8,250

Accumulated Depreciation 8,25012/31/10 Rent Expense ($1,000 x 7 months) 7,000

Prepaid Rent 7,000

38. (65 Minutes) (Prepare financial statements for government-wide financial statements and fund-based financial statements)

17-27


a. CITY OF WILLIAMSON STATEMENT OF ACTIVITIES

For Year Ended December 31, 2010Net (Expense) Revenue and

Program Revenues Changes in Net Assets Operating Capital

Charges for Grants and Grants and Governmental Business-typeFunctions/Programs Expenses Services Contributions Contributions Activities Activities Total

Governmental activitiesGeneral Government $149,000 $ 5,000 $14,000 ($130,000) $130,000)Public Safety 90,000 3,000 ( 87,000) (87,000)Health and Sanitation 70,000 42,000 (28,000) (28,000)Interest on Debt 16,000 (16,000) (16,000 )

Total governmental activities $325,000 $50,000 $14,000 ($261,000) $261,000

General Revenues:Property taxes $401,000 $401,000Franchise taxes 42,000 42,000Investments (gain) 13,000 13,000

Total general revenues $456,000 $456,000Change in net assets 195,000 195,000

Net assets—beginning 0 0Net assets—ending $195,000 $195,000

17-28


38. a. (continued)

Computations:General Governmental [$66,000 + 11,000 + 21,000 + 8,000 + 4,000 (salaries payable) + 13,000 (compensated absences) + 14,000 (art work) + 12,000 (depreciation on building: $120,000/10 years)] = $149,000Public Safety [$39,000 + 18,000 + 5,000 + 9,000 (expired insurance) + 12,000 (supplies used) + 7,000 (salaries payable)] = $90,000 Health and Sanitation [$22,000 + 3,000 + 9,000 + 12,000 + 8,000 (salaries payable) + 16,000 (depreciation on equipment: $80,000/5 years)] = $70,000

CITY OF WILLIAMSONSTATEMENT OF NET ASSETS

December 31, 2010

Governmental Business-type

Activities Activities Total AssetsCash and cash equivalents $ 62,000 $ 62,000Prepaid expenses 2,000 2,000Investments 103,000 103,000Receivables (net) 81,000 81,000Inventories 3,000 3,000

Capital assets (net) 172,000 172,000

Total assets 423,000 $423,000

LiabilitiesSalaries payable 19,000 19,000Compensating absences

liabilities 13,000 13,000Noncurrent liabilities 196,000 196,000

$228,000 $228,000

Net assets Invested in capital assets, net of related debt (24,000) (24,000)

Unrestricted (deficit) 219,000 219,000Total net assets $195,000 $195,000

17-29


38. (continued)

b. CITY OF WILLIAMSON

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

Governmental Funds For Year Ended December 31, 2010

Revenues: General Fund Total Government Funds Property Taxes $401,000 $401,000Franchise Taxes 42,000 42,000Charges for Services 50,000 50,000Investments (Gain) 13,000 13,000

$506,000 $506,000Expenditures:General Government $110,000 $110,000Public Safety 90,000 90,000Health and Sanitation 54,000 54,000

Debt Service:Principal Payment on Debt 4,000 4,000 Interest on Debt 16,000 16,000

Capital outlay 200,000 200,000Total expenditures $474,000 $474,000

Excess (Deficiency) of Revenues over Expenses 32,000 32,000

Other Financing Sources:Proceeds from Long-term Note 200,000 200,000

Total Other Sources 200,000 200,000

Net Changes in Fund Balance 232,000 232,000Fund Balances (Beginning) -0- -0-Fund Balances (Ending) $232,000 $232,000

17-30


38. b. (continued)

CITY OF WILLIAMSONBALANCE SHEET

Governmental Funds December 31, 2010

TotalGeneral Fund Governmental Funds

AssetsCash and cash equivalents $ 62,000 $ 62,000 Prepaid expenses 2,000 2,000Investments 103,000 103,000Receivables, net 81,000 81,000Inventories 3,000 3,000

Total assets $251,000 $251,000

LiabilitiesSalaries payable 19,000 19,000

Total Liabilities $19,000 $19,000

Fund Balances—Nonspendable 5,000 5,000—Committed for Equipment 12,000 12,000—Unassigned 215,000 215,000Total Fund Balances 232,000 232,000

Total Liabilities and Fund Balances $251,000 $251,000

17-31


39. (70 Minutes) (Prepare financial statements for government-wide financial statements and fund-based financial statements)

a. CITY OF BERNARDSTATEMENT OF ACTIVITIES

For Year Ended December 31, 2010Net (Expense) Revenue and

Program Revenues Changes in Net Assets

Charges for Grants and Governmental Functions/Programs Expenses Services Contributions Activities Total

Governmental activities:General Government $180,000 $15,000 ($165,000) ($165,000) Public Safety 158,000 8,000 ( 150,000) ( 150,000)Public Works 159,500 12,000 (147,500) (147,500)Health and Sanitation 37,000 31,000 $25,000 19,000 19,000Interest on Debt 42,000 ______ _______ (42,000 ) (42,000 ) Total Governmental activities $576,500 $66,000 $25,000 ($485,500) ($485,500)

General Revenues:Property Taxes $630,000 $630,000Sales Taxes 99,000 99,000Dividend Income 20,000 20,000Gain on Sale of Investments 14,000 14,000Gain on Value of Investments 5,000 5,000Total general revenues $768,000 $768,000

Change in net assets: Change During 2010 $ 282,500 $ 282,500Net assets—beginning 120,000 120,000Net assets—ending $402,500 $402,500

17-32


39. a. (continued)

Computations:General Governmental [$90,000 + 9,000 + 25,000 + 12,000 + 14,000 (salaries payable) + 30,000 depreciation] = 180,000Public Safety [$94,000 + 16,000 + 12,000 + 10,000 + 17,000 (salaries payable) + 9,000 depreciation] = $158,000 Public Works [$69,000 + 13,000 + 9,000 + 5,000 (salaries payable) + 14,000 supplies expense + 39,000 landfill closing costs + 10,500 depreciation] = $159,500Health and Sanitation [$22,000 + 4,000 + 4,000 + 7,000] = 37,000Landfill [260,000 x 15%] = $39,000

CITY OF BERNARDSTATEMENT OF NET ASSETS

December 31, 2010

GovernmentalActivities Totals

AssetsCurrent Assets:

Cash and Cash Equivalents $139,000 $139,000Prepaid Insurance 6,000 6,000Investments 116,000 116,000

Receivables (net) 120,000 120,000Supplies 6,000 6,000

Total Current Assets 387,000 387,000

Capital Assets:Building (net of depreciation) $240,000 $240,000Building (net of depreciation) 199,500 199,500Equipment (net of depreciation) 81,000 81,000Truck (capital lease) $64,000 $64,000

Total Assets $971,500 $971,500

17-33


39a. (continued)

Liabilities Current Liabilities:Wages Payable $36,000 $36,000

Noncurrent Liabilities:Lease Obligation Payable $64,000 $64,000Closure Liability Landfill 39,000 39,000Long-term Notes Payable 430,000 430,000

Total Liabilities 569,000 569,000

Net assets Invested in capital assets,

net of related debt 154,500 154,500Restricted for Salaries (Grant) 3,000 3,000Unrestricted (deficit) 245,000 245,000

Total Net Assets $402,500 $402,500

17-34


39. (continued)b.

CITY OF BERNARDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND

BALANCES Governmental Funds

For Year Ended December 31, 2010

General Fund Revenues:Property taxes $630,000Sales taxes 99,000Dividend income 20,000

Charges for services 66,000Grant 25,000

Investments (realized gain) 14,000Investments (unrealized gain) 5,000 Total $859,000

Expenditures: Current:General governmental $150,000 Public safety 149,000 Public works 122,000Health and sanitation 37,000 Debt Service:Principal payment on debt 10,000 Interest on debt 42,000 Capital Outlay:Building 210,000Equipment 90,000Truck—leased 64,000

Total expenditures $874,000 Excess (deficiency) of revenues over expenses) $(15,000)

Other Financing Sources:Proceeds from long-term note 200,000Capitalized lease—truck 64,000

Total other financing sources 264,000

Net changes in fund balance 249,000

Fund balance—beginning 90,000

Fund balance—ending—unrestricted

17-35


and unreserved $339,000*

17-36


39. b. (continued)

*The fund balance shown here is $339,000. Of that amount, $31,000 is committed for the encumbrances for supplies and equipment. Another $3,000 is restricted for the payment of salaries for health care workers ($25,000 grant less $22,000 spent this year). That leaves $305,000 as unassigned. Because the purchases method has been applied for supplies and prepaid expenses, neither asset nor fund balance has been recorded for the $12,000 held at the end of the year. Their recorded at year-end, increases both the assets by that amount as well as the fund balance.

CITY OF BERNARDBALANCE SHEET

Governmental Funds December 31, 2010

General FundASSETSCash and cash equivalents $139,000Investments 116,000Receivables, net 120,000Supplies 6,000Prepaid Insurance 6,000

Total Assets $387,000

LIABILITIES AND FUND BALANCESLiabilities:

Salaries Payable $ 36,000

Fund Balances:--Nonspendable $12,000--Restricted for Salaries 3,000--Committed for Equipment and Supplies 31,000--Unassigned 305,000 $351,000

Total Liabilities and Fund Balance $387,000

17-37


40. (70 Minutes) (Prepare government-wide financial statements)

One way to accumulate the information for the government-wide financial statements is to prepare the journal entries for the listed transactions.

a.The transfer is within the governmental activities and is not recorded.

Governmental Activities—Parks and Recreation Land 20,000 Cash 20,000

b.Governmental Activities—Parks and Recreation

Cash 110,000Bonds Payable 110,000

c.Governmental Activities—General Cash 510,000 Property Tax Receivable 90,000 General Revenues—Property Taxes 600,000

d.Governmental Activities—Parks and Recreation

Building 80,000Cash 80,000

e.Governmental Activities—Parks and Recreation

Sidewalk 10,000Cash 10,000

f.Governmental Activities—Parks and Recreation Cash 8,000

Program Revenues—Park 8,000

g.Business-Type Activities—Civic Auditorium Parking Deck 200,000

Cash 20,000Notes Payable 180,000

17-38


40. (continued)

h.Governmental Activities—Education

Cash 100,000Deferred Revenues 100,000

Expenses—School Lunches 37,000Cash 37,000

Deferred Revenues 37,000Program Revenues—Operating Grant 37,000

i.Governmental Activities—Education

Cash 5,400Receivables—School Fees 600

Program Revenues—School Fees 6,000

j.Governmental Activities—Education Supplies 22,000 Cash 22,000

Expenses—Supplies 17,000Supplies 17,000

k.Governmental Activities—Education

Expenses—Art 80,000Program Revenues—Capital Gift 80,000

l.Governmental Activities—General

Transfers 20,000Cash 20,000

Business-Type Activities—Civic AuditoriumCash 20,000

Transfers 20,000

m.No entry

17-39


40. (continued)

n.Governmental Activities—Education

School Bus 102,000Cash 102,000

o.Governmental Activities—Education

Expenses—Salaries 270,000Expenses—Vacations 23,000

Cash 240,000Salary Payable 30,000Vacations Payable 23,000

p.Business-Type Activities—Civic Auditorium Expenses—Salaries 45,000 Expenses—Vacations 5,000 Cash 42,000 Salary Payable 3,000 Vacations Payable 5,000

q.Business-Type Activities—Civic Auditorium Cash 110,000 Rent Receivable 20,000

Program Revenues—Rent 130,000

r.Governmental Activities—Parks and Recreation

Expenses—Maintenance 9,000Cash 9,000

s.Governmental Activities—Parks and Recreation

Expenses—Interest 9,000Bonds Payable 5,000

Cash 14,000

t.Business-Type Activities—Civic Auditorium

Expenses—Interest 13,000Interest Payable 13,000

17-40


40. (continued)

No entries are needed for financial information from museum. The totals for the period are provided for reporting purposes.

Also:Depreciation Entries:

Governmental Activities—Education (School Building—$1,000,000/20)

Expenses—Depreciation 50,000Accumulated Depreciation 50,000

Governmental Activities—Parks and Recreation (Building—$80,000/10 x ½)


Business-Type Activities—Civic Auditorium ($600,000/30)


Governmental Activities—Education (School Bus—$102,000/5 x 3/12)


Business-Type Activities—Parking Deck ($200,000/20 x ½)


17-41


40. (continued)

City of PfeifferStatement of Activities

Government-Wide Financial StatementsYear ending December 31, 2010

Program Grants Net (Expenses)/Revenues Component Expenses Revenues and Gifts Governmental Business-Type Total UnitGovernmental Activities —Education $482,100 $ 6,000 $117,000 $(359,100) $(359,100) —Parks and Recreation 22,000 8,000 ( 14,000 ) ( 14,000 )

Total for Governmental Activities $504,100 $14,000 $117,000 $(373,100) $(373,100)

Business-Type Activities —Civic Auditorium 88,000 130,000 $42,000 42,000

Total for Primary Government $592,100 $144,000 $117,000 $(373,100) $42,000 $(331,100)

Component Unit:—Museum $ 42,000 $50,000 $8,000

General Revenues —Property Taxes 600,000 600,000

Transfers (20,000 ) 20,000 -0-

Total General Revenues and Transfers $580,000 $20,000 $600,000 -0-

Change in Net Assets $206,900 $62,000 $268,900 $8,000

Net Assets, Beginning of Year 1,123,000 662,000 1,785,000 106,000

Net Assets, End of Year $1,329,900 $724,000 $2,053,900 $114,000

17-42


40. (continued)

City of PfeifferStatement of Net Assets

Government-Wide Financial StatementsDecember 31, 2010

Governmental Business-Type Component Activities Activities Total Unit

Assets:—Cash $302,400 $130,000 $432,400 $24,000—Property Tax Receivables 90,000 -0- 90,000 -0-—Receivables-School Fees 600 -0- 600 -0-—Rent Receivable -0- 20,000 20,000 -0-—Supplies 5,000 -0- 5,000 -0-—Land 20,000 -0- 20,000 -0-—Sidewalk 10,000 -0- 10,000 -0-—School Bus 96,900 -0- 96,900 -0-—Parking Deck (net) -0- 195,000 195,000 -0-—Buildings (net) 1,026,000 580,000 1,606,000 300,000

Total Assets $1,550,900 $925,000 $2,475,900 $324,000

Liabilities:—Salary Payable $30,000 $3,000 $33,000 -0-—Vacation Payable 23,000 5,000 28,000 -0-—Interest Payable -0- 13,000 13,000 -0- —Deferred Revenues 63,000 -0- 63,000 -0-—Bonds and Notes Payable 105,000 180,000 285,000 $210,000

Total Liabilities $221,000 $201,000 $422,000 $210,000

Net Assets:—Capital Assets, less related debt $1,047,900 $582,000 $1,629,900 $ 90,000—Unrestricted 282,000 142,000 424,000 24,000

Total Net Assets $1,329,900 $724,000 $2,053,900 $ 114,000

17-43


41. (70 Minutes) (Prepare fund-based financial statements)

One way to accumulate the information for the fund-based financial statements is to prepare the journal entries for the listed transactions.

a.General Fund

Other Financing Uses—Transfer 70,000Cash 70,000

Capital Projects FundCash 70,000

Other Financing Sources—Transfer 70,000

Expenditures—Land 20,000Cash 20,000

b.Capital Projects Fund

Cash 110,000Other Financing Sources—Bond 110,000

c.General Fund

Cash 510,000Property Tax Receivable 90,000

Revenues—Property Taxes 560,000Deferred Revenues 40,000

d.Capital Projects Fund

Expenditures—Building 80,000Cash 80,000

e.Capital Projects Fund

Expenditures—Sidewalk 10,000Cash 10,000

f.General Fund

Cash 8,000Revenues—Park 8,000

17-44


41. (continued)

g.Enterprise Fund

Parking Deck 200,000Cash 20,000Notes Payable 180,000

h.Special Revenue Fund

Cash 100,000Deferred Revenues 100,000

Expenditures—School Lunches 37,000Cash 37,000

Deferred Revenues 37,000Revenues—Operating Grant 37,000

i.General Fund

Cash 5,400Receivables—School Fees 600

Revenues—School Fees 6,000

j.General Fund

Expenditures—Supplies 22,000Cash 22,000

k.No entry because there is no impact on current financial resources.

l.General Fund

Other Financing Uses—Transfer 20,000Cash 20,000

Enterprise FundCash 20,000

Other Financing Sources—Contribution 20,000

17-45


41. (continued)

m. General Fund

Encumbrances 99,000Fund Balance—Reserved For Encumbrances 99,000

n.General Fund

Fund Balance—Reserved for Encumbrances 99,000 Encumbrances 99,000

Expenditures—School Bus 102,000Cash 102,000

o.General Fund

Expenditures—Salaries 270,000Cash 240,000

Salary Payable 30,000

p.Enterprise Fund Expenses—Salaries 45,000

Expenses—Vacations 5,000 Cash 42,000 Salary Payable 3,000

Vacations Payable 5,000

q.Enterprise Fund

Cash 110,000Rent Receivable 20,000

Program Revenues—Rent 130,000

r.General Fund Expenditures—Maintenance 9,000

Cash 9,000

17-46


41. (continued)

s.General Fund (mention is made that no separate Debt Service Fund is used) Expenditures—Interest 9,000

Expenditures—Bonds Payable 5,000Cash 14,000

t.Enterprise Fund

Expenses—Interest 13,000Interest Payable 13,000

Also:Recognition of remaining supplies (from J above)

General FundSupplies 5,000

Fund Balance—Nonspendable 5,000

Depreciation Entries

Enterprise Fund—Civic Auditorium ($600,000/30)Expenses—Depreciation 20,000

Accumulated Depreciation 20,000

Enterprise Fund—Parking Deck ($200,000/20 x ½)Expenses—Depreciation 5,000

Accumulated Depreciation 5,000

17-47


41. (continued)

City of PfeifferStatement of Revenues, Expenditures, and Changes in Fund Balance

Fund-Based Financial Statements – Governmental FundsYear ending December 31, 2010

Total General Special Capital Projects Governmental Fund Revenue Funds Funds FundsRevenues-Property Taxes $560,000 -0- -0- $560,000-Park 8,000 -0- -0- 8,000-Operating Grant -0- $ 37,000 -0- 37,000-School Fees 6,000 -0- -0- 6,000 Total Revenues $574,000 $ 37,000 -0- $611,000

Expenditures-Land -0- -0- 20,000 20,000-Buildings -0- -0- 80,000 80,000-Sidewalk -0- -0- 10,000 10,000-School Lunches -0- 37,000 -0- 37,000-Supplies 22,000 -0- -0- 22,000-School Bus 102,000 -0- -0- 102,000-Salaries 270,000 -0- -0- 270,000-Maintenance 9,000 -0- -0- 9,000-Interest 9,000 -0- -0- 9,000-Bond Payment 5,000 -0- -0- 5,000 Total Expenditures $417,000 $37,000 $110,000 $564,000

Excess (deficiency) of revenues over expenditures $157,000 -0- $(110,000) $ 47,000

Other Financing Sources (Uses) -Other Financing Sources -0- -0- $180,000 $180,000-Other Financing Uses $(90,000 ) -0- -0- (90,000 )

Total Other Financing Sources (Uses) $(90,000 ) -0- $180,000 $ 90,000 Change in Fund Balance $ 67,000 -0- $ 70,000 $137,000

Fund Balance – Beginning 123,000 -0- -0- 123,000

Fund Balance – Ending $190,000 -0- $70,000 $260,000

17-48


41. (continued)

City of PfeifferBalance Sheet

Fund-Based Financial Statements - Governmental FundsDecember 31, 2010

Total General Special Capital Projects Governmental Fund Revenue Funds Funds FundsAssets-Cash $169,400 $63,000 $70,000 $302,400-Property Tax Receivable 90,000 -0- -0- 90,000-Receivables – School Fees 600 -0- -0- 600-Supplies 5,000 -0- -0- 5,000 Total Assets $265,000 $63,000 $70,000 $398,000

Liabilities-Salary Payable $ 30,000 -0- -0- $ 30,000-Deferred Revenues 40,000 $63,000 -0- 103,000

Total Liabilities $ 70,000 $63,000 -0- $133,000

Fund Balances-Nonspendable $ 5,000 -0- -0- $ 5,000-Committed -0- -0- $70,000 70,000-Unassigned 190,000 -0- -0- 190,000

Total Fund Balances $195,000 -0- $70,000 $265,000

Total Liabilities And Fund Balances $265,000 $63,000 $70,000 $398,000

17-49


41. (continued)

City of PfeifferStatement of Revenues, Expenses, and Changes in Fund Net Assets

Fund-Based Financial Statements—Proprietary FundsYear Ending December 31, 2010

Enterprise Fund (Civic Auditorium)Operating Revenues—Rent Revenues $130,000

Operating Expenses—Salaries $ 45,000—Vacations 5,000—Depreciation 25,000

Total Operating Expenses $ 75,000

Operating Income $ 55,000

Non-operating Expenses—Interest Expense $ 13,000

Income Before Capital Contribution $ 42,000

Capital Contribution 20,000

Change in Net Assets $ 62,000

Total Net Assets—Beginning 662,000

Total Net Assets—Ending $724,000

17-50


41. (continued)

City of PfeifferStatement of Net Assets

Fund-Based Financial Statements—Proprietary FundsDecember 31, 2010

Enterprise Fund (Civic Auditorium)AssetsCurrent Assets—Cash $130,000—Rent Receivable 20,000

Total Current Assets $150,000

Noncurrent Assets—Parking Deck (net) $195,000—Buildings (net) 580,000

Total Noncurrent Assets $775,000

Total Assets $925,000

LiabilitiesCurrent Liabilities—Salary Payable $ 3,000—Vacation Payable 5,000—Interest Payable 13,000

Total Current Liabilities $ 21,000

Noncurrent Liabilities—Notes Payable $180,000

Total Liabilities $201,000

Net Assets—Invested in Capital Assets, less related debt $582,000—Unrestricted 142,000

Total Net Assets $724,000

17-51


42. (17 Minutes) (Impact of various government transactions)

a. False – A pension trust fund is one of the fiduciary funds because the money cannot be used by city officials for the benefit of the government. Fiduciary funds do not appear in the government-wide financial statements although separate statements are presented as part of the fund-based financial statements.

b. True – The permanent funds are included within the governmental funds because the income generated from the amount being held is to be used by the government. Although the principal cannot be utilized by government officials, the income can.

c. True – A commitment of current financial resources was made when this order was placed. Thus, an encumbrance should have been recognized at that time. However, the actual amount of the obligation proved to be slightly higher. When the liability was incurred, the original encumbrance should have been removed and the expenditure recorded for the amount of current financial resources that is actually required.

d. True – The expense to be recognized each year is the adjustment required to establish the proper liability. At the end of Year One, that liability should be $96,000 or 12 percent of $800,000. At the end of the second year, the liability has grown to $172,000 (20 percent of $860,000). Increasing the liability from $96,000 to $172,000 necessitates an expense of $76,000. Even though the question relates to the fund-based financial statements, the Enterprise Funds do accrue expenses as incurred in much the same way as a for-profit business.

e. True – The expense to be recognized each year is the adjustment required in the liability. At the end of Year One, that liability should be $99,000 or 11 percent of $900,000. At the end of the second year, the liability has grown to $170,000 (20 percent of $850,000). Increasing the liability from $99,000 to $170,000 necessitates an expense of $71,000. Even though the question relates to the General Fund, government-wide financial statements always accrue expenses as incurred.

f. False – In the governmental funds, a capitalized lease is recorded based on the present value of the future cash flows. Thus, the initial recording is an expenditure of $39,000.

g. False – An Agency Fund is used when passing money through the government to a specified recipient. Thus, the only two accounts typically found in an Agency Fund are cash (or similar monetary assets) and the liability to indicate where that cash is destined.

17-52


h. True – The asset is capitalized at $39,000, the present value of the future cash flows. Over a six-year life, depreciation expense of $6,500 should be recognized each year. A related liability of $29,000 should also be recorded (after the first payment is removed). With an interest rate of 10 percent being used, interest expense of $2,900 should be recognized in the first year. Total expenses to be reported are $9,400 ($6,500 plus $2,900).

43. (12 Minutes) (Recording the gift of a work of art)

a. This gift did not involve a current financial resource and should not have been recorded in the fund-based financial statements. In this problem, there is no indication that it was recorded in the fund-based statements. The recording of the asset and depreciation is made in the government-wide statements. Thus, the increase in the fund balance of $30,000 was correct and should not be changed.

b. Apparently, in the government-wide financial statements, revenue of $15,000 was reported along with an asset of the same value. Depreciation recognized for the first year would have been $500 ($15,000 capitalized amount over a 30-year life) so that a net increase in the net assets should have been $14,500. If the allowed alternative had been followed as officials wished, both revenue and expense would have been increased initially by $15,000 for no net effect. Consequently, removing the $14,500 increase that was reported (so that no net effect is shown) changes the net expense figure from $130,000 to $144,500.

c. Government officials wanted to use the alternative which was to record an expense rather than an asset. If no entry was made by the art museum, there was no change created in the net asset figure. Had the appropriate entry been made, both revenue and expense would have risen by $15,000, but then, again, no net effect would result. The revenues and expenses are both understated but the net asset figure is not affected either way. Although the individual totals are wrong, the increase in net assets stays at $140,000

44. (8 Minutes) (Recording the lease of a police car)

a. On the government-wide statements, an expense of $20,000 was reported. Instead, an asset and liability of $62,000 should have been reported initially. Depreciation on the asset (over a five-year period) would have been $12,400 and interest expense $6,200 (10 percent of $62,000) for the first year. Thus, total expenses should have been reported as $18,600. The reported expense ($20,000) was $1,400 too high. Removing that amount of expense causes the increase in net assets to rise from $140,000 to $141,400.

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b. A $62,000 expenditure should have been recorded on the first day of the year because of the capitalized lease. In addition, a $62,000 “other financing source” should have been recorded. Another $20,000 expenditure was properly reported on the last day of the year to record the payment. Because both the initial expenditure ($62,000) and the other financing source ($62,000) were left out, the net effect of the omission is zero. The $30,000 increase in the fund balance that is shown for the General Fund is correct.

45. (5 Minutes) (Reporting a component unit)

The revenue of $30,000 and the expense of $42,000 were not included within the primary government figures for the government-wide financial statements. They were discretely presented but should have been blended.

Adding these two figures to primary government-wide totals reduces the overall increase in net assets by $12,000 ($30,000 minus $42,000) from $140,000 to $128,000.

46. (8 Minutes) (Accounting for vacation pay)

a. In fund-based statements, for the General Fund, only the amount of this liability that will be paid in the next 60 days (2 months) is viewed as a claim against current financial resources. Here, that amount is $10,000 (2/12 of $60,000). This expenditure is recorded at the end of Year Four and reduces the increase in the General Fund fund balance by $10,000 from $30,000 to $20,000.

b. For the government-wide financial statements, the entire $60,000 liability is recorded in Year Four based on standard accrual accounting. The related expense reduces the increase in net assets by $60,000 from $140,000 to $80,000.

47. (10 Minutes) (Recording a city landfill)

a. Apparently, the amounts recorded this year (in the parks) were in the wrong fund; the landfill should have continued to be reported as an Enterprise Fund. By itself, that does not have any net impact on the net assets reported for the entire government on the government-wide statements. The amounts are simply in the wrong columns. However, the clean-up liability has not been reported for the current year. An additional 8 percent was filled in the current year so that the liability should have increased by $16,000 (8 percent of $200,000). That reduces the increase in net assets from $140,000 to $124,000.

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b. The revenues ($4,000) and expenses ($15,000) for the current year must now be moved to the Enterprise Funds ($11,000 net reduction). In addition, the $16,000 clean-up liability computed in (a) above should be recorded so that the overall decrease in net assets in connection with the landfill is $27,000. For the Enterprise Funds, the net increase is net assets is not $60,000 but rather $33,000.

c. The revenues and expenditures have been correctly reported this year within the General Fund. In addition, there is no indication that the clean-up costs will require any current financial resources so that no reporting is needed in the fund-based statements. The increase in the fund balance of the General Fund of $30,000 appears to be correct.

48. (6 Minutes) (Recording and depreciating capital assets)

a. The modified approach only applies to infrastructure assets and not to machines and the like. Thus, $4,000 in depreciation expense for the year has been incorrectly omitted. Including the recording of depreciation reduces the increase in net assets from $140,000 to $136,000.

b. The depreciation expense discussed in (a) above increases the net expenses for education from $710,000 to $714,000.

49. (15 Minutes) (Recording leases in government-wide and fund-based financial statements)

a. False – Assuming that the next payment is not due until July 1, Year Two, it is not a claim to current financial resources. Therefore, no liability should be reported on the fund-based financial statements.

b. False – The original liability of $78,000 should be reported and immediately reduced by $20,000 to $58,000. However, interest for the last six months of Year One should be accrued ($58,000 x 10 percent x 6/12 year or $2,900) to raise the liability to $60,900.

c. True – Interest for the last six months of Year One should be accrued ($58,000 x 10 percent x 6/12 year) or $2,900.

d. False – On the fund-based financial statements, the expenditure total equals the $78,000 present value of the cash flows plus the first $20,000 payment.

e. True – The asset is initially capitalized at $78,000. At the end of the first year, depreciation of $7,800 should be recognized ($78,000 x 1/5 x 6/12) which reduces the net leased asset to $70,200.

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f. False – On the fund-based financial statements, the expenditure total equals the $78,000 present value of the future cash flows.

g. False – There are four separate criteria for a capitalized lease. One of those is that the life of the lease is 75 percent or more of the life of the asset. If the car has an eight-year life, the five year lease is only 62.5% of the life of the asset. However, the lease contract could well meet any of the other three criteria so that capitalization would still be necessary.

h. False – Payments totaling $100,000 are being made and the car will be used up. The total expense has to be $100,000 on the government-wide statements no matter how the reporting is done. For fund-based statements, the present value of the future cash flows is recognized and then the eventual payments are also recognized as expenditures. This total will be more than $100,000 (but is partially offset by the reporting of an other financing source).

50. (10 Minutes) (Reporting by a government of a solid waste landfill)

a. False – The handling in the government-wide financial statements will be the same whether the landfill is reported as a General Fund or as an Enterprise Fund.

b. False – Assuming the city has a December 31 year-end, no claim to current financial resources exists at that time.

c. False – The Enterprise Fund should report a liability equal to 26 percent of $2 million less the amount of cash that has already been paid.

d. True – In most cases, Enterprise Funds are reported the same in the government-wide financial statements and the fund-based financial statements.

e. True – The liability is $2 million times 26 percent or $520,000. However, payments of $100,000 have already been made by this time so the reported liability is now only $420,000.

f. True – In either case, $2 million will be spent. That will show up as an expense in the government-wide financial statements and as an expenditure in the fund-based financial statements (assuming the landfill is reported in the General Fund).

51. (10 Minutes) (Reporting by a government of a landfill)

a. True – The amount of the liability to be reported each year would then be based on $3 million rather than on $2 million.

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b. True – The government-wide financial statements accrue all liabilities whether they are governmental activities or business-type activities. The government has to report the obligation for closing the landfill.

c. False – At the end of Year Two, a liability of $420,000 is reported (26 percent of $2 million less $100,000 in payments). At the end of Year Three, a liability of $1,050,000 is reported (40 percent of $3 million less $150,000 in payments). Adjusting the liability balance of $420,000 to $1,050,000 necessitates recognizing an expense of $630,000.

d. False – Present value is not used for landfill closure costs.

52. (12 Minutes) (Reporting the gift of a historical treasure to a government)

a. True – One of the requirements for being able to choose to not capitalize a art work or historical treasure is that a formal policy must be in place requiring that any proceeds from a future sale be used for a similar purchase.

b. False – If the asset is viewed as being inexhaustible (this document is already over 200 years old), no depreciation is required.

c. False – The city can record the $10,000 value as an expense immediately but it can also choose to capitalize the asset and then depreciate it over its expected useful life (or not depreciate but only if it is deemed to be inexhaustible).

d. False – Revenue recognition is required for gifts of this type. It is only the decision as to whether to record an asset or an expense that is at the option of the government.

e. True – Both revenue and an equal expense can be reported for this donation so that net assets are not impacted.

53. (8 Minutes) (The presentation of component units)

a. False – Although the city here appoints a majority of the board members, there is no indication that (a) the city can impose its will on this board, (b) that the library provides a financial benefit or a financial burden for the city, or (c) that the library is financially dependent on the city. Appointing a majority of the board makes the library a related organization but not necessarily a component unit.

b. True – If the results of the component unit are included within the governmental activities (like a fund), this reporting is known as blending

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the component unit. This reporting is followed when the component unit is closely entwined with the government.

c. False – Blending of a component unit is a judgment made when financial statements are being prepared based on how entwined the activity is with the government.

d. True – Blending of a component unit is a judgment made when financial statements are being prepared based on how entwined the activity is with the government.

Develop Your Skills

Research Case 1

One of the most controversial aspects of GASB 34 was the capitalization of previously acquired, infrastructure items (such as bridges, sidewalks, streets, and the like) that, in most cases, had always gone unreported. Determining a reported value, for example, for miles of sidewalks constructed over a number of decades was looked at as an almost impossible feat with little or no reporting value to the readers of the financial statements.

Because of this criticism, GASB 34 tempered this one reporting requirement more than any other. First, only a limited number of these earlier assets have to be reported. According to paragraph 154, “governments are required to capitalize and report major general infrastructure assets that were acquired (purchased, constructed, or donated) in fiscal years after June 30, 1980, or that received major renovations, restorations, or improvements during that period.”

So, the reporting of only “major general infrastructure assets” is required. That size requirement was identified as a subsystem that made up at least 5 percent of the total of all general capital assets or a network that made up at least 10 percent of the total of all general capital assets.

In addition, only assets acquired or renovated after June 30, 1980, had to be assessed for reporting purposes. This parameter limited the required reporting to assets that were relatively new. For example, a bridge constructed in 1922 did not have to be reported unless renovated since June 30, 1980.

Finally, governments were given an extra four years beyond the required implementation deadline for GASB 34 to report these previously obtained infrastructure assets. This extension was allowed to provide governments with plenty of time to make all of the necessary computations.

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To make the actual computation of these figures, paragraphs 157 and 158 explain: “The initial capitalization amount should be based on historical cost. If determining historical cost is not practical because of inadequate records, estimated historical cost may be used.

“A government may estimate the historical cost of general infrastructure assets by calculating the current replacement cost of a similar asset and deflating this cost through the use of price-level indexes to the acquisition year (or estimated acquisition year if the actual year is unknown). There are a number of price-level indexes that may be used, both private- and public-sector, to remove the effects of price-level changes from current prices. Accumulated depreciation would be calculated based on the deflated amount, except for general infrastructure assets reported according to the modified approach.”

Paragraph 160 goes on to provide additional guidance: “Other information may provide sufficient support for establishing initial capitalization. This information includes bond documents used to obtain financing for construction or acquisition of infrastructure assets, expenditures reported in capital project funds or capital outlays in governmental funds, and engineering documents.” Research Case 2

The reason for the question here is rather obvious: The transit authority has lost money and city officials are concerned by how those financial results will impact the financial picture reported by the city.

The reporting rules for component units were created by GASB Statement No. 14, The Reporting Entity. A summary of that pronouncement can be found on GASB’s website. That summary provides the following information:

“Some organizations are included as component units because of their fiscal dependency on the primary government. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government.

“The financial statements of the reporting entity generally should allow the users to distinguish between the primary government and its component units. To accomplish this goal, the financial statements should generally communicate information about the component units and their relationships with the primary government rather than create the perception that the primary government and all of its component units are one legal entity.

“Most component units should be included in the financial reporting entity by discrete presentation. Discrete presentation entails reporting component unit financial data in one or more columns separate from the financial data of the

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primary government. Certain information should be disclosed about each major component unit included in the component units column. The required information may be presented by using more than one column in the general purpose financial statements (GPFS) for the component units and either including appropriate combining statements for the discretely presented component units in the reporting entity's GPFS or presenting appropriate condensed financial statements of the discretely presented component units in the notes to the reporting entity's financial statements.

“Some component units, despite being legally separate from the primary government, are so intertwined with the primary government that they are, in substance, the same as the primary government and should be reported as part of the primary government. That is, the component unit's balances and transactions should be reported in a manner similar to the balances and transactions of the primary government itself. This method of inclusion is known as blending.”

In the case presented here, the facts should be easy to determine so that the decision about reporting can be made. Is the transit authority fiscally dependent on the city? Do transit authority officials have to get permission from the city to adopt its budget or set rates for passenger use? Can the transit authority issue bonds without having to get approval of city officials? These questions should be fairly easy to answer.

The transit authority can also be a component unit of the city if city officials appoint a voting majority of the transit authority’s board. In that case, the transit authority is viewed as a component unit if (a) city officials can impose their will on this board or (b) the transit authority provides a potential financial benefit or burden for the city.

Here, except for the question of whether city officials can impose their will on this board, these issues should be easily determined. Of course, the question of potential financial burden is especially relevant because the transit authority has been losing money. Eventually, if that situation does not improve, what responsibility will the city have?

Analysis Case 1Students often appear to believe that the financial reporting that is presently in use has been applied, unchanged, for decades. They often do not fully appreciate the speed of evolution that often takes place in the applicable generally accepted accounting principles.

Accounting for state and local governments provides an excellent example of the change that can occur, even over a relatively short period of time. GASB 34 was issued in June of 1999 and became mandatory a few years later. That

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pronouncement provides a line of demarcation between the financial statements that are currently reported and those that were traditionally used for many decades.

In looking at any source of information prior to 2000, several significant differences should be evident:

--Only one set of financial statements was reported. Government-wide financial statements did not exist.--The financial statements prior to 2000 will look quite a bit like fund-based financial statements that are still prepared.--The columnar presentation will include fund types (General Fund, Special Revenue Fund, Capital Projects Fund, and the like) rather showing specific major funds within these categories.--Because only current financial resources were reported, at least in the governmental funds, no capital assets or long-term liabilities are reported. However, something called “general fixed asset account group” and “general long-term debt account group” were included as a listing of capital assets and long-term debts. --Some of the fund type names have changed over the years. For example, the Permanent Fund within the governmental funds did not exist prior the passage of GASB 34. --Depreciation was not reported in connection with the reporting of assets by the governmental funds.--Infrastructure assets were most likely reported as expenditures as those costs were incurred and, then, in no other way.--Certain liabilities such as landfill costs were probably ignored.--Budgetary information is still reported but in a different type of format.--A management’s discussion and analysis is now included in government financial statements to provide a verbal explanation of the financial events of the period.

Analysis Case 2

One of the most significant changes in governmental accounting created by GASB 34 was the requirement that the Management’s Discussion and Analysis be included as part of the CAFR. This written report is meant to be a discussion of the financial information for the government in a verbal rather than a purely quantitative fashion. Students often do not understand the range of information provided by the MD&A. In this assignment, the student can read the MD&A for an actual city. The information that is provided here is quite extensive and can cover a wide range of subjects such as the following:

An explanation of government-wide financial statements.An explanation of fund-based financial statements.

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An explanation of governmental funds, proprietary funds, and fiduciary funds.The reporting of infrastructure assets that were acquired before the adoption

of GASB 34.A comparison of the governmental activities and the business-type activities.The bond rating for the government.Information about proprietary operations.The method by which the government generates revenues.The diversity of expenditures made within the governmental funds.A discussion of the budgetary process.Information about both capital assets and long-term liabilities.The purpose of the various funds such as the general fund and the debt

service fund.

Here is just a bit of the information provided in the MD&A by the City of Portland:-- The unreserved fund balance for the General Fund was $130,939,791 or 25.6 percent of total General Fund expenditures.-- The City’s total bonded debt increased by $242,794,122 or 10.2 percent over FY2006-07.-- Net assets may serve as a useful indicator of a government’s financial position. For the City, assets exceed liabilities by $2,601,750,443 at the close of FY2007-08.-- An additional portion of the City’s net assets, $196,075,065 or approximately 7.5 percent, represents resources that are subject to external restrictions on how they may be used.-- Transportation system infrastructure and equipment accounted for $145,373,996 of the governmental depreciation expense.-- As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $287,310,714, an increase of $11,833,169

Communication Case 1

Students do not always fully comprehend the evolutionary nature of financial accounting and reporting. In connection with for-profit businesses, ongoing changes have occurred over a number of decades under the Financial Accounting Standards Board, the Accounting Principles Board, and a variety of other organizations. In comparison, the Governmental Accounting Standards Board has been in operation for a relatively short period of time. The FASB has produced nearly 170 standards while GASB has produced less than 60. The changes that governmental accounting has gone through over the years may be a bit easier for a student to grasp.

This assignment is simply intended to provide the student with an overview of the recent history of governmental accounting. The listed articles (and any others that the students may find through their own library and Internet searches) show how governmental accounting is gradually building up an official set of generally accepted accounting principles to provide a structure for

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reporting that, up until recently, has been very unstructured. The amount of authoritative guidance has gone from almost nonexistent just a few decades ago to a fairly well developed system of financial reporting.

Communication Case 2

If the city assesses a user charge, then officials always have the right to record the landfill as an Enterprise Fund. However, such a classification is not required unless the fee (a) is set at an amount intended to cover the various costs of the service or (b) serves as the sole security for debts of the activity.

If the landfill is recorded as an Enterprise Fund, then accounting in the government-wide financial statements and fund-based financial statements is quite similar. The statements measure all economic resources and timing is recorded based on accrual accounting. Perhaps most importantly, the anticipated cost of closure and post-closure activities must be accrued in both sets of financial statements.

Conversely, if the landfill is recorded within the General Fund, there is no impact on the government-wide financial statements except the all transactions and balances are shown as governmental activities rather than as business-type activities. However, in the fund-based financial statements, as a governmental fund, only current financial resources and the changes in those financial resources are reported. Capital assets, in these statements, as well as long-term liabilities such as closure costs are omitted.

Excel Case

This spreadsheet would be extremely helpful for a government attempting to determine the historical cost less depreciation of infrastructure assets not previously reported. This spreadsheet is designed along the guidelines established in GASB Statement Number 34, paragraph 158. There are a number of different ways that a spreadsheet could be created to solve this particular problem. Here is one possible approach:

In Cell A1, enter text label “City of Loveland—Reported Value of Each Mile of Road”

In the next three rows, enter the criteria on which calculations will be based:In Cell A3, enter text label of “Per 1 Mile of Road as of 12/31/2010” and in Cell

E3 enter “$2,300,000”In Cell A4, enter text label of “Yearly Inflation” and in Cell E4 enter “8%”In Cell A5, enter text label of “Depreciation” and in Cell E5 enter “2%”

Any of the above three variables can be changed to develop different schedules.

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Enter Column Headings:In Cell A7, enter text label of “# of Years.”In Cell B7, enter text label of “Date.”In Cell C7, enter text label of “Inflation Reduced Cost.”In Cell D7, enter text label of “Total Depreciation.”In Cell E7, enter text label of “Reported Value.”

Enter Row Headings:In Cell A8, enter text label “1” and in Cell A9, enter text label “2.” Once you

establish a pattern, Excel can automatically fill in a series of numbers. To continue the numbering for Years 3-20, click and drag across Cells A8 and A9. Once these cells are highlighted, you will see a small black box in the lower right corner of this selection, which is the “fill handle.” Click on the fill handle and drag across Cells A10 through A27 and release to display numbers 3 through 20. The numbers will be displayed in increasing order since that is the criteria that was established in Cells A8 and A9.

In Cell B8, enter text label “12/31/2009” and in Cell B9, enter text label “12/31/2008.” Perform the same click and drag operation above to fill the date in Cells B10 through B27. The dates will be displayed in decreasing order since that is the criteria that was established in Cells B8 and B9.

Enter Formulas:In Cell C8, enter formula to calculate Inflation Reduced Cost as of 12/31/2009.

Reduce Per Mile figure established on 12/31/2010 (in Cell E3) by Yearly Inflation Rate (in Cell E4): =+E3/($E$4+100%) (NOTE: Absolute references, which are cell references that always refer to cells in a specific location, can be created by placing a $ symbol before the Column letter and/or the Row number. In this problem, we need to always refer to the Yearly Inflation figure in Cell E4 and the Depreciation figure in Cell E5.)

In Cell D8, enter formula to calculate Total Depreciation. Multiply Inflation Reduced Cost figure on 12/31/2009 by Yearly Depreciation Rate: =+C8*($E$5*A8)

In Cell E8, enter formula for Reported Value of road for current year by deducting Depreciation from Inflation: =+C8-D8.

In Cell C9, enter formula to calculate Inflation Reduced Cost figure as of 12/31/2008: Reduce Inflation on 12/31/2009 (in Cell C8) by Yearly Inflation Rate (in Cell E4): =+C8/($E$4+100%)

Copy formulas from Cells D8 and E8 to Cells D9 and E9 by clicking and dragging fill handle.

Format Cells to display currency. Click and drag across Cells C8 to E9. Select Format, Cells, and under the Number tab, select Currency. Change the Decimal places to 0 and click OK.

Copy Formulas:Click and drag across Cell C9 through Cell E9. Place the cursor on the “fill handle” in the lower right corner of this section box and drag the cursor down to

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Cell E27 and release. The formulas are automatically adjusted to correspond to the current year information.

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Chap 017

Documents

Transcript of Chap 017