Solution manual advanced accounting 9e by hoyle ch16

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CHAPTER 16
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS,
PART I
Chapter Outline
I.

State and local government units produce two complete and distinct sets of financial
statements which are presented together in a comprehensive annual financial report.
A. User needs for governmental financial information are so diverse that the GASB
requires two sets of statements to be prepared. The fund-based statements are more
for the citizens whereas the government-wide statements are more for investors, such
as bondholders.
B. Fund-based financial statements are designed primarily to present information about the
General Fund and other major activities. This approach stresses fiscal accountability
over financial resources.
a. For governmental funds, all current financial resources and claims to those financial
resources are presented using modified accrual accounting for timing purposes.
b. For proprietary funds and fiduciary funds, all economic resources are reported using
accrual accounting for timing purposes.
C. Government-wide financial statements (a statement of net assets and a statement of
activities) are designed to present an overview of the government as a whole and
emphasizes operational accountability.
a. In these statements, all economic resources are measured using accrual accounting
for timing purposes.
b. The governmental funds and most of the internal service funds are combined and
reported as governmental activities.
c. The enterprise funds and any remaining internal service funds are combined and
reported as business-type activities.
d. Because the government does not have control over the use of the assets reported

in the fiduciary funds, they are excluded from the government-wide financial
statements.

II. For internal purposes, governmental accounting records its individual activities within selfbalancing sets of accounts known as funds.
A. Governmental funds account for activities where service to the public is the main
emphasis.
a. General fund
b. Special revenue funds
c. Capital projects funds
d. Debt service funds
e. Permanent funds
B. Proprietary funds account for activities of the government where a user charge is
assessed.
a. Enterprise funds
b. Internal service funds
C. Fiduciary funds account for assets held in a trustee capacity for external parties.
a. Investment trust funds
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b.

Private-purpose trust funds

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c.
d.

Pension trust funds
Agency funds

III. Governmental accounting has traditionally stressed establishing control over current
financial resources to ensure appropriate usage of the public’s money.
A. Budgetary entries are recorded for a number of the activities within the governmental
funds.
a. The entry is recorded at the start of the year and is then reversed at the end of the
year.
b. The initial and amended budget are reported along with actual figures for the period
as required supplemental information in the comprehensive annual financial report.
As an alternative, this information can be shown as a separate statement within the
fund-based financial statements.
B. Financial commitments (such as contracts and purchase orders) are recorded as
encumbrances.
a. These entries help avoid overspending of appropriated amounts.
b. The encumbrances are removed from the records when the commitment becomes a
liability.

IV. In government-wide financial statements, acquiring a capital asset is reported as a capital
asset and incurring an expense is reported as an expense. However, for the governmental
funds, on the fund-based financial statements, the reduction of current financial resources
that results from the purchase of a capital asset, incurrence of an expense, or payment of a
long-term debt is reported as an expenditure. In this manner, the statements report the
usage made of the money held by the government activity.
A. On the fund-based statements, supplies and prepaid items can be reported by either the
consumption method or the purchases method.
B. On the government-wide financial statements, the recording of the acquisition of
infrastructure items such as bridges and sidewalks is required.
V. Governments often have nonexchange transactions where revenues such as taxes are
received without a corresponding earning process. To guide the recognition of such
transactions, four separate categories have been identified.
A. Derived tax revenues such as income taxes and sales taxes are recognized when the
underlying event occurs.
B. Imposed nonexchange transactions such as property taxes, fines, and penalties are
recognized when the resources are required to be used or in the first period when use is
permitted.
C. Government-mandated nonexchange transactions, usually a government grant to fulfill a
legally required objective, are recognized when all eligibility requirements have been
met.
D. Voluntary nonexchange transactions such as most grants and gifts are recognized when
all eligibility requirements have been met.
VI. Governments often raise significant amounts of financial resources by issuing long-term
bonds.
A. In the government-wide financial statements, the debt is simply recorded.
B. In the fund-based financial statements for the governmental funds, the inflow of financial
resources is reported as an ―other financing source.‖ Payment of the debt is shown as
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an expenditure. Long-term debts are not shown in the fund-based financial statements
for the governmental funds.

Learning Objectives
Having completed Chapter Sixteen of the textbook, ―Accounting for State and Local
Governments (Part One),‖ students should be able to fulfill each of the following learning
objectives:
1. Understand that two separate sets of financial statements must be created and reported by
a state or local government unit.
2. Identify examples of the wide variety of users of government financial statements and
discuss their specific information needs.
3. Explain the overall differences between government-wide financial statements and fundbased financial statements.
4. Identify the three major classifications of funds and each of the individual fund types within
those classifications.
5. Describe the basic content of both government-wide financial statements and fund-based
financial statements for the governmental funds.
6. Explain the structure and reason for budgetary entries and the subsequent reporting of that
information.
7. Explain the structure and reason for recording encumbrances and the subsequent reporting
of that information.
8. Describe the reporting of the acquisition of capital assets on both fund-based financial
statements and government-wide financial statements.
9. Discuss the historical method of reporting infrastructure assets and the current reporting that

is now required.
10. Identify the four types of nonexchange transactions and explain when each type of revenue
should be recognized.
11. Describe the accounting that is utilized for the issuance of a long-term liability within both the
fund-based financial statements and the government-wide financial statements.
12. Describe the types of transfers that can occur within a government and indicate the
appropriate reporting for each type.

Answer to Discussion Question
Is it an Asset or a Liability?
Some students seem to believe that the unique features of government financial reporting are
more arbitrary than substantive. To them, accounting is accounting and the specific type of
reporting entity should not be an important consideration. For that reason, this discussion
question is placed early in the coverage of governmental accounting to point out that these
entities do not necessarily view transactions in the same manner as a for-profit business.
Examination of the construction of a high school is an excellent example of the essential
accounting problems created by a government’s unique perspective. The decision to build this
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facility virtually assures the government that it will incur significant cash outflows for years to
come. Whereas a business constructs a building in hopes of generating cash inflows,
government officials are aware that the maintenance, heating, etc. of the school will far
outweigh any direct cash inflows. Hence, Mautz’s question – is it an asset or a liability—is not

easy to answer. Governmental accounting now solves this issue in a very unique way. In the
fund-based financial statements, construction costs are reported as an expenditure whereas, in
the government-wide financial statements, the high school is reported as a capital asset. The
reduction in current financial resources is reflected in one statement but the cost of construction
is still shown as an asset in the other set of statements.
Prior to class discussion, students can be required to read Mautz’s entire article as additional
background information. In class, students can be encouraged to discuss whether showing this
high school in two such different ways is misleading or actually provides the information needed.
Students should be asked their opinion as to the benefit of having two completely different sets
of financial statements. A quality, in-depth discussion can certainly result from the article
described here.

Answers to Questions
1. User needs are often complex and contradictory. Specific procedures in the governmental
reporting process are an outgrowth of those needs. GASB Concepts Statement No.1,
―Objectives of Financial Reporting,‖ has identified three primary user groups: citizenry,
legislative and oversight bodies, and investors and creditors. The needs of these users are
broad and no single set of financial statements and principles can satisfy all expectations.
The satisfaction of diverse user needs is a constant focus of governmental accounting. This
has lead to the dual-perspective model which leads to the production of two distinct types of
financial statements.
2. Accountability and control have been a constant goal of governmental accounting.
Governmental accounting provides the citizenry of a democracy with a method for
evaluating the governmental actions of raising and allocating resources. Elected and
appointed officials have authority over the public’s money. They should be held
accountable for generating and using these resources wisely in meeting the public’s needs.
Accounting shoud help citizens in evaluating these officials on their honesty, wisdom, and
stewardship.
3. GASB Statement No.34 has refined the reporting of governmental activities by providing
information about the government as a whole. Focusing on individual accountability for the

various government activities does not necessarily meet all user needs. Government
reporting still focuses on current financial resources in the fund-based finacial statements,
but provides an additional focus on all assets and all liabilities in the government-wide
financial statements, thus meeting broader user needs.
4. Two financial statements make up the government-wide financial statements: The
Statement of Net Assets and The Statement of Activities. There are a number of fundbased financial statements. The two fundamental financial statements covered here in
Chapter 16 were the Balance Sheet for the governmental funds and the Statement of
Revenues, Expenditures, and Other Changes in Fund Balances for the governmental funds.

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5. In fund-based accounting, governmental funds use the current resources measurement
focus and the modified accrual basis for the timing of revenue and expense recognition. The
current financial resources focus traditionally includes only assets such as cash,
receivables, and investments that can be used for spending purposes and the liabilities to
be paid out of these current assets. The modified accrual basis recognizes revenues when
they become available and measurable and expenditures when they cause a reduction in
current financial resources. Governments must disclose the length of time being used to
determine availability.
Proprietary and Fiduciary funds generally use the economic resources measurement focus
and the accrual basis for the timing of revenue and expense recognition. The economic
resources measurement focus reports all assets (including capital and other noncurrent
assets) as well as all liabilities (including long-term obligations).

6. Government-wide financial statements use the economic resources measurement focus
and accrual accounting for the timing of revenue and expense recognition similar to for-profit
organizations.
7. Current financial resources are primarily cash, investments, and receivables. These items
are expected to be used to meet the current period government spending needs. This
category also normally includes inventories and prepaid expenses.
8. Liabilities are recognized under the current financial resources focus when a claim against
current financial resources is created. In many cases, that means that payment will be
made during the current period or within 60 days of the subsequent period. Disclosure is
required for the number of days being applied.
9. Governmental Funds: Account for activities with a service orientation
a. General Fund
b. Special Revenue Fund
c. Capital Projects Fund
d. Debt Service Fund
e. Permanent Fund
Proprietary Funds: Account for functions that are financed (at least in part) by user charges.
a. Enterprise Fund
b. Internal Service Fund
Fiduciary Funds: Account for monies held by the government in a trustee capacity.
a. Investment Trust Fund
b. Private-Purpose Trust Fund
c. Pension Trust Fund
d. Agency Fund
10. The following fund types fall within the governmental funds classification:
a. The General Fund is used to account for ongoing activities such as public safety and
sanitation. More specifically, the General Fund records any activities that do not fall
under one of the other fund types.
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b. Special Revenue Funds account for financial resources that have been restricted as to
expenditure for a specified operating purpose. Money can come from sources such as
grants, taxes, and gifts.
c. Capital Projects Funds account for monies (and their eventual expenditure) to be used
in acquiring or constructing government facilities or other capital assets.
d. Debt Service Funds account for the accumulation of resources that will be used to pay
the principal and interest of long-term debts incurred by the service activities.
e. Permanent Funds account for assets contributed to the government by an external
donor with the stipulation that the principal cannot be spent but any income can be used
within the government, often for a designated purpose.
11. The following fund types fall within the proprietary funds classification:
a. An Enterprise Fund accounts for any governmental activity that is financed in whole or in
part by outside user charges, such as a subway system.
b. An Internal Service Fund is used to record any activity that provides service to other
departments or agencies within the government on a cost-reimbursement basis. A
motor pool, a centralized computer operation, or a print shop can be accounted for as
Internal Service Funds if a user fee is charged and they only exist to serve the other
functions of government.
12. Fiduciary Funds: Account for monies held by the government in a trustee capacity.
a. Investment Trust Fund. Accounts for the outside portion of investment pools where the
reporting government has accepted funds from other governments resulting in a larger
investment and hopefully a higher return.
b. Private-Purpose Trust Fund. Accounts for money held in a trustee capacity, for

example, money confiscated from illegal operations.
c. Pension Trust Fund. Accounts for the employee retirement system.
d. Agency Fund. Accounts for resources held by the government as an agent for
individuals, private organizations, or other government units.
13. In government-wide financial statements, financial figures are shown as either governmental
activities or business-type activities. All governmental funds and most internal service funds
appear in the governmental acitivities. All of the enterprise funds and any remaining internal
service funds are lumped into the business-type activities. Fiduciary funds are not shown in
the government-wide financial statements.
14. In fund-based financial statements, for the governmental funds, a separate column must be
shown for (a) the General Fund, (b) any other fund that qualifies as major, and (c) all other
funds accumulated as a whole in a single column.
15. The physical recording of a budget is viewed as a method of expressing public policy and
financial intent, providing a financial plan for the period. The budget establishes spending
limitations, which enhances financial planning and control. The adoption of the budget for
each activity anticipates the inflow of financing resources and sets approved expenditure
levels. Subsequently, comparisons can be drawn between actual and budgeted figures at
any time during the fiscal period, thus evaluating performance.
16. Comparisons between the original budget, the final budget, and actual figures must be
reported in the required supplemental information presented after the notes to the financial
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information in the comprehensive annual financial report. Alternatively, the information can

be presented as a separate statement within the government’s fund-based financial
statements.
17. An encumbrance is the recording of a purchase commitment (such as a contract or a
purchase order). The encumbrance entry is recorded at the time the commitment is made
prior to incurring a liability. This recording supports the spending control emphasis of the
fund-based financial statements. Reviewing the Expenditures account and the
Encumbrances balance provides the total amount of current financial resources spent and
committed. Thus, the chance of an over-commitment of resources is decreased. The
encumbrance is removed when this commitment becomes a legal liability. Until then, no
transaction has taken place so encumbrances are not included in government-wide financial
statements.
18. Encumbrances (commitments) that remain outstanding at the end of a fiscal period are
reported within the Equity section as a reserved fund balance. No liability is reported;
instead, the need to hold financial resources to satisfy the eventual cost of the commitment
is disclosed.
19. Expenditures include outflows or reductions of net current financial resources from the
acquisition of goods or services (or the payment of a long-term liability). Modified accrual
accounting recognizes these expenditures when a claim against the current financial
resources is incurred that will be paid from resources that are available. Fund-based
accounting for the governmental funds records expenditures instead of expenses and
capital assets.
20. Modified accrual accounting recognizes expenditures when a claim against the current
financial resources is incurred that will be paid from resources that are available.
Governments must disclose the length of time (often 60 days) used to determine availability.
21. Within the governmental funds, fund-based financial statements focus on expenditures
rather than expenses. Expenditures and transfers should be recorded when the liability is
incurred. Therefore, the entire cost of capital assets is treated as an expenditure as the
liability is incurred.
Government-wide financial statements record capital assets in a manner similar to for-profit
organizations. Buildings, machines, and other capital assets are capitalized and expensed

over their useful lives.
22. Traditionally, the purchase method has been used for prepaid expenses and supplies. The
cost is recorded immediately as an expenditure when the liability is incurred or the money is
paid.
Another method is the consumption method, which is similar to for-profit organization.
Supplies and prepayments are recorded as assets when acquired. As they are then
consumed, they are recorded as expenditures matching them with the appropriate fiscal
period.

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On fund-based financial statements for the governmental funds, either method can be
selected.
23. The four classifications of nonexchange revenues that a state or local government can
recognize are:
a. Derived tax revenues. A tax assessment is imposed because an underlying exchange
takes place. For example, revenues are recognized for a sales tax when a sale occurs
and the tax is imposed.
b. Imposed nonexchange revenues. An assessment is imposed but no underlying
transaction takes place. Examples include property taxes and fines or penalties that
are levied. Revenues are recognized in the period when resources are required to be
used or the first period that use is permitted.
c. Government-mandated nonexchange transactions. Monies are provided from one

government to another to help pay for legally required programs or actions. Examples
include grants from the federal government to a city that must only be used for a
mandated legal requirement such as an improvement in the school system. Revenues
are recognized when all eligibility requirements have been met.
d. Voluntary nonexchange transactions. Monies conveyed willingly to a state or local
government by an individual, another government, or an organization usually for a
specific purpose but without legally mandated requirements. Revenues are recognized
when all eligibility requirements have been met. An example would be money donated
to the city for the beautification of the local parks.
24. A receivable is not recorded for property taxes until the demand for money represents an
enforceable legal claim, which is normally specified by state law. Many governments
encourage the early payment of property taxes (by sending out bills early or by giving some
type of a cash discount). Thus, cash can actually be reported before the government even
records the initial receivable.
The revenue from the property tax should be reported net of estimated uncollectible tax in
the period in which it is supposed to be used or the first period in which it can be used. For
example, property taxes assessed to finance the government's costs in 2008 should be
reported as revenue in 2008.
Because the receivable and the revenue recognition are split, it is possible to record the
receivable (or cash, if collected early) before the revenue. In that case, a Deferred Revenue
account is established.
25. No revenues are recognized in either set of financial statements because the proceeds of
bonds must be paid back. In fund-based financial statements, Cash is increased along with
an ―Other Financing Sources‖ figure. For example, if the bonds were issued for a
construction project, this entry is recorded in the Capital Project Fund. Payments of both
interest and debt are then recorded when they become due, becoming a claim on current
financial resources. An Expenditure account is recognized for the debt and related interest
and is usually shown in the Debt Service Fund.
In government-wide financial statements, the cash and debt are both increased and
payment of debt would be similar to for-profit financial statements.

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26. A special assessment is an improvement made to property by the government, which is
paid for in part or in whole by the owners of the property being benefited. Adding curbing
and sidewalks to a local street is an example of a special assessment if the residents of that
street are required to pay a portion of the cost. Typically, the government places a lien on
the property to insure payment.
The accounting for special assessment projects depends on the liability being incurred by
the government. If the government is in no way liable for the work done and any debt
incurred, an Agency Fund is used to account for the monetary inflows and outflows. The
government is simply serving as a conduit to get the project completed and the debt paid.
If the government is responsible (even secondarily responsible) for the cost of the project, a
more elaborate method of accounting is necessary. In the government-wide financial
statements the debt and the infrastructure asset are recorded as in for-profit accounting.
The taxes are assessed, reported as revenues, collected, and used to pay the debt.
The infrastructure asset and long-term debt are not recorded in the fund-based financial
statements. Instead, the expenditures for the work are recorded in a Capital Projects Fund
while cash collected from citizens is recorded as revenue.
27. In fund-based financial statements, interfund transactions are recorded in both funds
simultaneously at the time of authorization. For example, monetary transfers from the
General Fund to another fund such as the Debt Service Fund would be recorded in both
funds.

The recipient records this transfer as an ―Other Financing Source‖ and the party making the
transfer records an ―Other Financing Use.‖
If the transfer is being made to a proprietary fund, it is often shown in the statement of
revenues, expenses, and other changes in net assets as a ―capital contribution‖ or as a
―transfer in.‖
28. Intra-activity transactions occur totally within the governmental activities or totally within the
business-type activities so that no net effect is created. Therefore, these transfers are not
reported on government-wide financial statements.
Interactivity transactions occur between a governmental activity and a business-type activity
so that they affect the balances in each. Consequently, they are reported in both columns
on the government-wide financial statements but are then offset in the total column.
29. An internal exchange transaction is a transfer within the government that is recorded as if
the transaction had actually occurred with an outside party. Such transactions occur
between one of the government’s activities and an internal service or enterprise fund and
are normally to pay for work or services being rendered. These exchanges are reported as
revenues and as either expenditures or expenses. An example would be a payment from a
police department to the city’s motor pool for vehicle maintenance. This exchange would be
included by both departments in the fund-based financial statements as if it were a
transaction with an outside party. On government-wide financial statements, any such
transactions between a government activity and a related internal service fund would be
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considered an intra-activity transaction because both fund types are classified as

government activities and, therefore, there would be no impact on overall figures.

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Answers to Problems
1.

B

2.

A

3.

D

4.

D

5.

A

6.

C

7.

D

8.

A

9.

D

10. C
11. B
12. C
13. B
14. B
15. C
16. A
17. C
18. C
19. B
20. A
21. C

22. D
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23. C
24. D
25. A
26. B
27. D
28. C
29.

Beginning of Year-Recording of budget
GENERAL FUND
Estimated Revenues Control ........................................ 1,000,000
Estimated Other Financing Sources—Bond Proceeds 400,000
Appropriations Control ............................................
Appropriations-Other Financing Uses—Operating
Transfers Out ......................................................
(Budgetary) Fund Balance.......................................

900,000
300,000
200,000

End of Year-Removal of budget
GENERAL FUND
Appropriations Control ............................................ 900,000
Appropriations-Other Financing Uses—Operating
Transfers Out ...................................................... 300,000
(Budgetary) Fund Balance....................................... 200,000
Estimated Revenues Control .............................
1,000,000
Estimated Other Financing Sources—Bond Proceeds
400,000
30.

GOVERNMENT-WIDE FINANCIAL STATEMENTS
GOVERNMENT ACTIVITIES
Computer
Vouchers (or Accounts) Payable
Vouchers (or Accounts) Payable
Cash

89,400
89,400
89,400
89,400

In the end, the capital assets have gone up by the cost of the computer and
cash has been reduced by the same amount.

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FUND-BASED FINANCIAL STATEMENTS
GENERAL FUND
Encumbrances Control
Fund Balance—Reserved for Encumbrances

88,000
88,000

Fund Balance—Reserved for Encumbrances
Encumbrances Control

88,000

Expenditures Control
Vouchers Payable

89,400

Vouchers Payable
Cash

89,400

88,000

89,400

89,400

On the statement of revenues, expenditures, and other changes in fund
balance, an expenditure of $89,400 will be shown. Cash will also decrease
by that amount.
31.

GOVERNMENT-WIDE FINANCIAL STATEMENTS
GOVERNMENT ACTIVITIES (Intra-activity transfer from the General Fund to
the Capital Projects Fund is not reported)
Issuance of Bonds
Cash
1,800,000
Bonds Payable
1,800,000
Completion of Construction
Buildings
Cash

1,890,000
1,890,000

On the statement of net assets, for the governmental activities, the
Buildings account goes up by $1,890,000, the Bonds Payable go up by $1.8
million, and cash goes down by $90,000.
FUND-BASED FINANCIAL STATEMENTS

To Record Transfer
GENERAL FUND
Other Financing Uses—Transfers Out
Cash
CAPITAL PROJECTS FUND
Cash
Other Financing Sources—Transfers In

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90,000
90,000

90,000
90,000

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Sale of Bonds
Cash
Other Financing Sources—Bond Proceeds

1,800,000

Completion of Construction

Expenditures
Cash

1,890,000

1,800,000

1,890,000

On the statement of revenues, expenditures, and other changes in fund
balance, the General Fund will report an other financing uses – transfer out
of $90,000. On its balance sheet, it will report $90,000 less cash. For the
capital projects fund, there will be an expenditure of $1,890,000 and two
other financing sources: $90,000 as a transfer-in and $1.8 million from
bond proceeds.

32.

FUND-BASED FINANCIAL STATEMENTS
a. General Fund
Estimated Revenues Control
Estimated Other Financing Sources Control
(Budgetary) Fund Balance
Appropriations Control
b. Capital Projects Fund (could also be recorded in the General Fund with
a transfer to the Capital Projects Fund)
Cash
Other Financing Sources—Bond Proceeds
c. General Fund
Encumbrances

Fund Balance—Reserved for Encumbrances
d. General Fund
Fund Balance—Reserved for Encumbrances
Encumbrances
Expenditures Control
Vouchers Payable
e. General Fund
Vouchers Payable
Cash
f. General Fund
Other Financing Uses—Transfers Out—Capital Projects

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Due to Capital Projects Fund (Special Assessment)
Capital Projects Fund
Due from General Fund
Other Financing Sources—Transfers In—General Fund
g. General Fund
Other Financing Uses—Transfers Out—Motor Pool
Cash
Internal Service Fund
Cash

Contributed Capital
h. General Fund
Property Taxes Receivable
Revenues—Property Taxes
Allowance for Uncollectible Taxes
i. The following entries are made on the assumption that the appropriate
payment of the supplement is an eligibility requirement for the grant.
Special Revenue Fund
Cash
Deferred Revenue
j. Expenditures—Salaries
Cash
Deferred Revenue
Revenues—Grant
GOVERNMENT-WIDE FINANCIAL STATEMENTS
a. No entry
b. Governmental Activities
Cash
Bonds Payable
c. No entry
d. Governmental Activities
Equipment
Vouchers Payable
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e. Governmental Activities
Vouchers Payable
Cash
f. No entry (it is an intra-activity transfer within the governmental
activities)
g. No entry (assuming the internal service fund is treated as a
governmental activity so that this is an intra-activity transaction)
h. Governmental Activities
Property Taxes Receivable
Revenues—Property Taxes
Allowance for Uncollectible Taxes
i. Governmental Activities
Cash
Deferred Revenues
j. Governmental Activities
Expense—Public Safety
Cash
Deferred Revenue
Revenue
33.

FUND-BASED FINANCIAL STATEMENTS
a. General Fund
Encumbrances Control
Fund Balance—Reserved for Encumbrances
b. General Fund
Expenditures (or Supplies)
Due to Internal Service Fund

McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e

94,000

1,200
1,200

c. Capital Projects Fund
Cash
Other Financing Sources—Bonds Proceeds
d. General Fund
Other Financing Uses—Transfers Out—
Swimming Pool
Cash

94,000

11,000,000
11,000,000

140,000
140,000
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e. General Fund
Fund Balance—Reserved for Encumbrances
Encumbrances Control
Expenditures
Vouchers Payable

94,000
94,000
96,000
96,000

f. General Fund
Other Financing Uses—Transfers Out
Cash

32,000
32,000

Capital Projects Fund
Cash
Other Financing Sources—Transfers In

32,000
32,000

g. Special Revenue Fund
Cash
Deferred Revenues

30,000

h. Special Revenue Fund
Deferred Revenues
Revenues

5,000

30,000

5,000

Expenditures
Cash

5,000
5,000

GOVERNMENT-WIDE FINANCIAL STATEMENTS
a. No entry
b. No entry (Assuming print shop is a governmental activity.)
Governmental Activities
c. Cash
Bonds Payable
Governmental Activities
d. Transfers Out—Swimming Pool
Cash
Business Type Activities
Cash
Transfers In—General Fund

McGraw-Hill/Irwin
16-18

11,000,000
11,000,000

140,000
140,000

140,000
140,000

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e. Governmental Activities
Equipment—Trucks
Vouchers or Accounts Payable

96,000
96,000

f. No entry – intra-activity transfer
g. Governmental Activities
Cash
Deferred Revenues

30,000

h. Governmental Activities
Expense—Public Service
Cash

5,000

30,000

5,000

Deferred Revenues
Revenues
34.

5,000
5,000

FUND-BASED FINANCIAL STATEMENTS
a. Capital Projects Fund (could also be recorded in the General Fund
followed by a transfer into the Capital Projects Fund)
Cash
900,000
Other Financing Sources—Bonds Proceeds
900,000
b. Capital Projects Fund (this entry depends on whether encumbrances are
being recorded in the government’s Capital Projects Fund.)
Encumbrances
1,100,000

Fund Balance—Reserved For Encumbrances
1,100,000
c. General Fund
Other Financing Uses—Transfers Out
Cash

130,000
130,000

Debt Service Fund
Cash
Other Financing Sources—Transfers In

130,000

d. General Fund
Fund Balance—Reserved for Encumbrances
Encumbrances

11,800

130,000

Expenditures Control—Machinery and Equipment
Vouchers Payable

McGraw-Hill/Irwin
Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e

11,800

12,000
12,000

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e. General Fund
Inventory of Supplies
Cash

2,000

f. Special Revenue Fund
Cash
Deferred Revenues

90,000

2,000

90,000

g. General Fund
Taxes Receivable
Revenues – Property Taxes
Allowance for Uncollectible Current Taxes

600,000
576,000
24,000

GOVERNMENT-WIDE FINANCIAL STATEMENTS
a. Governmental Activities
Cash
Bonds Payable

900,000
900,000

b. No entry
c. No entry (this is an intra-activity transfer)
d. Governmental Activities
Machinery and Equipment
Vouchers or Accounts Payable

12,000
12,000

e. Governmental Activities
Inventory of Supplies
Cash

2,000

f. Governmental Activities
Cash
Deferred Revenues

90,000

2,000

90,000

g. Governmental Activities
Taxes Receivable
Revenues – Property Taxes
Allowance for Uncollectible Current Taxes

McGraw-Hill/Irwin
16-20

600,000
576,000
24,000

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35.

a. As the Appropriations account balance in the General Fund shows a
total of $171,000, that amount of money has been authorized for
expenditure during this fiscal period. Thus, only that total can be

expended or committed. To date, a total of $119,000 has been spent or
committed ($110,000 of expenditures and $9,000 in encumbrances).
The remaining $52,000 is still available.
b. The governmental funds are all designed to monitor current financial
resources and their inflows and outflows. Therefore, the Capital
Projects Fund records expenditures made in relation to the acquisition
and construction of fixed assets. Capital assets are recorded directly in
government-wide financial statements.
c. The Appropriations balance represents the amount that government
officials have authorized to be spent on a particular construction
project.
d. To alert readers to the commitment that remains outstanding, a year-end
reclassification is made to reduce the ―Fund Balance—Unreserved,
Undesignated‖ in order to report a ―Fund Balance-Reserved for
Encumbrances.‖
e. The most likely explanation for the zero balance in the Fund BalanceUnreserved, Undesignated is that this capital project was begun during
the current year, and thus, no closing entries have, as of yet, been
made. In addition, many governments transfer in to the Capital Projects
Fund the exact amount to be spent so that the inflows and outflows
always agree and no fund balance is retained.
f. Two possible reasons can be put forth for the $150,000 Other Financing
Sources balance. First, a bond may have been sold. Since the debt
itself is not recorded in the fund-based financial statements, the
governmental fund must record the receipt by means of an Other
Financing Sources designation. Second, the $150,000 may have come
from a transfer (most likely from the General Fund). An operating
transfer is not considered revenue by the recipient and, therefore, the
inflow of current financial resources is recorded as an Other Financing
Source.
g. The Debt Service Fund is utilized to accumulate money to pay off the

principal and interest of any long-term liability incurred by the
governmental funds. The debt itself is maintained in the governmentwide financial statements. Payment of the debt and interest is made
from the Debt Service Fund and those payments are recorded as
expenditures.

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h. Special assessment projects are undertaken by a government to benefit
particular properties with the owners bearing part (or all) of the cost.
Curbing, as an example, or the installation of lights usually are special
assessment projects. If the government has no responsibility for the
costs, recording of all financial resources inflows and outflows is made
in an Agency Fund. However, if the government does have some
responsibility (if, for example, the government is secondarily liable for
any debts incurred), the construction is recorded in a Capital Projects
Fund. Thus, the receivable balance shown here would indicate that this
project is being recorded in this manner. Collection of the receivable
will be made from the citizens being benefited; the money will be used
in paying for the construction.
i. This designation indicates that the government is reporting an asset
that is not free to be spent for future expenditures. In the asset section,
a $4,000 balance is being reported as the government’s Inventory of
Supplies. That figure is being reported but is not available to be spent.

j. Budgetary entries are optional for Debt Service Funds but are rarely
used. Expenditure levels (for principal and interest) are set
contractually by the debt indenture. Thus, additional financial control is
not obtained by the inclusion of budgetary amounts.
36.

a. Estimated Revenues
Appropriations
Budgetary Fund Balance

$232,000
225,000
$ 7,000

Since estimated revenues exceed the appropriations, a surplus is
anticipated which is mirrored through a credit balance in the Budgetary
Fund Balance account.
b. Initially, all of the school supplies are recorded in an asset account
such as ―Inventory of Supplies.‖ As the supplies are used, the cost is
reclassified into an Expenditures account. On the balance sheet, a
portion of the Fund Balance figure should be separated and reported as
being reserved for Inventory of Supplies to show that this amount of
assets is available to be spent.
c. When the balance sheet is produced, a Reserved Fund Balance amount
will be reported to indicate that this amount of current financial
resources must be held to pay off the commitment for the truck when it
eventually becomes an actual liability.
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d. FUND-BASED FINANCIAL STATEMENTS
General Fund
Fund Balance—Reserved for Encumbrances
Encumbrances
Expenditures Control
Vouchers Payable

111,000
111,000
120,000
120,000

e. General Fund
Other Financing Uses—Transfers Out
Cash

33,000
33,000

Debt Service Fund
Cash
Other Financing Sources—Transfers In

33,000

33,000

f. REVENUES:
Government grant appropriately expended
Property taxes to be received
Business licenses and parking meters
Total revenues

$ 24,000
190,000
14,000
$228,000

g. EXPENDITURES:
Salary for police officers
Rent on equipment (assuming payments from
from current financial resources)
City hall acquisition
Salary for ambulance drivers
Supplies (60% of $16,000)
Ambulance acquisition
School bus acquisition
Total expenditures

$ 21,000
3,000
1,044,000
24,000
9,600
120,000

40,000
$1,261,600

h. FUND-BASED FINANCIAL STATEMENTS
Capital Projects Fund(or this could have been recorded in General Fund
with the money then transferred to the Capital Projects Fund)
Cash
300,000
Other Financing Sources
300,000

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37.

FUND-BASED FINANCIAL STATEMENTS
a. General Fund
Estimated Revenues Control
Appropriations Control
Estimated Other Financing Uses—
Operating Transfers
Budgetary Fund Balance

834,000
540,000
242,000
52,000

b. Capital Projects Fund (encumbrances for these types of contracts are
usually optional but are more likely to be made when budgetary entries are
being used)
Encumbrances Control
8,000,000
Fund Balance—Reserved for Encumbrances
8,000,000
c. Capital Projects Fund
Cash
Other Financing Sources Control

8,000,000

d. Capital Projects Fund
Fund Balance—Reserved for Encumbrances
Encumbrances Control

8,000,000

8,000,000

8,000,000

Expenditures Control
Contracts Payable

8,000,000

Contracts Payable
Cash

8,000,000

e. General Fund
Other Financing Uses Control
Cash

8,000,000

8,000,000

1,000,000
1,000,000

Debt Service Fund
Cash
Other Financing Resources

1,000,000

f. Debt Service Fund
Expenditures Control—Bonds
Expenditures Control—Interest
Cash

900,000
100,000

g. General Fund
Property Taxes Receivable
Revenues – Property Taxes
Allowance for Uncollectible Taxes
McGraw-Hill/Irwin
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1,000,000

1,000,000

800,000
768,000
32,000
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h. Special Revenue Fund
Cash
Revenues Control

120,000

i. Permanent Fund

Investments
Contribution Revenue

300,000

120,000

300,000

GOVERNMENT-WIDE FINANCIAL STATEMENTS
a. No entry
b. No entry
c. Governmental Activities
Cash
Bonds Payable

8,000,000

d. Governmental Activities
Buildings
Cash

8,000,000

8,000,000

8,000,000

e. No entry
f. Governmental Activities

Bonds Payable
Interest Expense
Cash
g. Governmental Activites
Proprety Taxes Receivable
Revenues – Property Taxes
Allowance for Uncollectible Taxes

900,000
100,000
1,000,000

800,000
768,000
32,000

h. This entry is made in the Governmental Activities unless the toll road is
reported as an Enterprise Fund in which case it is recorded as a
business-type activity.
Cash
120,000
Revenues—Reserved for Highway Maintenance

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120,000

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