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    Government and Not-For-Profit Accounting

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    9-3 Internal service funds are accounted for similarly to businesses.
    William County opted to account for its duplication service center in an internal service fund. Previously the center had been accounted for in the county's general fund.
    During the first month in which it was accounted for as an internal service fund the center engaged in the following transactions:

    1. Five copiers were transferred to the internal service fund from the government's general capital assets. At the time of transfer the copiers had a book value (net of accumulated depreciation) of $70,000.

    2. The general fund made an initial cash contribution of $35,000 to the internal service fund.

    3. The center borrowed $270,000 from a local bank to finance the purchase of additional equipment and renovation of its facilities. It issued a three-year note.

    4. It purchased equipment for $160,000 and paid contractors $100,000 for improvements to its facilities.

    5. It billed the county clerk's office $5,000 for printing services, of which the office remitted $2,500.

    6. It incurred, and paid in cash, various operating expenses of $9,000.

    7. The fund recognized depreciation of $1,500 on its equipment and $900 on the improvements to its facilities.

    a. Prepare journal entries in the internal service fund to record the transactions.

    Chapter 10 - Questions for Review and Discussion
    1. What is the distinction, as drawn by the GASB, between a fiduciary fund and a permanent fund?

    5. How should governments report permanent fund and fiduciary fund balances and income in their government-wide statements? Explain.

    15. Why do the balance sheets of agency funds contain only assets and liabilities, but no fund balances? Why is it often unclear whether the resources relating to a particular activity should be accounted for in an agency fund or a governmental fund?

    5-12 Non-exchange expenditures are the mirror image of non-exchange revenues.
    A state government provided several grants to school districts and local governments during its fiscal year ending August 31.

    1. On August 1, 2008, it announced a $2 million grant to a local school district for the purchase of computers. The district can spend the funds upon receipt. On September 15, 2008, the state mailed a check for the full amount to the district. The district spent $1.5 million on computers during fiscal 2009 (i.e., the year ending August 31, 2009) and expects to spend the remaining $0.5 million in fiscal 2010.

    2. On the same date the state announced a $10 million grant to another school district for the acquisition of equipment. However, per the provisions of this grant the state will make payments only upon receiving documentation from the district that it has incurred allowable costs. In fiscal 2009, the district incurred and documented allowable costs of $8 million. Of this, the state paid only $7 million, expecting to reimburse the district for the balance early in fiscal 2010.

    3. The state also announced a $5 million grant to a third school district, again for the acquisition of computers. The state will make annual five $1 million payments to the district, starting on September 15, 2009. The district is required to expend the funds in the fiscal year in which they are received.

    a. Prepare the journal entries that the state would make in fiscal 2009 to record the awards in an appropriate governmental fund. Briefly justify the amount of expenditure that you recognized.

    b. What, if any, adjustment to the amount of expenditure recognized would the state have to make in preparing its government-wide statements?

    c. Describe briefly how the recipients would account, in both fund and government-wide statements for the awards.

    10-7 The basic financial statements of a pension plan provide only limited amounts of information as to its economic condition.

    The following information relates to the Lincoln County Firefighters' Pension Plan (dollar amounts in millions):

    Beginning-of-Year Balances
    Cash and cash equivalents, January 1 $ 67
    Marketable securities and other investments at fair value, January 1 3,180
    Current liabilities to retirees, January 1 4
    Actuarial accrued liability, January 1 3,430

    Transactions During the Year
    Contributions received during the year from employers and employees 138
    Benefits to which retirees were entitled during the year 120
    Benefits actually paid to retirees, including amounts owed from prior year 122
    Interest and dividends earned during the year 145
    Net appreciation in fair value of marketable securities and other investments (i.e., realized
    and unrealized gains) during the year 36
    Investment and administrative expenses 45

    End-of-Year Balances
    Cash on hand, December 31 92
    Marketable securities and other
    investments at fair value, December 31 3,307
    Current liabilities to retirees, December 31 2
    Actuarial accrued liability, December 31 3,690

    1. Prepare a statement of plan net assets available for benefits (balance sheet) as of January 1. You may not have to include all of the data provided.

    2. Prepare a statement of changes in plan net assets available for benefits (statement of activities) for the year.

    3. Prepare a statement of plan net assets available for benefits (balance sheet) as of December 31.

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    The solution examines government and not-for-profit accounting benefits. A statement of changes is prepared.

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