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Governmental and Not-for-profit Accounting

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1 - A city library imposes a fee on patrons to access its electronic databases. The fee has been earmarked to maintain database subscriptions. However, city officials have the authority to redirect the fees to any public use.

Should this fee be accounted for in a general fund or a special revenue fund? Why? Is the collection of the fee an exchange or nonexchange transaction? Provide an appropriate rationale for your answer. Would your previous response change if the city officials were not able to redirect the library fee? Why or why not?

2 - Under a pressure to balance their budgets, governments at all levels have resorted to fiscal gimmicks, such as delaying the wages and salaries of employees from the last day of the month to the first day of the following month. In the year of the change, they reduced the number of pay periods.

How would this change affect the reported expenditures of a governmental fund under GAAP? List at least two other accounting gimmicks and describe their effect on reported revenues and expenditures. In your opinion, does the use of such gimmicks undermine GASB's reporting objectives? Explain your response.

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Question 1
Since the fees can be redirected for any public use, they should be accounted for under a general fund. Remember that special funds are used to account money earmarked for a particular purpose. Although the database fees has been earmarked to maintain database subscriptions, the city officials still have the authority to redirect the fees for any public use. Now, if ...

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This solution discusses governmental and not-for-profit accounting.

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Multiple choices: Governmental/Not-for-profit Accounting Basis

Exercise 4-1
1. Under the modified accrual basis of accounting, revenues
cannot be recognized
a. Until cash has been collected
b. Unless they will be collected within sixty days of
year-end
c. Until they are subject to accrual
d. Until they are measurable and available

2. Available (as in measurable and available) means
a. Available to finance expenditures of the current
period
b. Subject to accrual
c. Collectible
d. Available for appropriation

3. Property taxes are an example of
a. An imposed exchange transaction
b. An imposed nonexchange transaction
c. A derived transaction
d. A government-mandated nonexchange transaction

4. To be considered available, property taxes must
have been collected either during the governments
fiscal year or within
a. The time it takes for the government to liquidate
its obligations from the prior year
b. Thirty days of year-end
c. Sixty days of year-end
d. The following fiscal year

5. For its fiscal year ending September 30, 2007, Twin
City levied $500 million in property taxes. It collected
taxes applicable to fiscal 2007 as follows (in millions):
June 1, 2006, through September 30, 2006 $ 20
October 1, 2006, through September 30,
2007 440
October 1, 2007, through November 30,
2007 15
December 2007 4
The city estimates that $10 million of the outstanding
balance will be uncollectible. For the fiscal year ending
September 30, 2007, how much should Twin City
recognize in property tax revenue (in millions) in its
general fund?
a. $440
b. $460
c. $475
d. $490

6. Assume the same facts as in the previous example. How
much should Twin City recognize in property tax revenue
(in millions) in its government-wide statement of
activities?
a. $440
b. $460
c. $475
d. $490

7. Central City was awarded two state grants during its
fiscal year ending September 30, 2007: a $2 million
block grant that can be used to cover any operating
expenses incurred during fiscal 2008, and a $1 million
grant that can be used any time to acquire equipment
for its police department. For the year ending September
30, 2007, Central City should recognize in grant
revenue in its funds statements (in millions)
a. $0
b. $1
c. $2
d. $3

8. Assume the same facts as in the previous example. How
much should the city recognize in grant revenue in its
government-wide statements?
a. $0
b. $1
c. $2
d. $3

9. Assuming that a government will collect its sales taxes
in sufficient time to satisfy the available criterion, it
would ordinarily recognize revenue from sales taxes in
its governmental fund statements
a. When the underlying sales transaction takes place
b. On the date the merchant must remit the taxes to
the government
c. On the date the merchant must file a tax return
d. When the taxes are received by the government

10. Assuming that a government will collect its sales taxes
in sufficient time to satisfy the available criterion, it
would ordinarily recognize revenue from sales taxes in
its government-wide statements
a. When the underlying sales transaction takes place
b. On the date the merchant must remit the taxes to
the government
c. On the date the merchant must file a tax
return
d. When the taxes are received by the government

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