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Journal Entries GASB Government vs For-Profit

To make sure you are up to date on the special guidelines the GASB has declared, your manager asked you to research GASB Statement No. 56. He also asked you to show him, side by side, how government accounting journal entries might differ from for-profit journal entries in these similar events.

* When was GASB Statement No. 56 initiated?
* In your own words, what is the essence of the new ruling?
* Why did the GASB probably deem it as being necessary?
* How might GASB Statement No. 56 change the activities of any accountant performing governmental accounting?

Create journal entries for all of the following situations.

1. On 10/1/2010, a for-profit Company A provides $100,000 of service to Company B. Company B plans to pay their bill 90 days later.
Create the journal entry when the service is provided.
Create the journal entry when the cash is received.

2. On 12/1/2010, the city's recreation department receives a government grant of $100,000 specifically to use for next year's park upgrades, which will begin on 1/1/2011.
Create the journal entry made when the cash is received.
Create the journal entry to be made on 1/1/2011.

3. A for-profit retail store buys $200,000 of inventory on 9/1/2010.
Create the proper journal entry to show purchase of this inventory.

4. A local city park buys $200,000 of food merchandise for later resale. It uses the purchase method to account for inventory.
Create the proper journal entry for when this purchase is made.

5. A nonprofit organization receives a $250,000 donation on 12/1/2011, but the donor specifically wants it spent in 2012.
Create the journal entry or entries to show the proper recording of revenue (this may require more than on journal entry).
Create the subsequent journal entry to show spending of the funds.

Solution Preview

The research below will give you information to use in crafting your report.

* When was GASB Statement No. 56 initiated?
This statement was issued and effective March 2009.

* In your own words, what is the essence of the new ruling?
This statement addresses three issues, related party transactions, going concern considerations and subsequent events. The statement brought certain for-profit accounting and reporting standards to governmental standards.

RELATED PARTIES

For related party transactions, the key idea taken from the AICPA literature was the concept of "form over substance." That is, if the legal form, because of related parties, differs from the substance of the deal, the substance should be reported, not the legal technicalities. For instance, if a related party lends the organization an interest-free loan or buys property from it at inflated non-market-value rates. These transactions are not "arms length" and so much be studied to see if they really should result in zero interest or gains computed based on the technical details.

SUBSEQUENT EVENTS

For subsequent events, if evidence occurs after years end about a condition that existed at or before year end, that evidence should be considered in reporting that before-year-end event. For instance, if an estimate was made at year end and a month later it becomes clear that the estimate was too high or too low, the financial statements should be adjusted to reflect the after-year-end evidence on the size of that estimate.

For subsequent events that do not impact events occurring before year end but might have a major impact on stakeholder's ...

Solution Summary

Your tutorial is 479 words and four references and provides the journal entries needed.

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