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Government and Not For Profit Accounting

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Part 1:
The following relate to the town of Coupland (dollar amounts in thousands):

Equipment used in a vehicle repair service that provides service to other departments on a cost-reimbursement basis; the equipment has a ten-year life with no salvage value $1,400

Property taxes levied and collected $6,300

Hotel taxes (restricted to promotion of tourism) collected $1,200

Proceeds of bonds to build a parking garage that must be repaid from user charges $4,000

Proceeds of general obligation bonds to finance construction of a new city hall; the building, which was completed during the year, has a useful life of thirty years with no salvage value $9,000

Proceeds of a federal grant to hire additional police officers $1,000

Fees charged to, and collected from, customers by the electric utility $8,000

Match the fund items below with the amounts that follow. An amount may be selected once, more than once, or not at all.

1. Revenue to be recognized in an enterprise fund
2. Revenue to be recognized in special revenue funds
3. Bonds payable to be recognized in the general fund
4. Bonds payable to be recognized in enterprise funds
5. Depreciation expenditure to be recognized in the general fund
6. Depreciation expense to be recognized in internal service funds
7. Revenue to be recognized in an internal service funds
8. Revenue to be recognized in the general fund
9. Long-lived assets to be recognized in the general fund
10. Long-lived assets to be recognized in internal service funds

a. $0
b. $140
c. $900
d. $1,260
e. $1,040
f. $1,400
g. $2,200
h. $4,000
i. $6,300
j. $8,000
k. $8,500
l. $10,400

Part 2:
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 non-exchange transaction
c. A derived transaction
d. A government-mandated non-exchange transaction

4. To be considered ''available,'' property taxes must have been collected either during the government's 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

Part 3:
The recognition of revenue from fines does not necessarily reflect the amount ''earned'' by merely issuing tickets. In August 2008, the last month of its fiscal year, Goldwaithe Township issued $88,000 worth of tickets for parking and traffic violations. Of these, the township collected $45,000. It expects to collect an additional $20,000 within sixty days of the close of the fiscal year and to collect $3,000 subsequent to that. It will have to write off the balance. The tickets are due; the protest period expires on September 15.

1. How much revenue should the township recognize from the tickets issued in August 2008? Explain.
2. How might your answer change with respect to the township's government-wide statements?

Part 4:
1. What is the distinction between expenditures and expenses as the terms are used in governmental accounting?

2. A government expects to pay its electric bill relating to its current fiscal year sometime in the following year. An official of the government requests your advice as to whether the anticipated payment should be charged as an expenditure of the current or the following year.

How would you respond?

Part 5:
1. Although many governments prepare budgets for both capital projects and debt service funds and integrate them into their accounts, budgetary control over these funds is not as essential as it is for other governmental funds. Do you agree? Explain. If budgets are prepared for capital projects funds, in what significant way may they differ from those prepared for other funds?

6. How should governments report their capital projects and debt service activities in their government-wide statements?

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Solution Preview

Part 1:
1. Revenue to be recognized in an enterprise fund A. 0
2. Revenue to be recognized in special revenue funds G. 2,200
3. Bonds payable to be recognized in the general fund Not in the choices (9,000)
4. Bonds payable to be recognized in enterprise funds H. 4,000
5. Depreciation expenditure to be recognized in the general fund Not in the choices (300)
6. Depreciation expense to be recognized in internal service funds B. 140
7. Revenue to be recognized in an internal service funds J. 8,000
8. Revenue to be recognized in the general fund I. 6,300
9. Long-lived assets to be recognized in the general fund Not in the choices (9,000)
10. Long-lived assets to be recognized in internal service funds F. 1,400

Analysis:
Equipment used in a vehicle repair service that provides service to other departments on a cost-reimbursement basis; the equipment has a ten-year life with no salvage value $1,400: revenue internal service fund ($0 since no cost has been incurred yet), long-lived assets internal service, depreciation internal service = 1400/10=140

Property taxes levied and collected $6,300: revenue general fund

Hotel taxes (restricted to promotion of tourism) collected $1,200: revenue special,

Proceeds of bonds to build a parking garage that must be repaid from user charges $4,000: bond enterprise fund, (garage has not been constructed yet so no recognition of asset)

Proceeds of general obligation bonds to finance construction of a new city hall; the building, which was completed during the year, has a useful life of thirty years with no salvage value $9,000: long lived assets general fund, depreciation general fund 9,000/30=300; bonds general fund

Proceeds of a federal grant to hire additional police officers $1,000: revenue special,

Fees charged to, and collected from, customers by the electric utility $8,000: revenues general fund,
...

Solution Summary

Various accounting questions are addressed.

$2.19