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Solution Manual for Accounting for Governmental and Nonprofit Entities, 15th edition

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Solution Manual for Accounting for Governmental and Nonprofit Entities, 15th edition provides expert-verified solutions to help you study smarter.

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 1 CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL REPORTING FOR GOVERNMENTAL AND NOT - FOR - PROFIT ENTITIES OUTLINE Number Topic Type/Task Status (re: 1 4 /e) Questions: 1 - 1 Distinguishing between general purpose and special purpose governments Justify/Explain 1 - 3 revised 1 - 2 Distinguishing GNP accounting and reporting standards from business entities Contrast New 1 - 3 Standards - setting bodies Contrast 1 - 4 revised 1 - 4 Determining whether a not - for - profit organization is governmental Identify/ Explain New 1 - 5 Conceptual basis for reporting Evaluate/ Explain Revised 1 - 6 Types of accountability Contrast R evised 1 - 7 Measurement focus and basis of accounting Explain New 1 - 8 Distinguishing bases of accounting Explain New 1 - 9 Comprehensive annual financial report Describe 1 - 7 1 - 10 Service e fforts and a ccomplishments Explain New Cases: 1 - 1 Internet Case — FASB Internet/ Written report New 1 - 2 Internet Case — GASB Internet/Written report New 1 - 3 Internet Case — FASAB Internet /Written report Revised 1 - 4 Research Case — Government or NFP entity? Written report R evised Exercises/Problems: 1 - 1 Examine the CAFR Examine Revised 1 - 2 Various Multiple Choice Items 1 is new; several o ther items revised 1 - 3 Reporting characteristics of government - wide and fund financial statements Matching Same

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 2 CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL REPORTING FOR GOVERNMENTAL AND NOT - FOR - PROFIT ENTITIES Answers to Questions 1 - 1. General purpose governments differ from special purpose governments primarily in terms of the scope of their legal powers and the range of services provided. General purpose governments typically have much more power over citizens and provide a much greater range of services than do special purpose governments. Examples of general purpose governments include states, counties, townships, cities, and villages. S pecial purpose governments typically include such special districts as those for police and fire protection, sanitation, and water, and organizations such as school districts and public colleges and universities. 1 - 2 . Disagree. As discussed in this c hapter, government and not - for - profit organizations serve different functions in society than do business organizations. Not surprising, then, the objectives of financial reporting for these organizations, as shown in Illustration 1 - 2, are quite different from the objectives of business reporting. The most striking difference is the need for government and not - for - profit organizations to report on accountability , in addition to financial performance. The different functions served and different reporting objectives lead to different accounting and reporting practices. 1 - 3. Illustration 1 - 1 depicts the standard - setting jurisdiction of the FASB, GASB and FASAB. As shown, the FASB has responsibility for setting accounting and financial reporting standards for business enterprises and nongovernmental not - for - profit organizations. The GASB has responsibility for setting standards for state and local governments and governmental not - for - profit organizations. The FASAB has responsibility for setting accounting and reporting standards for federal agencies and departments. 1 - 4. One should apply the criteria discussed in the section head ed Determining Whether a Not - for - Profit Organization is Governmental . Essentially if an organization is a public corporation or body corporate and politic or has certain government - like characteristics described in this section, then it should be treated as a governmental organization and GASB standards should be followed. Otherwise, one would follow FASB standards. 1 - 5. Interperiod equity, whether current period revenues were sufficient to pay for current period services, is an important component of accountability. But, as noted in Chapter 1, accountability is the cornerstone of governmental financial reporting and is a broader concept than interperiod equity . See, for example, the discussion of fiscal and operational accountability in the answer to Question 1 - 6. 1 - 6. Disagree. The statement is incomplete. While it is true that GASB standards assist in assessing operational accountability of business - type activities, those standards assist in assessing both fiscal accountability and operational accountability of governmental activities. Specifically, governmental fund reporting standards promote fiscal

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 3 Ch. 1, Answers , Question 1 - 6 (Cont’d) accountability reporting by helping elected officials demonstrate that they have complied with spending restrictions related to the legally approved budget . Government - wide reporting standards for governmental activities help officials report on operational accou ntability — whether the government’s resources were utilized efficiently and effectively in meeting operating objectives. 1 - 7. Financial information related to governmental activities is reported in two different ways to meet two different reporting objectives. The government - wide financial statements are intended to report on the government’s operational accountability and therefore governmental activities are reported in those statements using accrual accounting with an economic resources measurement focus — similar to commercial accounting. In the governmental fund financial statements, the reporting objective is fiscal accountability, leading to the use of modified accrual and a focus on the flow of current financial resources. As a result, the same underlying transactions result in different amounts being reported in the government - wide and governmental fund financial statements. These differences must be reconciled so that readers can understand how the statements relate to each other. 1 - 8. Modified accrual accounting is used for preparing governmental fund financial statements since those statements focus on the flow of current (i.e., expendable) financial resources and whether resources were raised and expended in conformity with budget and other fiscal constraints. Revenues that will not be collected in time to pay current period obligations cannot be used to meet the current year budget. Similarly, obligations that will not be paid from currently available financial resources do not affect current period fiscal performance. Thus, under modified accrual only revenues that will be collected in time to pay for current obligations and only expenditures that will be paid in the current period or shortly thereafter are recognized in the current period. By contrast, the government - wide financial statements, as well as proprietary and fiduciary fund financial statements, focus on the flow of economic resources, both current and noncurrent. Consequently, the use of the accrual basis of accounting, similar to that used by business entities, is appropriate for these statements. 1 - 9. A CAFR should have an introductory section, financial section, and statistical section , the contents of which are discussed in this chapter . The basic financial statements required under GASBS 34 are the government - wide financial statements and fund financial statements with accompanying notes . The basic financial statements , along with the Management Discussion & Analysis, and other required supplementary information (RSI) , comprise only part of the financial section of a typical CAFR. The contents of each section are described briefly in the section headed Comprehensive Annual Financial Report .

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 4 Ch. 1, Answers (Cont’d) 1 - 10. The GASB recognize s that while financial information is helpful in assessing operational accountability, additional information about an organization’s service efforts and accomplishments is essential for a complete understanding of whether a government’s resources have been utilized efficiently and effectively. Information about service efforts includes indicators of nonmonetary resource inputs as well as monetary. Information about service accomplishments include s indicators of output measures (i.e., units of work accomplished) and outcome measures (i.e., impact of work on achieving goals and objectives). To date the GASB has conducted significant research on SEA measures and continues to encourage governments to experiment with SEA reporting. Solutions to Cases 1 - 1. A search of the FASB’s W eb site, www.fasb.org , should reveal the following Statements of Financial Accounting Standards that are focused on not - for - profit organizations: Statement No. 136 Transfers of Assets to a Not - for - Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (Issue Date 6/99) Statement No. 124 Accounting for Certain Investments Held by Not - for - Profit Organizations (Issue Date 11/95) Statement No. 117 Financial Statements of Not - for - Profit Organizations (Issue Date 6/93) Statement No. 116 Accounting for Contributions Received and Contributions Made (Issue Date 6/93) Statement No. 99 Deferral of the Effective Date of Recognition of Depreciation by Not - for - Profit Organizations — an amendment of FASB Statement No. 93 (Issue Date 9/88) Statement No. 93 Recognition of Depreciation by Not - for - Profit Organizations (Issue Date 8/87) In addition, the FASB has issued one Statement of Financial Accounting Concepts related to not - for - profit organizations :

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 5 Ch. 1, Solutions, Case 1 - 1 (Cont’d) Concepts Statement No. 4 Objectives of Financial Reporting by Nonbusiness Organizations (Issue Date 12/80) Brief summaries of each statement are also provided at the Web site. There is also a Proposed FASB Staff Position, FAS 117 - a, Endowments of Not - for - Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent management of Institutions Fund Act, and Enhanced Disclosures. In addition, the FASB is re - deliberating two proposed statements relating to not - for - profit organizations involved in mergers and acquisitions. Many FASB standards applicable to for - profit entities may also apply to nongovernmental not - for - profit organizations. Full - text copies of all FASB pronouncements can be downloaded free of charge from the FASB’s Web site. 1 - 2. I nstructors may wish to provide specific instructions for the students' brief reports. The GASB’s Web site provides extensive information about the Board’s mission, structure, and the due - process it follows in setting standards. Significant information about the GASB’s strategic plan is also provided at the Web site. Obviously, the content of GASB’s t echnical a genda and members of its a dvisory c ouncil will change over time. Although exposure drafts of proposed statements and abbreviated summaries of new pronouncements can be downloaded from the GASB’s Web site at no charge, the full - text of statements and other pronouncements can only be obtained by purchasing them from the GASB’s publication department. In addition, the GASB sells two annually updated compendiums of its official pronouncements — Original Pronouncements and Codification of Governmental Accounting and Financial Reporting Standards — and an annually updated Comprehensive Implementation Guide . All of these documents are available in hardcopy or as a searchable computer data base called GARS, the Governmental Accounting Research System. GASB’s Web site provides full information on how to order all publications and their cost, as well as information about becoming an annual subscriber to GASB pronouncements and due - process documents. 1 - 3. Instructors may wish to provide specific instructions for their students' brief reports. FASAB’s Web site may change over time, but the Web site does provide extensive information about the FASAB’s mission, structure, and due - process. A good source of information is the Memorandum of Understanding between the Comptroller General, Director of OMB, and the Secretary of the Treasury that created the FASAB, which currently is a 10 - member board. Because FASAB’s technical projects and members of the Accounting and Auditing Policy Committee will change over time, student s should describe the projects and committee representation that currently exist.

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 6 Ch. 1, Solutions, Case 1 - 3 (Cont’d) All statements and other pronouncements of the FASAB, including compendiums of all original pronouncements and a Current Text that codifies all pronouncements in topical format are available for downloading from its Web site at no charge. All due - process documents are available at that site as well. 1 - 4. Issue : Is the Native - American Heritage Center and Museum a governmental not - for - profit entity or nongovernmental not - for - profit entity ? This is an essential determination because if the museum is governmental the auditor will need to examine whether the museum ’s financial statements are in conformity with GASB standards. If it is nongovernmental, i ts financial statements must conform to FASB standards. Analysis: There is no evidence to suggest that the Heritage Center and M useum is a government per se , that is, a “public corporation or body corporate and politic.” Thus, it is necessary to apply the three criteria listed in the text to determine whether the organization is governmental in character. A controlling majority of its governing board is appointed or approved by the Mound City Council, thus, criterion a is clearly met. Criterion b is likely met as well, considering that the City could probably dissolve the center and museum if they wished to do so according to the original charter. It doesn’t appear that the organization has the power to enact or enforce a tax levy (criterion c ). Only one of the three criteria needs to be met for the museum to be considered governmental in character. Criterion a is clearly met and b is likely met, so careful application of the AICPA criteria to the fact situation in this case should lead one to reach the conclusion that the organization is governmental in character and therefore should conform to GASB financial reporting standards if it expects to receive an unqualified (clean) audit opinion. [Note to instructors: In order to avoid confusing students this early in the course, we have intentionally not discussed specific GASB and FASB standards applicable to not - for - profit organizations. Unusually inquisitive students can be referred to Chapter 14 for further information.] Solutions to Exercises and Problems 1 - 1. As s tudent s may have different CAFR s , there is no single solution to this exercise. It works well to devote class time to asking students some of the questions listed in the exercise, and perhaps tabulating the numbers of reports containing statements that are audited (1) by CPAs, (2) by state auditors, and (3) by employees of the reporting government. If such a tabulation is made, students may be interested in knowing in which states the local governmental units are located that are audited by each of the classes of auditors (or whatever other characteristic is being tabulated). Requiring that students download or obtain a hardcopy CAFR is a good exercise in obtaining financial information. Allow students to share their experiences, as some organizations make it easier to get CAFRs than others. Remind students that governments are not required to prepare a full CAFR, so some governments may simply refer to the ir report as the “audited annual financial statement , ” or even the “audit report.” Budgets are often quite detailed and can be most useful for Chapter 1 3, so instructors may wish to have their student’s download or request a hardcopy budget document in addition to the CAFR.

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 7 Ch. 1, Solutions (Cont’d) 1 - 2. 1. a . 6. b . 2. d . 7. a . 3. c . 8. c . 4. d . 9. d . 5. b . 10. a . 1 - 3. This is an exercise that may generate considerable discussion in class, as some of the answers depend on individual judgments and interpretations. Keeping this in mind, y ou may wish to provide some leeway in grading this exercise, depending on how literally you interpret the terms “funds” and “activities.” See Notes a and b for suggest ed guidelines. Financial Statements Activities or Funds Reported Basis Of Accounting Measurement Focus Statement of net assets — government – wide GA, BTA (see Note a) A ER Statement of activities — government - wide GA, BTA (see Note a) A ER Balance sheet — governmental funds GF (see Note b) MA CF R Statement of revenues, expenditures, and changes in fund balances — governmental funds GF (see Note b) MA CF R Statement of net assets — proprietary funds PF (see Note b) A ER Statement of revenues, expenses, and changes in fund net assets — proprietary funds PF (see Note b) A ER Statement of cash flows — proprietary funds PF (see Note b) A ER Statement of fiduciary net assets FF A ER Statement of changes in fiduciary net assets FF A ER Notes: a. Some students may wish to put governmental funds (GF) and proprietary funds (PF) here, but technically that would be incorrect as the information reported in funds is not the same as that reported at the government - wide level. Nevertheless, you could give full or partial credit for these answers and use the opportunity to point out the differences. b. Some students may understandably view financial information for governmental activities as being reported in both the governmental funds and the governmental activities column of the government - wide statements. If so, they will put GA in the cells for the two governmental funds statements, in addition to GF. Although not all governmental activities financial information is reported in the fund financial

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    Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not - for - Profit Entities 1 - 8 Ch. 1, Solutions, 1 - 3 (Cont’d) statements, enough of it is to justify giving credit for this answer as well, as long as the student understands that the long - term components of GA do not belong in these cells. Similarly, you may wish to grant credit to students who put BTA in the three cells for proprietary fund statements, although internal service fund information in these statements is usually considered part of GA rather than BTA.

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 1 CHAPTER 2: PRINCIPLES OF ACCOUNTING AND FINANCIAL REPORTING FOR STATE AND LOCAL GOVERNMENTS OUTLINE Number Topic Type/Task Status (re: 1 4 /e) Questions: 2 - 1 Governmental activities Describe Same 2 - 2 Business - type activities Describe Same 2 - 3 Fiduciary activities Describe Same 2 - 4 Reporting entity Define and explain Revised 2 - 5 Component unit reporting Explain Same 2 - 6 Fund categories Explain New 2 - 7 Definition of fund Explain New 2 - 8 Modified accrual; definition and rules Distinguish New 2 - 9 Distinguishing effects of governmental transactions Journalize New 2 - 10 Major fund criteria Explain New Cases: 2 - 1 Defining the reporting entity Internet; locating information in the CAFR Same 2 - 2 Accounting and reporting principles Identific ation Analysis; explanation 2 - 3 2 - 3 Identification of major funds; application of major fund criteria Internet; identifi - cation; calculation New Exercises/Problems: 2 - 1 Examine the CAFR Examine Revised 2 - 2 Various Multiple Choice Items 1,3, and 5 r evised ; Other items are new 2 - 3 Various True/False R evised 2 - 4 Matching government - wide and fund financial reporting characteristics Matching Revised format 2 - 5 Matching transactions with funds Matching Same 2 - 6 General long - term liability and general capital asset transactions Journaliz e and explain 2 - 7 revised 2 - 7 Determination of major funds Calculation; written r eport 2 - 6 revised

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 2 CHAPTER 2: PRINCIPLES OF ACCOUNTING AND FINANCIAL REPORTING FOR STATE AND LOCAL GOVERNMENTS Answers to Questions 2 - 1. Certain core services are provided by most general purpose governments — those related to the protection of life and property (e.g., police and fire protection), public works (e.g., streets and highways, bridges, and public buildings), parks and recreation facilities and programs, and cultural and social services , among others . Governments must also incur costs for general administrative support ( such as , data processing, finance, and personnel ) of its service departments . Core governmental services, together with general administrative support, comprise the major part of what GASB refers to as governmental activities . The measurement focus and basis of accounting for these activities is on the flow of current financial resources on the modified accrual basis in the governmental funds and on the flow of economic resources on the accrual basis in the G overnmental A ctivities column of the government - wide financial statements. 2 - 2. The business - type activities of a government include public utilities (such as electric, water, gas, and sewer utilities), transportation systems, toll roads and bridges, hospitals, parking garages and lots, liquor stores, golf courses, airports, and swimming pools , among other activities . Many of these activities are intended to be self - supporting by charging users for the services they receive. Focusing financial reporting on economic resources recognized on the accrual basis of accounting allows the government to determine whether charges for services are sufficient to cover the full cost of the activity. This measurement focus and basis of accounting is the same used for reporting governmental activities in the government - wide financial statements, but quite different from the current financial resources measurement focus and modified accrual basis of accounting used in the governmental funds. 2 - 3. Fiduciary activities of a government involve the government’s discharge of its fiduciary responsibilities, either as an agent or trustee, for parties outside the government. For example, a government may serve as agent for other governments in the administering and collecting of taxes. Fiduciary a ctivities are accounted for in agency funds, investment trust funds, pension trust funds, and private - purpose trust funds. Fiduciary activities are reported only in the fund financial statements and not in the government - wide financial statements because these resources belong to external parties, not the government. Fiduciary funds use accrual accounting and focus on economic resources , as do business - type activities . However , reporting for fiduciary activities differs from that for governmental funds since the latter funds focus primarily on the budget and current financial resources.

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 3 Ch. 2, Answers (Cont’d) 2 - 4. A reporting entity consists of the primary government and all other legally separate organizations for which the government is financially accountable. A primary government is defined as a state government, a general purpose local government, or a special purpose government that has a separately elected governing body and that is fiscally independent of other state and local governments. A component unit differs from the primary government mainly in terms of the direction of fiscal accountability. A component unit is financially accountable t o the primary government whereas the primary government is financially accountable f o r a component unit. 2 - 5. False. GASB standards indicate that individual component units should prepare separate financial statements and make them available to the public. Reporting financial information of component units in one or more separate columns to the right of those for the primary government in the government - wide financial statements is known as a discrete presentation. Blending is the alternative method if the financial activities of the component unit are so intertwined with those of the primary government that they are, in substance, the same as the primary government. In blended reporting, the financial information of the component unit is blended with that of the primary government, both in the appropriate fund and government - wide statements. 2 - 6. The three categories of funds are governmental, proprietary, and fiduciary. The fund types include d in each category are shown below: Governmental Proprietary Fiduciary General Fund Special revenue funds Debt service funds Capital projects funds Permanent funds Enterprise funds Internal service funds Agency funds Investment trust funds Pension trust funds Private purpose trust f unds These categories correspond to the three activity categories with the exception that financial information for internal service funds is generally reported in the Governmental Activities column of the government - wide financial statements. However, if an internal service fund predominantly serves an enterprise fund, its financial information is reported in the Business - type Activities column. 2 - 7. As a fiscal entity, a fund has its own resources and can incur liabilities to be repaid from the fund resources. As an accounting entity, the fund has its own self - balancing set of accounts. 2 - 8. Governmental funds, the five fund types listed in Illustration 2 - 2 of the text, focus on the flow of current financial resources. Consequently, these funds use the modified accrual basis of accounting. Under modified accrual revenues are recognized if the inflow is measurable and available to pay current period obligations. Expenditures are recognized as incurred if they will be paid from available resources.

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 4 Ch. 2, Answers (Cont’d) 2 - 9 . General Fund Debits Credits Cash 1,000,000 Other Financing Sources — Proceeds of 5 - Year Note 1,000,000 Governmental Acti vi ties, Government - wide Cash 1,000,000 Mortgage Note Payable 1,000,000 General Fund Expenditures — Ca pital Outlay 1,000,000 Cash 1,000,000 Governmental Acti vi ties, Government - wide Buildings 1,000,000 Cash 1,000,000 2 - 10. GASBS 34 requires that any fund that meets the following relative size criteria be designated as major: a. Total assets, liabilities, revenues or expenditures/expenses of that governmental or enterprise fund are at least 10 percent of the corresponding element total (assets, liabilities, and so forth) for all funds of that category or type (that is, total governmental or total enterprise funds), and (emphasis added) b. The same element that met the 10 percent criterion in (a) is at least 5 percent of the corresponding element total for all governmental and enterprise funds combined. In addition to funds that meet these two criteria , the General Fund of a state or local government must always be reported as a major fund. Finally, at its discretion management can report as a major fund any other governmental or enterprise fund that it considers of significant importance to financial statement users. Solutions to Cases 2 - 1. Obtaining a CAFR is becoming less difficult as a growing number of local governments post their CAFRs and budgets on their W eb sites , as well as on the GASB’s W eb site . Usually a bit of surfing under the Finance Department link of a government’s Web site will reveal the CAFR, which typically is downloadable as an Adobe Acrobat file. At any rate, once a CAFR is obtained it should be a relatively easy task to scroll down to the notes to the financial statements. Under the heading Summary of Significant Accounting Policies , the first note usually found is the description of the reporting entity. All information needed to complete this case should be readily available once the student finds the reporting entity note.

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 5 Ch. 2, Solutions (Cont’d) 2 - 2. A quick look at these financial statements reveals that Ms. Eager has almost no knowledge of GASB repo rting requirements. Let’s examine these financial statements from the viewpoint of (a) a local CPA who is considering auditing the t own’s financial statements and (b) a member of the t own c ouncil or a citizen. a . As a CPA knowledgeable about governmental accounting, you should see many red flags regarding this potential audit engagement. Do the financial statements that Ms. Eager has prepared conform to GAAP? The short answer is no! To the CPA contemplating whether to serv e as auditor, these financial statements should set off alarm bells. He or she only has to compare these statements to the variety of government - wide and fund financial statements required by GASB standards (see Illustrations A 1 - 1 through A 1 - 1 1 ) to realize that the y fall far short of what is required by GAAP. Among the many problems the CPA should detect (although students will probably miss many of these problems at this early point in the course) are the follow ing . 1. T he t own does not present separate government - wide and fund financial statements, although with a little work the balance sheet could be converted into a government - wide statement of net assets. 2. The statement of activities is not in the cost of services format prescribed by GASB . 3. Because no fund financial statements are prepared, key information such as unreserved and reserved fund balances of the General Fund (see Illustration A 1 - 3 , for example) and the Road Tax Fund are not presented. 4. Budget and actual comparison information is not present ed , either as basic statements or required supplementary information schedules, as required (see the Appendix to this chapter) . 5. Expense detail is lacking. More functional detail is needed under “Government services,” such as general government, public safety, public works, and other relevant functions , so the amounts expended for each service area can be determined . Presumably, this would also reduce the relatively large amount reported as “Miscellaneous.” 6. Why are accounts receivable relating to the Sewer Fund missing from the balance sheet? The presence of sewer fees on the statement of activities suggests that the Sewer Fund is being operated as an enterprise fund. If so, billings that have not been collected at year - end should be reported. In addition, GAAP requires accrual of a receivable and revenue for services provided but unbilled at year - end.

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 6 Ch. 2, Solutions, 2 - 2 (Cont’d) 7. If the Sewer Fund is an enterprise fund, then a statement of cash flows is required for that fund. 8. Where are the notes to the financial statements? The notes are a required and integral part of any set of financial statements. 9. Where is the MD&A — also required by GAAP? Given the serious reporting deficiencies observed, it is likely the CPA would be required to render an adverse opinion , since it appears that the financial statements do not fairly present financial information in conformity with GAAP . Depending on the quality of the t own’s financial records, it is also possible that the CPA would have to issue a disclaimer report due to missing or insufficient financial information. (Note: Yo u may wish to look at Chapter 12 for the meaning of adverse and disclaimed audit reports.) b. A member of the t own c ouncil or a citizen of the t own should be concerned as well about several of the points made in part a above. Although the t reasurer may still be preparing statements of cash receipts and disbursements for each fund, the lack of information about cost of services for governmental functions and sewer operations should be of concern. Moreover, unless the t own budgets on a cash basis, the lack of GAAP - based fund statements results in a lack of full information about available financial resources in the General and Road Tax Fund s for budgeting purposes. The lack of budget and actual comparison statements or schedules should also be of concern to a member of the t own c ouncil or a citizen. 2 - 3. Identification of which funds are reported as major funds is readily accomplished by viewing the governmental funds balance sheet and statement of revenues, expenditures, and changes in fund balances. Once a student calculates 10 percent of total governmental fund assets, liabilities, revenues, and expenditures, and 5 percent of governmental and enterprise fund totals for the same elements, it should be relatively simple to compare the totals for these element s for each major fund to the 10 percent and 5 percent amounts. Comparisons for the General Fund are unnecessary since this fund is always reported as a major fund. Solutions to Exercises and Problems 2 - 1. Each student should have a different governmental annual report, so will have different answers to questions in this exercise. We suggest allow ing students to discuss their answers which will give them an idea of the range of the answers of other students . 2 - 2. 1. b . 6 . b . 2. c . 7 . b . 3. b . 8. c . 4 . a . 9. d . 5. d . 10. c .

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 7 Ch. 2, Solutions (Cont’d) 2 - 3. 1. T . 2. T . 3. F . Fiduciary activities are reported only in the fiduciary fund financial statements. 4. T . 5. F. Integration of budgetary accounts is required for certain governmental fund types, but is not recommended for proprietary funds. 6. F. A component unit whose activities are closely intertwined with those of the primary government are reported by blending, which reports the component unit financial information in the same columns as the primary government. 7. T. 8. F. While it is true that all enterprise fund financial information is reported in the Business - type Activities column of the government - wide financial statements, most internal service funds predominantly provide goods or services to governmental funds and therefore the financial information of these funds is generally reported in the Governmental Activities column. 9. F. Depreciation of general capital assets should be reported in the G overnmental A ctivities column of the government - wide financial statement s but not in the governmental fund financial statements . 10. T. 2 - 4. 1. Governmental funds b, e, f, i 2. Proprietary funds a, d, g, h, j 3. Fiduciary funds a, c, g, k 4. Governmental activities, a, g, h, j (Note: Internal service fund information g overnment - wide is typically reported in govern - mental activities) 5. Business - type activities, a, g, j g overnment - wide

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 8 Ch. 2, Solutions (Cont’d) 2 - 5 . 1. k. 7. e. 2. a. 8. i. 3. j. 9. f. 4. g. 10. c. 5. b. 11. h. 6. d. 2 - 6. 1. Record issuance of $100,000, 3 - year note: General Fund: Debits Credits Cash 1 0 0,000 Other Financing Sources — 3 - Year Note Payable 1 0 0,000 Governmental Activities: Cash 1 0 0,000 Notes Payable 1 0 0,000 2. Record purchase of vehicles at a total cost of $1 0 0,000. General Fund: Debits Credits Expenditures — Capital Outlay 1 0 0,000 Cash 1 0 0,000 Governmental Activities: Equipment 1 0 0,000 Cash 1 0 0,000 3. R ecording these transactions in this manner is completely consistent with GASB standards. Because the General Fund focuses on current financial resources and uses the modified accrual basis of accounting, it does not record long - term liabilities, but does record the inflow of the proceeds of the loan as an Other Financing Source. This is a temporary account that increases fund balance in the General Fund. At the government - wide level, however, the focus is on the flow of economic resources using the accrual basis of accounting. Consequently, the long - term liability for the $1 0 0,000 3 - year note is recorded in the Governmental Activities g eneral j ournal and reported in the Governmental Activities column of the government - wide statement of net assets. Similarly, the General Fund records the outflow of current financial resources as an Expenditure , a temporary account that reduces fund balance of the General Fund. The general capital assets are recorded as

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    Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments 2 - 9 Ch. 2, Solutions, 2 - 6 (Cont’d) an asset, Equipment , in the Governmental Activities g eneral j ournal at the government - wide level. The police vehicles will be depreciated at the government - wide level each year. Depreciation has no effect on the General Fund. 2 - 7 . DATE: xx x MEMO TO: Town Manager, Town of Trenton FROM: Independent Auditor RE: Major Special Revenue Funds As shown by the blue shading in the calculations provided below, only t he Housing and Urban Development Grant must be reported as a major fund. Neither the Gas Tax Revenue Fund nor the Trenton Library Fund meet s the GASB threshold for major fund reporting; that is, none of the four elements of th ose funds (assets, liabilities, revenues, or expenditures) is at least 10% of the corresponding total of all governmental funds and at least 5% of the corresponding total of all governmental and enterprise funds. Both total assets and total revenues of the Housing and Urban Development Grant meet the 10 percent of all governmental funds and 5 percent of all governmental and enterprise funds combined criteria . Although the Gas Tax Revenue Funds did not meet the criteria for major fund reporting, rapidly escalating gas taxes tied to the current high price of gasoline might warrant reporting this fund as a major fund to improve accountability to citizens. GASBS 34 permits government officials to de signate any governmental or enterprise fund as a major fund if, in their judgment, the fund i s of sufficient importance to warrant designation as a major fund. Calculation of Major Fund Thresholds Financial Statement Elements Gas Tax Revenue Fund Housing and Urban Development Fund Trenton Library Fund >10% of Govern - mental Funds >5% of Govern - mental and Enterprise Funds >10% of Govern - mental Funds >5% of Govern - mental and Enterprise Funds >10% of Govern - mental Funds >5% of Govern - mental and Enterprise Funds A ssets Yes - 10.3% No - 4.6% Yes - 11.2% Yes - 5.01% No - 6.5% No - 2.9% Liabilities No - 8.4% No - 4.9% No - 9.8% Yes - 5.7% No - 0.0% No - 0.0% Revenues No - 9.0% No - 4.6% Yes - 11.1% Yes - 5.7% No - 7.8% No - 4.0% Expenditures No - 8 . 3 % No - 4 . 6 % No - 8 . 7 % No - 4.9% No - 8.0% No - 4.5%

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 1 CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS; BUDGETARY ACCOUNTING OUTLINE Number Topic Type/Task Status (re: 1 4 /e) Questions: 3 - 1 GASBS 34 r eporting m odel Explain New 3 - 2 Statement of activities format Describe Same 3 - 3 D epreciation expense/direct expenses Define 3 - 3 revised 3 - 4 Program and general revenue Distinguish Same 3 - 5 Extraordinary compared with special items Define and compare New 3 - 6 Expenditure classifications - examples Classify 3 - 7 3 - 7 Temporary and permanent accounts Distinguish 3 - 6 3 - 8 Revenue classifications Classify Same 3 - 9 Budget ary comparison schedules/statements Explain New 3 - 10 Public school systems Explain Same Cases: 3 - 1 Revenue and expense/expenditure classification Internet, examine, describe Same 3 - 2 Budget ary comparison schedule Internet, examine, describe Same 3 - 3 Charter school s (public school academ ies) Internet , explain Same Exercises/Problems: 3 - 1 CAFR Examine Same 3 - 2 Various Multiple Choice Some new items; rest are revised 3 - 3 Village of Wymette Explain and calculate New 3 - 4 City of Marion — recording budget Journal Entries 3 - 3 revised 3 - 5 City of Marion — recording encumbrances Journal Entries 3 - 4 revised 3 - 5 GF trial balance and closing entries Calculate 3 - 5 revised 3 - 6 Subsidiary ledgers Calculate Same 3 - 7 Appropriations, e ncumbrances, e xpenditures Calculate Same 3 - 8 Computerized accounting system — depart - mental budgetary comparison report Analyze and explain New 3 - 9 Recording budget and operating transactions Journal entries; Calculate 3 - 8 3 - 10 Government - wide statement of activities Prepare 3 - 9 revised

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 2 CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS; BUDGETARY ACCOUNTING Answers to Questions 3 - 1. T he governmental fund financial statements report current financial resources information intended to help users assess current period fiscal accountability — whether revenues were raised only from authorized sources and expended for authorized purposes. As such, the governmental fund statements lack the mid - to long - term focus on economic resources and cost of services needed to assess operational accountability . 3 - 2. Using the net (expense) or revenue format, sometimes referred to as the “cost of services” approach, identifies the extent to which each function or program is self - supporting from fees and intergovernmental aid, or must be subsidized by general revenues of the government. 3 - 3 . Depreciation expense is reported as a direct expense when it relates to capital assets that are clearly identified with a function or program because it captures a real cost of using capital assets to provide that service function or program . Even depreciation expense for infrastructure assets should be reported as a direct expense of the public works or transportation function, if that is the function responsible for those assets. 3 - 4 . a. General revenues. b . Program revenues . c. Program revenues. d . Program revenues. e . Program revenues. f. General revenues. g. General revenues. 3 - 5. Extraordinary items are those items (gains or losses) that are both unusual in nature and infrequent in occurrence. Special items are either unusual in nature or infrequent in occurrence, but not both. Special items also differ from extraordinary items in that they are within the control of management. Both types of items are reported as separate line items below General Revenues in the statement of activities. 3 - 6. a . Organization unit f . Both character and object b . Function g . Program c . Activity h. Function d . Activity i. Organization unit e . Object j. Object

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 3 Ch. 3, Answers (Cont’d) 3 - 7 . Definitions of these terms are given in the Glossary of the text. Below are briefer statements: a. Expenditures and Encumbrances are both charges against appropriations. An encumbrance is a charge for an estimated amount at the time goods are ordered; an expenditure is a charge for an actual amount at the time the goods are received (accrual and modified accrual basis) or paid (cash basis). Encumbrance accounting is used only in those funds where it is needed to achieve budgetary control over expenditures. b. Revenues are increases in net assets of the government as a whole or of a fund other than from interfund transfers or debt issue proceeds, recognized at the time the increase is earned (accrual basis), available for use (modified accrual basis) or received in cash (cash basis). Estimated revenues are amounts expected to be available for use or received under enabling legislation during a budget period. Estimated Revenues is a budgetary account representing the expected amount of revenues to be realized from various sources . c . The term e ncumbrances is defined in a above. Reserve for Encumbrances is a balance sheet account representing the amount segregated from f und b alance for expected liabilities resulting from purchase orders and contracts issued . d . Reserve for Encumbrances is defined in c above. The Fund Balance of a governmental fund is the excess of fund assets over fund liabilities, appropriations, and reserves; in short, the assets available for appropriation [defined in e below] in governmental funds. e . Expenditures is defined in a above. An Appropriation is an authorization by the legislative branch for administrators to incur expenditures for specified purposes not to exceed specified amounts. Usually the authorization is for a limited time. Appropriations is a budgetary account. f. Expenditures , defined in a above, represent outflow of current financial resources f or asset acquisition as well as for salaries, supplies for immediate consumption, travel, and so forth — whatever is specified in the appropriations . T he term is used in fund financial statements. Expenses , in governmental accounting as well as business accounting, are expired costs; the full cost of services or goods consumed in providing services to citizens and others. Expenses are found in the government - wide financial statements as well as in the proprietary financial statements.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 4 Ch. 3, Answers (Cont'd) 3 - 8. a . Taxes e. Intergovernmental revenue b. Charges for services f. Miscellaneous revenues c . Licenses and permits g . Charges for services d . Fines and forfeits h . Licenses and permits 3 - 9. Budgetary comparison schedules (or statements) must be provided for the General Fund and each major special revenue fund for which a budget is adopted. In order for budget to actual comparisons to be meaningful, actual revenues and expenditures must be reported in the same manner as the budgeted amounts. Actual revenues and expenditures reported in the statement of revenues, expenditures, and changes in fund balances should be on the GAAP basis. GASB standards identify several possible differences between GAAP and budgetary financial accounting. These include basis, timing, perspective, and entity. GASBS 34 requires that reconciliation of the differences between amounts reported in the GAAP basis operating statement and those reported in the budgetary comparison schedule, either on the face of the budgetary comparison schedule or on a separate page. 3 - 10. Public school systems are expected to follow the classification system specified by the National Center for Education Statistics (NCES) , as refined or mandated by a state education oversight body. The NCES system combines the GASB expenditure classification structure into nine categories, most of which are necessary for adequate internal management and comparable financial reporting across schools . The NCES revenue classification scheme also groups classifications into numerous categories, b ut are generally classified by fund, source, and project/reporting code. The NCES expenditure and revenue dimensions should be compared with the corresponding GASB expenditure and revenue classifications described in this chapter. GASB standards require that expenditures be classified by fund, function or program, organization unit, activity, character, and object and that revenues be classified by fund and source. Comparison of the NCES and GASB classification show that they are generally compatible , but the NCES classification structure is considerably more detailed to meet the unique reporting needs of public school systems. Solutions to Cases 3 - 1. Students should easily be able to locate a city’s Web site, then explore the Finance Department (or comparable name) link and look for links to financial reports. Alternatively, a number of cities have links to their CAFRs from the “Project Pages/Statement 34” link of the GASB Web site ( www.gasb.org ). Responses to each of the questions in this case will depend on how a particular city classifies its revenues and expenses/expenditures.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 5 Ch. 3, Solutions, Case 3 - 1 (C o nt’d) a. Occasionally, one may find a city that classifies its program revenues and direct expenses by program, but functional classifications, similar to th ose described in this chapter, are much more common. In most cases, all function or program line items on the statement of activities will report a net expense, with numbers in parentheses. b. On the statement of revenues, expenditures, and changes in fund balances, revenues and expenditures are reported in separate columns for the General Fund and other major governmental funds. Information for all nonmajor governmental funds is reported in aggregate in a single column. Students will likely find that the revenues reported on this statement are classified by source (taxes, licenses and permits, charges for services, etc.). Some cities will report a different amount for tax revenues on their statement of activities than on their statement of revenues, expenditures, and changes in fund balances because all tax revenues levied for the year will be reported on the former statement, while those that will not be collected during the current fiscal year or within 60 days thereafter will be reported as deferred taxes on the latter statement. c. Expenditures will generally be classified by function on the statement of revenues, expenditures, and changes in fund balances and, infrequently, by program. Students are almost certain to find different amounts reported for expenses on the statement of activities and expenditures on statement of revenues, expenditures, and changes in fund balances. Among other explanations, expenses exclude outlays for capitalized assets, but include depreciation expense; expenditures include capital outlays but exclude depreciation expense. Generally, expenses and expenditures will not be the same amounts for the reasons just explained. 3 - 2. Again the responses to individual questions will depend on the practices of the particular city selected. Some general expectations for each question include: a. Typically more detail is provided for revenues and expenditures in the budgetary comparison schedule, though not always. The reason for including more detail in th e budgetary comparison schedule, both for revenues and expenditures, is to better match the level of detail used in the budget document. For revenues, cities often report budget and actual information for subclasses of sources, such as various types of taxes. For expenditures, cities sometimes report budget and actual information for organization units and objects. b. Students will probably find that actual revenues on the budgetary comparison schedule agree in amount with those reported on the GAAP operating statement. If a difference is noted between these amounts, it is likely attributable to revenues being recognized on a cash basis for budgetary purposes, rather than modified accrual. c. Some students will discover that actual expenditures on the budgetary comparison schedule differ from those reported on the GAAP operating statement. The explanation given in most of these cases will be that expenditures on the budgetary comparison schedule also include encumbrances outstanding at year - end.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 6 Ch. 3, Solutions, Case 3 - 2 (Cont’d) d. If actual revenues and/or expenditures are prepared on a non - GAAP budgetary basis, the budgetary comparison schedule should indicate such, either in the schedule heading or the Actual column heading. e. Although a variance column is not required by GASB standards, it is difficult to imagine a city not providing a column showing the variance between actual and either the adopted or final budget amounts. 3 - 3. a. In most states, charter schools (or public school academies) are considered public schools receiving public funds. Consequently, these schools should follow GASB standards in order to ensure that financial statements conform to generally accepted accounting principles. Generally, these schools are small and may only have need for a General Fund and a special revenue fund for their food service program. The revenue and expense classification scheme described in the Appendix to Chapter 3 , based on NCES guidance , is an appropriate starting place for building a chart of accounts and an accounting information system. Budgetary accounting is required by GAAP. b. Students should check their own state’s Department of Education (or comparable agency) for other guidance for traditional pre - K through 12 schools. The Michigan Association of Public School Academies also provides resources for charter schools and their accountants ( www.charterschools.org ). The U.S. Charter Schools website ( www.uscharterschools.org ) provides valuable guidance in developing systems of financial and operational accountability for those who are new to charter schools, as well as links to other resources. Solutions to Exercises and Problems 3 - 1. Each student should have a different governmental annual report, so will have different answers to the questions in this exercise. Some time spent in class to allow students to report on their own answers and to get an idea of the range of answers of other students is useful. 3 - 2. 1. d . 6. b . 2. b . 7. b . 3. c . 8. c . 4. a . 9. b . 5. a . 10. c .

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 7 Chapter 3, Solutions (Cont’d) 3 - 3 . a. The answer is no to both parts of the question. Subject to an ordinance or policy that requires a minimum end - of - year fund balance, any unreserved fund balance above that amount can be considered available for appropriation in the same manner as revenues and other financing sources. Consequently, if the sum of any excess fund balance and estimated revenues exceeds appropriations, then village officials would be in compliance with any balanced budget requirement. In fact, legislative bodies often budget the use of a portion of fund balance if it exceeds any minimum requirement established by law or policy. b. Fund Balance at 6 - 30 - 20 1 0 after all closing entries will be $ 595,000, as shown below: FUND BALANCE $ 580,000 Balance a s of 6 - 30 - 20 09 3,190,000 To close revenues for the year ( 3,175,000 ) To close expenditures for the year $ 595,000 Balance as of 6 - 30 - 2010 Note: Estimated Revenues and Appropriations are closed to Budgetary Fund Balance by reversing the original budgetary entry . So the balance of Budgetary Fund Balance will be zero . 3 - 4 . C ity of Marion a . Estimated revenues total — FY 2011 $ 4 , 65 0,000 Appropriations total — FY 2011 4 , 8 00,000 Therefore, fund balance at the end of FY 2010 must be at least $ 15 0,000 or else the fund would be thrown into a deficit.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 8 Ch. 3, Solutions, 3 - 4 (C ont’d) General Ledger Subsidiary Ledger Debits Credits Debits Credits b . ESTIMATED REVENUES 4 , 65 0,000 BUDGETARY FUND BALANCE 15 0,000 APPROPRIATIONS 4 , 8 00,000 Estimated R evenues Ledger: TAXES 3 ,000,000 INTERGOVERNMENTAL REVENUES 1,000,000 L ICENSES AND PERMITS 4 00,000 FINES AND FORFEITS 15 0,000 MISCELLANEOUS REVENUES 100,000 Appropriations Ledger : GENERAL GOVERNMENT 9 5 0,000 PUBLIC SAFETY 2 , 0 00,000 PUBLIC WORKS 9 5 0,000 H EALTH AND WELFARE 8 5 0,000 MISCELLANEOUS 50,000

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 9 Ch. 3, Solutions (Cont'd) 3 - 5 . General Ledger Subsidiary Ledger Debits Credits Debits Credits a . ENCUMBRANCES ⎯ 20 11 394 ,000 RESERVE FOR ENCUMBRANCES ⎯ 20 11 394 ,000 Encumbrances Ledger : GENERAL GOVERNMENT 5 0,000 PUBLIC SAFETY 2 00 ,000 PUBLIC WORKS 75 ,000 HEALTH AND WELFARE 65,000 MISCELLANEOUS 4,000 b . P urchase orders issued by a governmental fund have the effect of using all or a portion of one or more appropriations for that fund. Issuance of purchase orders or other commitment documents is a step in the expenditure of an appropriation; administrators may be subject to legal penalties if they e xpend more resources than w ere appropriat ed . Recording encumbrances helps administrators avoid overexpending appropriations. The same legal issues do not exist in business organizations, although a well - managed business should certainly keep track of outstanding purchase orders and contracts to have a clear understanding of what transactions are in process that will result in the acquisition of assets, the incurring of expenses, and the incurring of liabilities.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 10 C h. 3, Solutions (Cont'd) 3 - 6. a. $14,980,000 (the sum of the amounts presently in the Estimated Revenues column of the subsidiary ledgers). b. $15,000,000 (the sum of the 01/01 entries in the Estimated Revenues column) c. 1. Yes 2. 02/28 (45 6 folio entry to Property Taxes) 3. $20,000 4. Decreased d. $12,080,000 (the sum of the amounts in the Revenues column) e. Property tax revenue is being accrued ; revenue from the other three sources is being recognized when the cash is received . T hat is, when it is first measurable and available according to the modified accrual basis of accounting.

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 11 Ch. 3, Solutions (Cont'd) 3 - 7. a. $62,200. The refund of prior year expenditure and the refund on P.O. 350 do not add to appropriation authority ⎯ the former is generally reported as revenue of the current year; the latter is a reduction of expenditures from this year's appropriation. Similarly, the cost of stationery transferred to the Town Water Utility is a reimbursement of expenditures from this year's appropriation. The unauthorized transfer of $46,000 from Office Supplies to Personal Services should be disregarded. b. None. The outstanding purchase orders, #378 and #385, are not for office supplies but for office equipment and should not have been charged to this appropriation. Clerical errors in recording the encumbrance for #356, the encumbrance credit for #350, and the erroneous charge of #380 to this appropriation and failure to credit Encumbrances when #380 was filled do not affect the computation of the correct answer to b , although they would need to be corrected in the account — if the "comparison" is a subsidiary ledger account. c . $1,110 (#350, $605; #356, $420; #370, $425; less $330 and $10 considered reimbursements of this year's expenditures of this appropriation). d . $61,090 ($62,200 - $1,110).

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 12 Ch. 3, Solutions (Cont'd) 3 - 8. a. Apparently, Lincoln City uses a 10 - digit account number structure having three segments. Presumably, t he first segment is the fund code, with 01 representing the General Fund. As the heading implies, the second segment (divided into two sub - segments) is the organizational unit, with 08 - 00 assigned to the Parks and Recreation Department. The zeros in the second sub - segment can be replaced with numbers representing activities within the department, such as p arks, aquatic recreation, athletic facilities, administration, and so forth. The third segment represents the object of expenditure. This segment can be further subdivided to provide greater expenditure detail, such as 7120 for building materials, 7130 for maintenance supplies, and 7140 for office supplies. This account structure appear s to meet the GASB’s expenditure classification requirements. b. Encumbrance control procedures are generally used only for purchases of goods and services for which there is delay between placing the order or contract and receipt of the goods or services. Recurring expenditure requirements such as payroll and utilities are fairly predictable, so encumbrance procedures are generally not necessary to adequately control these expenditures. Conferences and training are usually not “ordered” in advance in the sense of a purchase order or contract for future service. Even if conference registration s or airline reservations are made in advance, those are usually paid at the time of the registration or reservation and thus are actual, not estimated, expenditures. c. At the mid - point of FY2010, the Parks and Recreation Department has expended or encumbered the following percentages of its appropriations: Personnel Services 45.5% Materials and Supplies 62.5% Conferences and Training 37.5% Contractual Services 69.5%

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    Chapter 03 - Governmental Operating Statement Accounts; Budgetary Accounting 3 - 13 Ch. 3, Solutions, 3 - 8 (Cont'd) Utilities 51.1% Capital Outlay 43.1% Other 72.1% At first glance, it appears that the Materials and Supplies, Contractual Services, and Other accounts could expend their appropriations well before the end of the fiscal year. Additional information about normal seasonal usage patterns would be required , however, to confirm if the spending rate is too rapid for these accounts. Larger quantities of materials and supplies may be used every spring and early summer in preparing parks and recreation facilities for heavy summer use. Contractual services may have involved a larger than average service contract that was fulfilled early in the year and contracts may have been signed early in the year for services to be provided later in the year. Other is a miscellaneous category, albeit a large one, for which analysis of what it entails and expected spending rates would need to undertaken before any conclusions can be reached. d. It may appear that the Personnel Services, Conferences and Training, and Capital Outlay accounts could get by with lower appropriations. This is likely not the case, however, since departments typically have to defend their appropriation requests during the budgeting process. Park s and r ecreation departments often require more labor in the summer for grounds maintenance, swimming pool lifeguards, recreational activity instructors, and for other purposes. Consequently, personnel expenditures will likely be greater in the second half of the fiscal year. Similarly, many conferences are held in late summer and fall so it may be that department officers and staff will be attending conferences or training events later in the year. The relatively small budget authorization for capital outlay suggests that the purpose of the account is to acquire equipment. Late acquisition of equipment might reflect a strategy to hold off until it is known whether these monies might be needed for other purposes, or perhaps management is

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