Question: A government’s interest expenditure, as reported

> Sea Life Aquarium, a not-for-profit entity, received a contribution of $500,000 that must be used to acquire plant and equipment. In the following year it applied the gift toward the purchase of various items of plant and equipment. Management estimates

> In December 2017, the Consumer Association of America (CAA), a not-for-profit research organization, received a $6 million grant from the Sporting Goods Manufacturers Association (SGMA) to develop a football helmet that will provide better protection aga

> Which of the following do you think a city should classify as “special” items: a. The settlement of an age discrimination lawsuit b. The sale, at a sizable gain, of city‐owned land to a private developer c. The unreimbursed cost of providing housing and

> In 2017, the Northwest Ballet Association (NBA), a not-for-profit performing arts organization, undertook a major capital campaign to fund a new theater, expected to cost $10 million. It was quickly able to raise $6 million, all of which was donor restri

> The American Association for Freedom, a political think tank, was recently established. During its first year of operations it engaged in the following transactions and was affected by the following events (in summary form): 1. It received a $10,000,000

> Many critics of GASB Statement No. 14 and its amendment, GASB Statement No. 39, believe that the standards cast too wide a net—that it requires governments to include in their reporting entity organizations over which the primary government has little co

> A city established a public housing authority to fund the construction of low‐income residential homes within city limits. The authority is governed by a nine‐person board of trustees. New trustees are nominated by the board itself, but are formally appo

> Do the notes to the financial statements indicate the component units and other related entities that are included within the reporting entity? Do they indicate any units that are not included? Do they explain why these units are included or excluded?

> Distinguish between a defined benefit plan and a defined contribution plan. Why does a defined benefit plan present far more complex accounting issues than a defined contribution plan?

> What is meant by “retrospective” insurance premiums, and how should they be reported?

> The Sweetwater County Sheriff’s Office maintains a fund to which it transfers the phone company commissions it earns on inmates’ pay-phone calls. The monies collected are used to provide inmate “amenities”—books and magazines, writing paper, postage stam

> Many states have established “college tuition” programs that enable parents to accumulate funds to pay for their children’s college education. The plans vary from state to state but typically they have features that protect against the rising costs of tu

> As the accountant for Sunlight City, you determine the following with respect to the city’s pensions in a particular year. Service cost………………………………………………………… $356,000 Interest on total pension liability…………………….……... 400,000 Actual earnings on pension pl

> A school district prepares its budget on a cash basis. It is contemplating the changes or actions that follow. For each, indicate the impact that the change would have (1) on year‐ending June 30 2017, general fund expenditures or transfers and (2) on y

> Does the government maintain any fiduciary funds? If so, for what purposes?

> Does the government maintain any permanent funds? If so, are they major or nonmajor funds and for what purposes?

> In what way must a government account for premium revenue differently if it accounts for self-insurance in an internal service fund rather than in its general fund?

> What is a service concession arrangement? Why do governments enter in to these agreements?

> It is often said that “self-insurance” is an oxymoron. Why? If it is, what are the implications for a government that is permitted to recognize self-insurance premiums as a general fund expenditure when paid to an internal service fund?

> It is sometimes asserted that the absence of specific principles as to what constitutes “cost” detracts from the objectivity of the financial statements of not only internal service funds but also financial statements of the general fund. In what sense m

> For what types of activities are internal service funds used to account? Provide several examples. Is a government required to account for the activities you cite in an internal service fund, or may it account for them instead in its general fund?

> Hospitals and other health care organizations provide services knowing that they will collect from third-party payers, such as insurance companies, considerably less than their established billing rates. In addition, they provide services to uninsured pa

> A government accounts for a municipal landfill in an enterprise fund. How will it determine how much to charge as an expense (and add to a liability) each year that the landfill is in use? Suppose instead that it accounts for the landfill in a government

> Although proprietary fund accounting is similar to business accounting, there are considerable differences in standards pertaining to the statement of cash flows. What are the main differences?

> What are the major differences in expenditures/expenses (i.e., reconciling items) as they are reported in the governmental fund and the government‐wide statements?

> How would you compare the accounting for enterprise funds with that of (a) businesses and (b) governmental funds? Summarize the reasons both for and against accounting for enterprise funds differently than governmental funds.

> You are the independent CPA for a medium-sized city. The city manager asks your guidance as to whether, according to generally accepted accounting principles, the municipal golf course should be accounted for in an enterprise fund. What would be your res

> The City of Lewisville collected $600,000 in tap fees last year. Of this amount, $400,000 covered the direct costs of connecting customers to the city’s water lines. The balance contributed to improvements in and maintenance of the overall water system.

> Do you think the current criteria for establishing enterprise funds are adequate? For example, are they too flexible in that governments may account for a wide range of activities in enterprise funds? Or are they too rigid in that governments must accoun

> The Green Hills Water District was established on January 1 to provide water service to a suburban development. It accounts for its operations in a single enterprise fund. During the year it engaged in the following transactions: 1. It issued $6,000,000

> Pearl City leases an emergency communications system. The term of the lease is 10 years, approximately the useful life of the equipment. Based on a sales price of $800,000 and an interest rate of 6 percent, the city agrees to make annual payments of $108

> The following transactions affected a city’s general fund. Prepare a table in which you indicate for each transaction the expenditure/expense and change in liabilities that the city would report in its (a) general fund, and (b) government-wide statemen

> In anticipation of issuing of long-term bonds, a state issues on May 1, 2018, $200 million of 60-day BANs to finance highway construction. It expects to roll over the BANs into long-term bonds within 60 days. Its fiscal year ends on May 31. The state iss

> What is the difference between restricted assets and assets limited as to use?

> The City of Fairfield issued $100 million of 20-year, 6 percent coupon bonds (3 percent per semiannual period) for $89.32 million. The price reflected a yield of 7 percent (3.5 percent period semiannual period). 1. Prepare entries to reflect how the foll

> What was the city’s largest expenditure for fiscal year 2014? By how much did this increase or decrease since FY 2013? Since FY 2008 (see statistical section)? Can you draw any inferences from this comparison as to the efficiency and effectiveness of the

> The Alpine school district engaged in the following transactions in its fiscal year ending August 31, 2018. By law, the district is required to establish a capital projects fund to account for school construction projects and a debt service fund to accou

> Select the best answer. 1. A town signs a 10-year capital lease by which it acquires equipment with a market value of $1 million. The lease incorporates an implicit interest rate of 8 percent per year. Accordingly, annual lease payments are $149,029. Wh

> Select the best answer. 1. Which of the following is true with respect to bankruptcy? a. Per the federal bankruptcy code, a municipality can be declared bankrupt but not insolvent. b. Many major cities have avoided bankruptcy by being placed under the c

> Search online for the CAFR of the city of Charlotte, North Carolina. What is the total loan guarantees for the Community Development Block Grant disclosed in the notes? How does this compare to the city’s outstanding general obligation bonds?

> A city funds the construction of a golf course by issuing $50 million in general obligation bonds. However, it accounts for the golf course in an enterprise fund, and it intends to repay the debt from green fees. Should the city, in its government-wide s

> What distinguishes moral obligation bonds from other types of debt? Why would one government assume a moral obligation for another government’s bonds?

> What is conduit debt? Who issues debt through these conduits? Why are governments required to report it only in notes to their financial statements, not on their balance sheets?

> What is overlapping debt, and why is it of significance to financial analysts and other users of a government’s financial statements?

> What are BANs, RANs, and TANs? Why are they accounted for differently?

> What are “capitation fees,” and how should they be accounted for?

> Antonio County is assessing whether it should build a new correctional facility for nonviolent offenders. Currently offenders are housed in the county jail at a cost per inmate of approximately $52,000 per year. The new facility would cost $4 million to

> If, under GAAP, capital leases are considered long-term obligations, why, in many jurisdictions, are they not subject to debt limitations?

> What are demand bonds? When can they be reported as long-term, rather than current, obligations?

> At what value would a government report bonds payable on its government-wide statements? Why might this value differ from the bonds’ face value? Why might it differ from their market value?

> What is the distinction between general obligation debt and revenue debt? Which one is likely to bear higher interest rates?

> What unique issues arise when a government, as opposed to a business, is declared bankrupt?

> Suppose that a city has in its portfolio debt securities that it intends to hold to maturity. Interest rates increase. Therefore the market value of the securities decreases, and accordingly the city, must recognize an investment loss. Correspondingly, t

> Zeff Township assessed property owners $1,000,000 to construct sidewalks. The assessments were payable over a period of 10 years in annual installments of $123,290, an amount that reflects interest at a rate of 4 percent. To fund the improvements, the ci

> This problem is based on a recent annual report of the City of Tucson. Dates have been changed. 1. The MD&A reports that the city’s general obligation bonds were rated AA—by Standard & Poor’s. What is the significance of an AA—rating? (Standard & Poor’s

> The following was taken from the statistical section of the City of Wyoming, Michigan’s annual report Computation of Legal Debt Margin for General Obligation Bonds as of June 30 Assessed value, estimate………………………………………………………. $1,934,971,000 Debt limit—10

> How does the government classify its governmental expenditures, by function or by “object?” Are the classifications approximately the same in both the government‐wide and the fund statements?

> Why is the statement of functional expenses required for voluntary health and welfare organizations?

> The accompanying table was drawn from the City of Fort Leah’s schedule of long-term liabilities (all amounts in thousands). 1. Prepare the entry in the city’s general fund to record the transactions affecting compensat

> The following schedule is based on the notes to the financial statements of Beth County Health District. Future minimum payments under capitalized leases and noncancellable operating leases with initial or remaining terms of one year or more 1. Where on

> The following information was taken from the City of Wyoming, Michigan’s, schedule of direct and overlapping debt. 1. What is the most likely way the applicable percentages were derived? 2. Compute the total amount of the City of Wyomin

> Officials of Danville, determining that the city needed additional administrative space, decided to acquire an available office building. Aware that city voters were unlikely to approve a bond issue to finance the purchase of the building, they decided i

> For each of the following items relating to the debt of Marfa City, indicate whether and how the debt would be reported on a balance sheet of one of the city’s governmental funds. If it would not be reported on a balance sheet of one of the city’s govern

> In August 2017, voters of Balcones, a medium-sized city, approved a $15 million general obligation bond issue to finance the construction of recreational facilities. In order to begin construction immediately, without waiting to complete the lengthy proc

> On June 1, 2018, a city issues $2 million in 7 percent demand bonds. Although the bonds have a term of 10 years, they contain a “put” option permitting the holder to present the bonds for redemption, at par, any time after May 31, 2019. The bonds pay int

> On January 1, a public school district issued $6 million of 6 percent, 15-year coupon bonds to finance a new building. The bonds, which require semiannual payments of interest, were issued for $6,627,909—a price that provides an annual yield of 5 percent

> The East Eanes School District engaged in or was affected by the following events and transactions during its fiscal year ending June 30, 2018. 1. Teachers and other personnel earned $350,000 in vacations and other compensated absences that they did not

> What are the measurement focus and basis of accounting of governmental funds? What is the traditional rationale for this basis of accounting (used in governmental fund statements)—as opposed to, for example, either a full accrual basis or a budgetary bas

> In addition to bonds payable, what other kinds of long-term debt for governmental activities did the city report in its statement of net position?

> What are the differences between recording a hospital’s expenses by natural classification than by function?

> What is a single audit? What deficiencies in previous practice was the Single Audit Act intended to correct?

> Per the city’s schedule of long-term obligations, what is the total long-term obligation for both governmental and business-type activities? Does this amount reconcile with the long-term liabilities as reported on the government wide statement of net pos

> A state incurs interest on funds used while a highway was under construction. How will this interest be accounted for on the state’s (a) capital project’s fund statements and (b) government-wide statements?

> Why are general capital assets not recorded in governmental funds?

> Should parks be classified as ordinary capital assets or as infrastructure? Should the various elements that make up a park be classified separately? Parks include lighting, restrooms, sports fields, hiking and horse trails, roads, sewage systems, playgr

> A city included the schedule above in its financial statements. 1. Prepare entries to reflect the activity relating to improvements and equipment in both the general-fund and the government-wide statements, assuming, as appropriate, that all transactions

> Do you think that capital projects funds should be limited to accounting for resources that are externally restricted? What about debt service funds?

> The accompanying statements of the parks, recreations, and municipal capital improvement bond fund (a capital projects fund) were drawn from an annual report of Parkville. According to a note in the report (the only one pertaining to the fund), the fund

> Why is a choice of basis of accounting unavoidably linked to measurement focus?

> Pacific Independent School District issued $100 million of general obligation bonds to finance the construction of new schools. The bonds were issued at a premium of $0.6 million. 1. Prepare the capital projects fund journal entries to record the issue o

> The Wickliffe City Council authorizes the restoration of the city library. The project is to be funded by the issuance of bonds, a reimbursement grant from the state, and property taxes. 1. Prepare journal entries in the capital projects fund to reflect

> Select the best answer. 1. A term endowment is a gift a. The principal of which must be returned to the donor after a specified period of time b. The principal of which is available for expenditure after a specified period of time c. The income from whi

> Visit GuideStar at www.guidestar.org. Select two not-for-profit health and welfare organizations that have a similar mission and are of relatively similar size (e.g., the Parkinson’s Disease Foundation and the American Parkinson Disease Association). Sup

> Why is the “fund-raising ratio” of key concern to both donors and financial analysts?

> What special abuse does the AICPA address in its statement of position on the allocation of fund-raising costs? What general criteria does it establish as to when common costs of materials and activities that include a fund-raising appeal can be allocate

> In what significant ways do the FASB standards differ from those of the GASB with respect to the statement of cash flows?

> On July 1, a city issued, at par, $100 million in 6 percent, 20‐year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest and principal on the obligations. In the year that it issued the debt, th

> What is meant by “variance power”? Suppose that a charitable foundation receives a gift that the donor specifies must be used to support the college education of a particular individual. What is the relevance of “variance power” in how the foundation acc

> How do not-for-profits differ from governments in the way they account for business-type activities, such as dining halls, gift shops, and admission fees?

> A museum received gifts of two valuable paintings. It recorded the value of one as an asset and recognized the corresponding revenue. It gave no accounting recognition to the other. What might be a legitimate explanation for such an apparent inconsistenc

> In a recent month a CPA provided 10 hours of volunteer time to the Society for the Visually Impaired. He devoted 7 hours to maintaining the organization’s financial records and 3 to recording tapes of newspapers and magazine articles. If volunteers had n

> In what significant way do not-for-profits account for investments differently from businesses?

> It is sometimes said that performance audits are not “true” audits in that they are conceptually different from traditional financial audits. In what way are they conceptually different?

> Members of the National Accounting Association, a not-for-profit organization, are charged annual dues of $150. Of this amount, $50 is restricted, per association policy, for covering the cost of the association’s journal, which every member receives. In

> Please go to the Internet and obtain the financial report for the most recent year available of the following two (a public and a private) universities. 1. University of North Carolina at Chapel Hill 2. Duke University Analyze the financial reporting dif

> Mr. Griffin Smith donated $3,500,000 to the University of Baton Rouge (a government university) with the stipulation that earnings of the first 10 years be used to provide scholarship for social entrepreneurship program in the university’s College of Soc

> Bronxville College maintains a loan fund of approximately $1 million (including receivables). The funds are invested in stocks and bonds, and all investment income must be added to the balance in the fund. The fund, however, is unrestricted inasmuch as i

> What are the major categories of revenues and expenses for a health care organization?

> Although universities may be characterized by transactions not typically engaged in by other types of entities, most can be accounted for within the framework applicable to not-for-profit organizations in general. Windom College, a not-for-profit institu

> Select the best answer. 1. In June 2017, a public university bills and collects $30 million in tuition for the summer semester that runs from June 1 through July 15. In addition, in May and June it bills $200 million for the fall semester that runs from