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Question: For more than 100 years, the financial

For more than 100 years, the financial statements of the Town of Brookfield have consisted of a statement of cash receipts and a statement of cash disbursements prepared by the town treasurer for each of its three funds: the General Fund, the Road Tax Fund, and the Sewer Fund. As required by state law, the town submits its financial statements to the Office of the State Auditor; however, its financial statements have never been audited by an independent auditor. Because of its growing population (nearing 2,000) and increasing financial complexity, the town has hired Emily Eager, who recently obtained her CPA certificate, to supervise all accounting and financial reporting operations. Having worked two years for a CPA firm in a nearby town, Ms. Eager gained limited experience auditing not-for-profit organizations, as well as compiling financial statements for small businesses. Although she has little knowledge of governmental accounting, she is confident that her foundation in business and not-for-profit accounting will enable her to handle the job. For the year ended December 31, 2011, Ms. Eager has prepared the following unaudited financial statements for the Town of Brookfield. Study these financial statements and answer the questions that follow.
For more than 100 years, the financial statements of the Town of Brookfield have consisted of a statement of cash receipts and a statement of cash disbursements prepared by the town treasurer for each of its three funds: the General Fund, the Road Tax Fund, and the Sewer Fund. As required by state law, the town submits its financial statements to the Office of the State Auditor; however, its financial statements have never been audited by an independent auditor.
Because of its growing population (nearing 2,000) and increasing financial complexity, the town has hired Emily Eager, who recently obtained her CPA certificate, to supervise all accounting and financial reporting operations. Having worked two years for a CPA firm in a nearby town, Ms. Eager gained limited experience auditing not-for-profit organizations, as well as compiling financial statements for small businesses. Although she has little knowledge of governmental accounting, she is confident that her foundation in business and not-for-profit accounting will enable her to handle the job.
For the year ended December 31, 2011, Ms. Eager has prepared the following unaudited financial statements for the Town of Brookfield. Study these financial statements and answer the questions that follow.



Required
a. Assume that you are the CPA Ms. Eager has contacted about the possibility of performing an audit of the Town of Brookfield’s financial statements. Based on your preliminary review, what concerns would you have about these financial statements? Do the statements appear to conform to generally accepted accounting principles (GAAP)? In what respects, if any, do the financial statements depart from GAAP?
b. Assume, instead, that you are a member of the town council or a citizen. What concerns would you have with these financial statements?

For more than 100 years, the financial statements of the Town of Brookfield have consisted of a statement of cash receipts and a statement of cash disbursements prepared by the town treasurer for each of its three funds: the General Fund, the Road Tax Fund, and the Sewer Fund. As required by state law, the town submits its financial statements to the Office of the State Auditor; however, its financial statements have never been audited by an independent auditor.
Because of its growing population (nearing 2,000) and increasing financial complexity, the town has hired Emily Eager, who recently obtained her CPA certificate, to supervise all accounting and financial reporting operations. Having worked two years for a CPA firm in a nearby town, Ms. Eager gained limited experience auditing not-for-profit organizations, as well as compiling financial statements for small businesses. Although she has little knowledge of governmental accounting, she is confident that her foundation in business and not-for-profit accounting will enable her to handle the job.
For the year ended December 31, 2011, Ms. Eager has prepared the following unaudited financial statements for the Town of Brookfield. Study these financial statements and answer the questions that follow.



Required
a. Assume that you are the CPA Ms. Eager has contacted about the possibility of performing an audit of the Town of Brookfield’s financial statements. Based on your preliminary review, what concerns would you have about these financial statements? Do the statements appear to conform to generally accepted accounting principles (GAAP)? In what respects, if any, do the financial statements depart from GAAP?
b. Assume, instead, that you are a member of the town council or a citizen. What concerns would you have with these financial statements?
Required a. Assume that you are the CPA Ms. Eager has contacted about the possibility of performing an audit of the Town of Brookfield’s financial statements. Based on your preliminary review, what concerns would you have about these financial statements? Do the statements appear to conform to generally accepted accounting principles (GAAP)? In what respects, if any, do the financial statements depart from GAAP? b. Assume, instead, that you are a member of the town council or a citizen. What concerns would you have with these financial statements?





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TOWN OF BROOKFIELD Balance Sheet December 31, 2011 (unaudited) Assets $ 1,740 18,555 7,468 28,766 Cash Taxes receivable Investments Due from other governments Land, buildings, and equipment (net of accumulated depreciation of $132,640) Total assets 287,580 $344,109 Liabilities and Net Assets Accounts payable Due to other governments $ 3,892 11.943 Total liabilities 15,835 Net assets-unrestricted Net assets-restricted 299,893 28,381 Total net assets 328,274 Total liabilities and net assets $344,109 TOWN OF BROOKFIELD Statement of Activities Year Ended December 31, 2011 (unaudited) Revenues Property taxes Sewer fees Investment income $124,870 6,859 239 Total revenues 131,968 Expenses Government services 115,958 7,227 8,462 Sewer services Miscellaneous Total expenses 131,647 Increase in net assets 321 Net assets, January 1, 2011 Net assets, December 31, 2011 327,953 $328,274


> Write T if the corresponding statement is true. If the statement is false, write F and state what changes should be made to make it a true statement. 1. Activities of a general purpose government that provide the basis for GASB’s financial accounting and

> Locate a comprehensive annual financial report (CAFR) for a local government from some source on the Internet, perhaps the Web site of the governmental entity or the Governmental Accounting Standards Board’s Web site. Print a copy of the balance sheet an

> Explain the criteria for determining if a governmental or enterprise fund must be reported as a major fund. What other funds should or may be reported as major funds?

> Amber City borrowed $1,000,000 secured by a 5-year mortgage note. The cash from the note was used to purchase a building for vehicle and equipment maintenance. Show how these two transactions should be recorded in the General Fund and governmental activi

> Which fund category uses the modified accrual basis of accounting? What are the recognition rules for revenues and expenditures under the modified accrual basis of accounting?

> What are the three categories of funds prescribed by GASB standards and which fund types are included in each? Do the three fund categories correspond precisely with the three activity categories described in Chapter 2? If not, how do they differ?

> “Governmental and not-for-profit organizations do not differ significantly from for-profit organizations and therefore should follow for-profit accounting and reporting standards.” Do you agree or disagree with this statement? Why or why not?

> The government-wide financial statements for the City of Arborland for a three-year period are presented on the following pages. Additional information follows: Population: Year 2011: 30,420, Year 2010: 28,291, Year 2009: 26,374. Debt limit remained

> “If a discrete presentation is used for the financial data of a component unit in the statement of net assets of a governmental financial reporting entity, there is no need for the component unit to issue a separate financial report.” Is this statement t

> Condensed government-wide financial information from the comprehensive annual financial report for the Commonwealth of Pennsylvania for the fiscal year ended June 30, 2007, is provided below. Required a. Identify significant trends that appear in the co

> The transmittal letter from the chief financial officer to the mayor and city council of Detroit that accompanies the City of Detroit’s Comprehensive Annual Financial Report for the Year Ended June 30, 2004, includes the following: Econ

> The City of Scottsdale, Arizona, provides the following report on the following page about its reserve policies on page 12 of its October 2007 financial trends booklet. Required a. Refer to Illustration 10–1. To which categories of fac

> Examine the following tables from the 2009 Financial Trend Monitoring Report for the Town of Oakdale that reports on fiscal year 2008. The performance indicators selected are total revenue and revenue per capita. The town provides three reference groups

> Write the letters a through o on a sheet of paper. Beside each letter, put a plus (+) if a high or increasing value of the item is generally associated with stronger financial condition, a minus (─) if a high or increasing value of the item is generally

> Choose the best answer. 1. Which of the following groups or parties generally has taken the most initiative to evaluate the financial condition of a city? a. Citizens. b. Managers. c. Credit market analysts. d. Legislative and oversight bodies. 2. Which

> The City of Edmond, Oklahoma, uses the Crawford Performeter® as a financial analysis tool and presents the results of this analysis in its Managements’s Discussion and Analysis in the annual audited financial statements. For

> You are a new city council person for the City of Scottsdale, Arizona. You are aware that several cities have been in the news recently for financial crises for which the council or board is being held accountable. The governing bodies have been criticiz

> For the fiscal year 2007, the City and County of Denver, Colorado, had approximately $4.9 billion in bonded debt. You are a senior accountant in the controller’s office of the City and County of Denver and have been asked to make a presentation at the ne

> You are an accountant with the national office of the National Association of State Retirement Administrators (NASRA) and have just been appointed by the membership as its representative to the Governmental Accounting Standards Advisory Council (GASAC) f

> What organizations does the governmental reporting entity include? Define primary government. How does a component unit differ from the primary government?

> “Credit or bond analysts are interested only in the financial condition of the government when determining bond ratings.” Do you agree or disagree with this statement? Explain.

> Identify some financial indicators or ratios that are designed to measure the short-term financial position of a governmental entity. Why are these measures not as useful in assessing long-term financial or economic condition?

> Should citizens be concerned if the pension plan funding measure decreases over time? Why?

> Explain how organizational factors, such as management practices and legislative policies, affect a government’s financial condition.

> Explain what assessment can be made from the ratio unrestricted net assets as a percentage of total revenue that cannot be made from the ratio unreserved fund balances as a percentage of total revenues.

> Describe how a taxpayer might assess the financial solvency and viability of a government using government-wide financial statements prepared according to generally accepted accounting principles.

> Describe how citizens can use the financial trend monitoring system (FTMS) of the ICMA to assess the financial condition of their local government.

> The International City/County Management Association (ICMA) describes four types of solvency within the concept of financial condition. Identify each type and explain why each is important to the long-term financial health of a government.

> Which of the following terms best represents a broad concept of financial health encompassing the government’s ability and willingness to meet its financial obligations and commitments to provide services: financial position, financial condition, or econ

> Describe some typical causes of municipal financial crises. How could an effective monitoring system reduce the risk of a financial crisis?

> Describe the fiduciary activities of a state or local government and explain how accounting and financial reporting for fiduciary activities differ from those for governmental and business-type activities.

> The Village of Rodale keeps its governmental fund accounting records on a modified accrual basis. At the end of the fiscal year, the village accountant must convert the modified accrual information to accrual information to allow for preparation of the g

> Following is the governmental activities pre-closing trial balance for the Town of Freaz. Freaz is a relatively small town and, as a result, it has only governmental funds (i. e., it uses no proprietary funds). There are no component units. To complete t

> You have recently started working as the controller for a small county. The county is preparing its financial statements for the comprehensive annual financial report and you have been given the following statement for review. You know that in addition t

> You have been provided with the following information concerning operating activity for Leesburg County. For the year ended June 30, 2011, the net change in total governmental fund balances was $131,700, and the change in net assets of governmental activ

> The City of Allenton has engaged you to examine its June 20, 2011, financial statements. You are the first CPA ever engaged by the city and you find that the city’s accounting staff is unfamiliar with GAAP accounting and reporting requi

> The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31, 2011. 1. The city council adopted a General Fund budget for the fiscal year. Revenues were estimated at $2,000,000 and appropriations

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> The MD&A for the 2007 City and County of Denver CAFR is included as Appendix B in this chapter. On the following pages are selected tables from the statistical section of the 2007 CAFR. Use the MD&A and the provided statistical tables to complete

> Describe the business-type activities of a state or local government and explain how and why accounting and financial reporting for business-type activities differ from those for governmental activities.

> Following are descriptions of several relationships between primary governments and other organizations.* Required Using just the information provided, indicate whether you believe the primary government should include the organization as a component un

> What is OCBOA and why would a government choose to use OCBOA rather than GAAP?

> Assuming that a government has governmental, proprietary, and fiduciary funds, identify the nine financial statements that must be prepared for the CAFR.

> Explain the difference between a CAFR and general purpose external financial reports.

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> Explain the difference between a primary government and a component unit.

> What is a financial reporting entity and what organizations generally make up a financial reporting entity?

> A city manager was overheard saying, “Since we don’t release them to the public, I don’t see any value in taking the time to prepare interim reports.” Explain why you agree or disagree with this statement.

> What is the difference between a note to the financial statements and required supplementary information?

> What is a special district and why might a government create one or more special districts?

> Describe the governmental activities of a state or local government and identify the measurement focus and basis of accounting used in accounting and financial reporting for these activities.

> Ray County administers a tax agency fund, an investment trust fund, and a private-purpose trust fund. The tax agency fund acts as an agent for the county, a city within the county, and the school district within the county. Participants in the investment

> The State of Nodak operates a Public Employees Retirement System (PERS) for all employees of the state. The preclosing trial balance of the PERS as of June 30, 2011, follows (in thousands of dollars): Required a. Prepare a statement of changes in plan

> The Village of Dover administers a defined benefit pension plan for its police and fire personnel. Employees are not required to contribute to the plan. The village received from the actuary and other sources the following information about the Public Sa

> The Albertville City Council decided to pool the investments of its General Fund with Albertville Schools and Richwood Township in an investment pool to be managed by the city. Each of the pool participants had reported its investments at fair value as o

> St. George County has entered into a contract for the demolition and construction of a six-lane bridge. It is expected that the project will take three years to complete. The terms of the contract indicate that the county will retain 5 percent (retained

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> GASB standards require that governments report other postemployment benefits offered to employees. A typical example of such benefits is health care provided to retirees. It is estimated that the unrecorded and unfunded liability related to OPEB is huge.

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> Why do agency funds have no fund equity?

> Must an agency fund be used to account for withholding taxes, retirement contributions, and (if applicable) social security taxes of General Fund employees? Explain.

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> In partnership with Jefferson County and the Mound City Visitor’s Bureau, Mound City recently established a Native American Heritage Center and Museum, organized as a tax-exempt not-for-profit organization. Although the facility does not charge admission

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> Von County has prepared the following statement of revenues, expenses, and changes in fund net assets for its proprietary funds. The county has three enterprise funds and two internal service funds. Required The statement as presented is not in accorda

> Following is the June 30, 2010, statement of net assets for the City of Bay Lake Water Utility Fund. Required a. For fiscal year 2011, prepare general journal entries for the Water Utility Fund using the following information. (1) The amount in the Acc

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> How does GASB reporting of uncollectible accounts for governmental funds and proprietary funds differ from the reporting of uncollectible accounts under FASB standards?

> A member of the city commission insists that the city’s internal service fund prepare and submit a budget for commission approval. The commissioner argues that it is only through the budget that the commissioners will be able to ensure control over the i

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> Examine the Governmental Accounting Standards Board’s Web site (www.gasb.org) and prepare a brief report about its mission and structure and the representative organizations on its advisory council. Can you get a copy of the full text of a GASB statement

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> Transaction data related to the City of Chambers’s issuance of serial bonds to finance street and park improvements follow. Utilizing worksheets formatted as shown at the end of the problem, prepare all necessary journal entries for the

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4.99

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