Question:
*In the 2010 CAFR, Detroit indicated that its general obligation debt rating had been downgraded by Moody’s Investors Services from a Ba2 to a Ba3. Based on its fourth quarter Performance Dashboard 1 Detroit was subsequently downgraded to junk bond status as of the fourth quarter of 2012 by all three rating services (Caa2, Moody’s; CCC-, Standard & Poor’s; CCC-, Fitch). The audit of the 2011–2012 financial reports resulted in the following statement from its auditor, KPMG: “The City has an accumulated unassigned deficit in the General Fund of $326.6 million as of June 30, 2012, which has resulted from operating deficits over the last several years. The deficits raise significant liquidity risks regarding the City’s ability to meet its financial obligations as they come due without raising revenues, cutting costs of services provided, and effectuating financial restructuring.†2. As Detroit indicates in its 2012 CAFR report, the city faces socioeconomic factors that make it difficult for the city to regain its financial footing: The City of Detroit is the largest City in Michigan and the 18th largest City in the United States. However, as documented in the 2010 Census, the City’s population continues to decline, which contributes to the declining property and income tax base. In addition, the City faces continued high unemployment (18.9% in October 2012), which hinders personal income tax collections. Resident home foreclosures and delinquent property tax levels are another financial concern. The weak economy has had an adverse impact on the State’s budget resulting in cuts of revenue sharing to local governments. The City’s revenue sharing for the year ended June 30, 2012 was $173.3 million or $66.0 million less than the year ended June 30, 2011. Although the City’s current economic condition is poor, the future outlook for recovery and improvement is positive. Businesses are transferring employees from suburban cities to the City of Detroit. New residents are moving into the City’s mid-town area. Following are selected financial indicators from Detroit’s CAFRs, which provide financial data that can be used to help identify financial trends the city has experienced with regard to its economic condition. 
In July of 2013 Detroit filed for bankruptcy. 3 Since its bankruptcy filing, numerous events have occurred that impact the city’s economic condition. 3 Michael Corkery and Matthew Dolan, “Detroit Bankruptcy Likely to Spark a Pension Brawl; Filing Will be a Test Case of How Far a City Can Go in Shedding Retiree Costs,†The Wall Street Journal (online), July 20, 2013. Required: a. Using the information provided in the case, the information provided in the Illustrations 10–3 and 10–4, and the information provided in the Credit Analyst Models section of the text provide an analysis of factors that would lead to the downgrading of the debt rating. b. The City of Detroit’s Finance Department provides quarterly performance indicators on financial sustainability and some economic indicators along with service performance. Additionally, the Emergency Manager for the bankruptcy provides quarterly filings on the Detroit Web site. These quarterly reports provide a status update on Detroit’s financial situation. Using the information provided by the Finance Department and the Emergency Manager, assess the city’s economic condition. As part of the assessment indicate whether you believe the city’s condition has improved, worsened, or remained the same since 201
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Selected 10-Year Trend Data from Detroit's CAFRS* Measure 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Cash and cash equivalents Current liabilities $82 $1,038 ($269) $123 $818 $81 $871 ($91) $116 $823 ($267) $268 $858 ($142) $59 $726 ($91) $75 $698 ($107) $50 $671 ($34) $49 $47 $558 ($69) $481 General fund balance Governmental fund ($91) $69 total revenues $1,524 $1,712 $1,630 $1,748 $1,773 $1,910 $1,839 $1,840 $1,867 $1,829 Governmental fund total expenditures Debt per capita Legal debt limit used Debt service/operating expenditures $1,586 $1,711 $1,665 $1,062 $1,843 $880 $1,908 $990 $1,870 $936 49.67% $2,061 $3,220 $1,028 $2,170 $1,981 $702 $1,456 $1,350 92.65% 84.82% $1,011 $882 75.46% 59.10% 54.50% 56.48% 52.36% 55.94% 44.02% 15.10% 13.70% 13.39% 14.41% 13.97% 13.00% 14.06% 5.76% 6.98% 6.91%
> The Kyle Sports Medicine facility is a not-for-profit health care facility that is trying to determine what transaction information should be included in its calculation of the performance indicator it uses to report its results of operations. Indicate w
> Following are several unrelated transactions involving a hospital. 1. The hospital has a contractual agreement with a lender requiring that $500,000 in cash be set aside to meet its future debt payment. 2. The hospital accrued $1,500,000 in patient servi
> Choose the best answer. 1. The AICPA Audit and Accounting Guide Health Care Entities is considered category b authoritative guidance that can be used by which of the following? a. A business-type government hospital. b. A not-for-profit hospital. c. A fo
> Information from the 2012 Form 990 and the 2013 annual report for Feeding America , follows. Although the Form 990 indicates it is for 2012, it is actually for the period July 1, 2012, to June 30, 2013, the same time period as the 2013 annual report. Use
> The Silverton Symphony Orchestra Hall is a well-established not-for-profit organization exempt under IRC Sec. 501(c)(3) that owns a facility that is home to the local symphony orchestra. Its mission is to increase access to the arts for the community of
> The Let’s Read organization is a public charity under IRC Sec. 501(c)(3). It had total support of the following: United Way support………………………………………….$ 10,000 Grant from the state……………………………………………25,000 Grant from the city………………………………………………10,000 Con
> You are a governmental accountant for a large municipality, and you have recently been assigned to the budget office and charged with building a better budget document—one that will be of the highest quality, so that citizens and others with an interest
> The midsize City of Orangeville funds an animal control program intended to minimize the danger stray dogs pose to people and property. The program is under scrutiny because of current budgetary constraints and constituency pressure. An animal control wa
> The City of Ashcroft has produced a Service Efforts and Accomplishments report for the past four years in an attempt to answer the question, “How are we doing?” for its citizens. Reproduced here is an excerpt from the
> The City of Manhattan, Kansas, prepares an annual Budget Book, a comprehensive document that includes a citywide budget, as well as departmental budgets. The city has received the GFOA Distinguished Budget Award for more than 25 years. Following are grap
> The police chief of the Town of Meridian submitted the following budget request for the police department for the forthcoming budget year 2017–18. Upon questioning by the newly appointed town manager, a recent masters graduate with
> Choose the best answer. 1. Budgets of government entities: a. Are integrated with the financial accounting system. b. Enable governments to demonstrate compliance with laws and to communicate performance effectiveness. c. Are adopted by governments after
> The United States Office of Management and Budget (OMB) provides guidance on the allow ability of costs under federal grant agreements in Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Following is a lis
> The City of Greeley, Colorado’s, fire department, prepares annual Performance Measures. Following are excerpts from the 2013 fire department performance report. Required: a. Examine the following performance report. In what areas did t
> Following is the audit report for the City of Prairie View. Citizens of Prairie View: Split Responsibility for Financial Statements We have audited the accompanying financial statements of the City of Prairie View (the City) as of and for the year ended
> Choose the best answer. 1. Under the hierarchy of GAAP for a state and local government, which of the following has the highest level of authority? a. AICPA Practice Bulletins if specifically made applicable to state and local governments by the AICPA (a
> Collier County had the following federal award activity during the most recent fiscal year: Required: a. Based on size, which programs would be considered Type A programs? Type B programs? b. Based on the information provided above, list any low-risk
> You are the finance director of White Rock City. Your current auditor informs you that he is retiring and selling his auditing practice. When you seek his advice regarding the hiring of the accounting firm that is currently helping to integrate a new acc
> Use Illustration 14–3 as a guide in completing this exercise. ______1. Fredericksburg Chamber of Commerce ______2. American Diabetes Association ______3. American Legion ______4. American Museum of Natural History ______5. American Institute of Certified
> Caring Community Hospital, a not-for-profit hospital, recorded the following transactions. 1. Received $20 as co-pay from a patient for an out-patient visit. Billed $500 to insurance. 2. Gift shop sales amounted to $1,500. 3. Citizen’s Health Insurance p
> Gail McCook, the administrative assistant of a local CPA firm, merged the files listing GAAS standards and GAGAS standards. Because the firm performs both GAAS and GAGAS audits, it is important to identify which standards are applicable to which audits.
> Following is a list of a number of accounts used by federal agencies. Required: For each of the accounts listed indicate in Column A whether the account is a proprietary account (P) or a budgetary account (B). In Column B indicate whether the account
> Access the most recent Financial Report of the U.S. Government at the U.S. Treasury Department Web site, www.fms.treas.gov/fr, and answer the following questions. Required: a. What are amounts of the total budget deficit and net operating cost for eac
> The source of authoritative guidance for federal financial accounting and reporting is the Federal Accounting Standards Advisory Board. To better understand the FASAB, access its Web site at www. fasab.gov to answer the following. Required: a. What is t
> In 2013, 22 of 24 CFO Act agencies received unqualified (unmodified) audit opinions. The Comptroller General disclaimed an opinion on one agency, and one agency received a qualified opinion. The one agency receiving a qualified opinion was HUD (Housing a
> The U.S. Department of Health and Human Services maintains the Web site www.hospitalcompare. hhs.gov, which provides an array of measures that report on individual hospitals and other types of health care providers. Access the Web site for help in co
> In 2010, Congress passed and the President signed into law the Patient Protection and Affordability Act. The act provides for sweeping changes to health care and has been extremely controversial. To learn more about this act, go to www.healthcare.gov
> Custer County receives pass-through funds from the state’s Department of Justice to assist in administering the federally funded Public Safety Partnership and Community Policing Grants program (also referred to as Community Oriented Policing Services [CO
> The Internal Revenue Service (IRS) initiated a study of not-for-profit hospitals in 2006. One purpose of the study was to help the IRS better understand the community benefit provided by not-for-profit hospitals. Community benefit is a critical factor in
> Carol Hernandez has recently been appointed director of the foundation for a private university located in the state of Minnesota. She is intent on learning as much as she can about the foundation’s responsibilities concerning the management and investme
> The chief administrator for a group of not-for profit early education centers and outreach facilities has hired you to conduct an audit. A mission of the organization is to provide child care and early education to children in economically distressed are
> 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 th
> A city has approached you concerning the audit of its 2017 financial statements. State law requires the city to have an audit and submit the audited financial report to the state. New elections at the beginning of the fiscal year resulted in a change in
> Illustration 10–4, adapted from Crawford and Associates, lists several ratios under the heading Financial Position. Which of the ratios listed most closely aligns with the GASB research study definition of financial position provided on page 409? Explain
> Lake View Mental Health Affiliates, a nongovernmental not-for-profit organization, has contacted William Wise, CPA, about conducting an annual audit for its first year of operations. The governing board wishes to obtain an audit of the financial statemen
> The city council members of Laurel City are considering establishing an audit committee as a subset of the council. Several members work for commercial businesses that have such committees. They have asked your advice as a partner in the public accountin
> A federal government initiative to rate public colleges and universities has been undertaken by the U.S. Department of Education. Performance measures for K–12 education have been part of the federal funding initiative for many years with such programs a
> One of the responsibilities of an auditor is to determine the appropriate GAAP for the entity being audited. In December, 2013, GASB issued an exposure draft titled “ The Hierarchy of Generally Accepted Accounting Principles for State and Local Governmen
> The City of St. Cloud, Minnesota, annually prepares a trend report using the ICMA’s Financial Trend Monitoring System. The table presented here captures trend information provided by St. Cloud in its 2013 Annual Financial Trend Report.
> In 2010 the city had failed to honor its guarantees on The Harrisburg Authority (THA) debt. (THA is a component unit of the city.) In 2011 Harrisburg filed for bankruptcy; however, the bankruptcy petition was denied by the court. The State of Pennsylvani
> You are a new city council person for the City of Columbia, Missouri. You are aware that several cities have been in the news recently because of the financial crises they have faced. The governing bodies have been criticized for not being aware of the n
> Identify some of the characteristics of a government’s citizens that can affect the government’s financial condition. Explain how the characteristics affect financial condition.
> Examine the following tables from the Financial Trend Monitoring Report for the Town of Oakdale that reports on fiscal year 2017. The performance indicators selected are total revenue and revenue per capita. The town provides three reference groups wi
> Throughout Chapters 2-9 reference has been made to the City and County of Denver’s Comprehensive Annual Financial Report (CAFR). In addition to issuing the CAFR the City and County of Denver issues a Popular Annual Financial Report (PAFR). To complete th
> Write the letters a through o on a sheet of paper. Beside each letter, put a plus ( 1 ) if a high or increasing value of the item is generally associated with stronger financial condition, a minus ( 2) if a high or increasing value of the item is ge
> In its notes to the financial statements t he City of St. Petersburg, Florida provided the following information about the amounts and classifications for the St. Petersburg fund balances. Use the information provided by St. Petersburg to complete thi
> The MD&A for the 2013 City and County of Denver CAFR is included as Appendix B in this chapter. Following are two tables that have been adapted from the statistical section of the CAFR. Use the MD&A and the provided statistical tables to complete
> Following are the operating statements for a public and private college. The operating statements have been adapted from the annual reports of a public and a private university. As would be expected, the reports are somewhat different. Catherine College
> Following are descriptions of several relationships between primary governments and other organizations.* * Information used in this case is adapted from information provided in the GASB Comprehensive Implementation Guide (Norwalk, CT, 2010). Required:
> Electronic Municipal Market Access (EMMA) provides investors and others interested in state and local government debt and financial information an excellent resource. By accessing EMMA an individual is able to learn about what type of debt is outstanding
> What is an IRC Sec. 527 organization? Are these organizations tax-exempt? What filing requirements have been imposed on 527 organizations by campaign finance laws?
> Discuss what, if any, political activity can be undertaken by a charitable NFP organization.
> What are the distinguishing characteristics between a public charity and a private foundation? What is a public support test and how does it relate to public charities and private foundations?
> What is the purpose of the Form 990? Because there are different types of Form 990, explain how an NFP would know which type it must file.
> Explain a major difference between a 501(c)(3) tax-exempt organization and a 501(c)(7) tax-exempt organization.
> Identify which level(s) of government regulate(s) NFP organizations and identify the source of authority.
> What are articles of incorporation and how do they differ from by-laws of a NFP organization?
> Obtain the most recent copy of the annual report for your college or university (school). Using the annual report, answer the following. Required: a. Does your school follow GASB or FASB standards? Use the financial statements to explain how you can tel
> The financial manager of a not-for-profit child care center wants to improve the monthly report to the board and has decided to include performance measures What are the benefits of providing performance measures? How will board members be able to determ
> What are excessive benefits and what are the consequences of paying/receiving excessive benefits?
> What is a split interest agreement, and why do you believe a donor or a university would enter into such an agreement?
> The NACUBO expense accounts typically used by colleges and universities do not identify the program and support functions. Discuss whether colleges and universities are required to identify program and support expenses and how this is accomplished if the
> A private college has received pledges that are due within one year and pledges that are long-term (that is, due in more than one year). How will the college report the pledges in its financial statements?
> When would receipt of a grant be recorded as revenue rather than a contribution? Give an example of a transaction in which a grant would be recorded as revenue.
> How do private colleges and universities account for bad debts related to tuition and fees? Compare the accounting to that of public and for-profit (corporate) colleges and universities.
> For each of the following situations explain how a private and a public university would record the transaction (assume the grants are non exchange): notification of a grant to be received in the next fiscal year; receipt of a grant with a purpose restri
> Discuss whether colleges and universities are subject to audits under Government Auditing Standards (GAS).
> Identify the financial statements that must be prepared by a private college or university and those that must be prepared by a public college or university.
> You are considering making a contribution to the Conservation Fund . However, as an accountant you decide to conduct “due diligence” related to the efficiency and effectiveness of the Conservation Fund before making your contribution. You are aware of
> What are some ways an audit report for a government differs from an audit report for a for-profit organization?
> As a newly hired staff auditor, you have been assigned to a governmental engagement that includes a single audit. Your supervisor asks you to familiarize yourself with OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
> In the context of a government audit, what is an opinion unit, and of what significance is an opinion unit to the auditor?
> What are the three types of auditor services described in the Government Accountability Office’s Government Auditing Standards, and how do they differ?
> What is the purpose of a financial audit? Who is responsible for setting standards for financial audits of government and not-for-profit organizations?
> What is EMMA and when would someone want to use EMMA?
> Identify factors that the rating agencies use in determining bond ratings. Which of the factors identified is beyond management control and how could this factor affect the government’s finances?
> Government Auditing Standards specifically outline an auditor’s responsibilities with respect to ethics and independence. What are the ethical principles and primary considerations with regard to independence, as identified in GAGAS? How do ethical princ
> In 2013, the Tampa Bay Times published a series of four articles uncovering some of the worst charities in America. Read the articles ( www.tampabay.com/topics/specials/ worst-charities. page ) and answer the following questions. Required: a. What
> Should citizens be concerned if the funded ratio for pension plans decreases over time? Why?
> When conducting a financial analysis, ratios based solely on governmental fund financial statements would not be considered sufficient for assessing economic condition. Explain why this statement would be true.
> Explain the difference between a blended and discretely presented component unit, and explain how each is reported.
> Under the hierarchy of GAAP, what sources of accounting principles have the most authority for state and local governments, federal government entities, and nongovernmental entities? Where do accountants and auditors look when a particular item is not co
> The GASB indicates that economic condition is composed of three components. Identify and define the three components of economic condition.
> State and general purpose local governments are considered primary governments. Under what circumstances a special purpose government would be considered a primary government?
> Under GASB guidance when should an item be recognized on the face of the financial statements? Under what conditions, would the GASB indicate that a note disclosure should accompany an item that has been recognized on the financial statements?
> W hat are the two tracks in the dual-track accounting system? Explain the purpose of each track. Relate each track to state and local governmental “dual track” accounting.
> What are stewardship assets? How does the accounting for a stewardship asset differ from that for general property, plant, and equipment?
> The federal government uses two groups of funds. Identify the two fund groups, and the funds associated with each group. Compare the funds to those used by state and local governments.
> Go to the Internet Web sites of any five of the charitable organizations listed in Illustration 14–7 and search for financial information and performance measures they may disclose on their Web sites. Required: a. For the most recent year provided on t
> Defining the reporting entity at the federal level is complicated by different perspectives from which the federal government can be viewed. What are the three perspectives? How are they defined? How do they interrelate?
> Explain the differences among these accounts: (1) Estimated Revenues used by state and local governments, (2) Other Appropriations Realized used by federal agencies in their budgetary track, and (3) Fund Balance with Treasury used by federal agenci
> According to the FASAB conceptual framework, there are four objectives for federal financial reporting. Discuss the four objectives and explain why the focus of the FASAB objectives differs from that of the FASB or the GASB.
> Compare the GAAP hierarchy for the federal government to that for state and local governments (see Chapter 11).
> What are the components of the PAR and where would a federal agency go to find out the requirements for preparing a PAR?
> Explain the role of the Government Accountability Office (GAO), the Department of the Treasury, and the Office of Management and Budget (OMB) in the financial accounting and reporting of the federal government.
> What is the Patient Protection Affordability Act, and what impact has it had on NFP hospitals’ financial reporting and tax filing?
> What is premium revenue, and when is it recognized? Discuss the recognition of revenue relative to the revenue recognition and matching concepts in accounting.
> What are assets limited as to use and how do they differ from restricted assets?
> Tupper Memorial Hospital received from a donor a $50,000 contribution and a $50,000 pledge payable in one year. The donor required that the funds be used for heart research. Explain differences in accounting for the donor’s contribution and pledge if Tup
> Phyllis Gene is a certified human resource manager who serves on the board of a local professional association of human resource managers. The association puts on an annual conference for its members at which there are educational workshops and keynote s
