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Question: The fiscal year for the City of


The fiscal year for the City of Havisham ends December 31, Year 5. If the city were to produce financial statements before any adjustments, the following figures would be included:
∙ Governmental activities: Assets = $800,000, Liabilities = $300,000, and Change in Net Position for the period = increase of $100,000
∙ Business-type activities: Assets = $500,000, Liabilities = $200,000, and Change in Net Position for the period = increase of $60,000
∙ Governmental funds: Assets = $300,000, Liabilities = $100,000, and Change in Fund Balances = increase of $40,000
∙ Proprietary funds: Assets = $700,000, Liabilities = $300,000, and Change in Net Assets for the period = increase of $70,000
Other information: The city council is the highest level of decision-making authority for the government. Where applicable, current financial resources are viewed by the government as available if collected within 75 days.
For each of the following, indicate whether the overall statement is true or false. Assume that each situation is independent of all others.
a. In the information provided about the city, an error has apparently been made because the amount of proprietary fund assets ($700,000) cannot be greater than the amount of business- type activity assets ($500,000).
b. Assume that a separate governmental fund (such as one recording money designated for the construction of Highway 61) reports total assets of $32,000. Based on that information alone, this fund must be reported separately as a major fund.
c. The city starts a bus system to help eliminate traffic congestion. To encourage ridership, passengers are charged only a nickel for each trip, although that fee will not come close to covering the cost of the bus system or pay for its debts. The bus system must be reported as a part of the general fund rather than as a separate enterprise fund.
d. The city council passes an annual budget for all general fund activities. Revenues are expected to be $1 million, and approved expenditures are $900,000. These budgetary amounts are recorded through a journal entry at the beginning of the year (an entry that is removed at the end of the year). In recording this budget, an estimated revenue account is debited for $1 million.
e. The city council passes an annual budget for all general fund activities. Revenues are expected to be $1 million, and approved expenditures are $900,000. These budgetary amounts are recorded through a journal entry at the beginning of the year (that entry is removed at the end of the year). In recording this budget, an expenditures account is debited for $900,000.
f. The government paid for a standard three-year insurance policy on January 1, Year 5, for its school system. If the government applies the purchases method, the amount of expenditures reported by the city is larger for that year than if the consumption method had been used.
g. The city receives money from an income tax. It is classified as a derived tax revenue.
h. After the provided figures were determined, officials learned that the city was entitled to an additional $100,000 in taxes on income earned during Year 5. Starting on January 1, Year 6, the city will collect $1,000 per day of this amount for the next 98 days (the final $2,000 is expected to be uncollectible). As a result of this discovery, the reported change in net position for the governmental activities in government-wide statements for Year 5 will go up by $98,000.
i. The city police department orders equipment on October 17, Year 5, for $43,000. The equipment is received on December 29, Year 5, but at an actual cost of $44,000. In the general fund, the encumbrance account will be credited $44,000 and the expenditure account debited $44,000 to indicate the switch from a monetary commitment to liability.
j. The police department orders equipment on October 17, Year 5, for $43,000. The equipment is not received prior to the end of Year 5. The police chief authorizes the department to accept and pay for the equipment when it arrived in Year 6. In reporting fund financial statements at the end of Year 5, a fund balance—committed balance of $43,000 should be reported on the balance sheet for the governmental funds.
k. The city transfers cash of $32,000 from the general fund to a capital projects fund. On the statement of activities, for the government-wide financial statements, this transaction is shown as both a transfer in and a transfer out.

2.99

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