Chapter 9:
Review the comprehensive annual financial report (CAFR) you obtained.
- Indicate the activities accounted for in both internal service funds and major enterprise funds. Comment on whether any of these activities could also have been accounted for in a general or other governmental fund.
- How are the internal service fund activities reported in the government‐wide statement of net position? How are they reported in the proprietary funds statement of net position?
- Did any of the internal service funds report significant operating surpluses or deficits for the year? Were any accumulated significant net asset balances over the years not invested in capital assets?
- Were any of the government’s enterprise funds “profitable” during the year? If so, what has the government done with the “earnings”? Has it transferred them to the general fund?
- Does the government have revenue bonds outstanding that are related to business‐type activities? If so, for what activities?
- Do the financial statements include a statement of cash flows for proprietary funds? Is the statement on a direct or an indirect basis? In how many categories are the cash flows presented? Which of these categories resulted in net cash inflows? Which resulted in net cash outflows?
- What was the total operating income? What was total net cash provided by operating activities? What accounts for the largest difference between these two amounts?
- Has the city entered into any service concession arrangements? Which specific ones, and why?
Problem 9-3:
The differences in accounting for an activity in an internal service fund rather than in the general fund may be striking.
A school district establishes a vehicle repair shop that provides service to other departments, all of which are accounted for in its general fund. During its first year of operations the shop engages in the following transactions:
- It purchases equipment at a cost of $24 million and issues long‐term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.
- It purchases supplies at a cost of $4 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchases basis.
- It incurs $13 million in other operating costs.
- It bills other departments for $19 million.
For purposes of external reporting, school district officials are considering two options:
- Account for the vehicle repair shop in an internal service fund.
- Account for the vehicle repair shop in the general fund.
1. For each of the following items indicate the amounts that would be reported in the year‐end financial statements of: (1) the internal service fund, assuming that the school district selected the first option, and (2) the general fund, assuming that it selected the second option.
A. Billings to other departments (revenues)
B.Cost of supplies (expense or expenditure)
C. Expenses or expenditures relating to acquisition or use of equipment
D. Other operating costs
E. Equipment (asset)
F. Accumulated depreciation
G. Inventory (asset)
H. Notes payable
I. Nonspendable fund balance (for inventory)
2.What would be the total expenses reported in the internal service fund, assuming that the school district selected the first option?
3. What would be the total amount of expenditures reported in the general fund, assuming that the school district: (1) selected the first option; (2) selected the second option?
4. What would be the reported revenue and expenses relating to the vehicle‐repair shop in the district’s government‐wide statements? Would it matter whether the district accounted for the shop in an internal service fund or in the general fund?
(CAFR) that i used is The City of Cary, North Carolina. CAFR Report 2018 for The City of Cary, North Carolina.
Chapter 10:
CONTINUING PROBLEM:
Review the comprehensive annual financial report (CAFR) you obtained.
- Does the government maintain any permanent funds? If so, are they major or nonmajor funds and for what purposes?
- Does the government maintain any fiduciary funds? If so, for what purposes?
- Does the government contribute to one or more pension plans? Are they defined benefit or defined contribution plans? If they are defined benefit plans, are they single employer (maintained by the government itself) or multiple‐employer plans?
- Does the government report pension expenses or expenditures? If so, in which fund or funds?
- Does the government report pension liabilities? If so, in which fund or funds?
- Does the CAFR indicate the actuarial value of plan assets and liabilities? Are the plans over‐ or underfunded?
- Does the CAFR include the financial statements of the pension plans? Does it indicate that the pension plans issue their own reports and that these are publicly available?
- Did the pension fund investments have a “good year”?
- Does the CAFR indicate that the government provides other postemployment benefits? If so, what is the nature of these benefits? How are they reported?
- Does the government maintain any custodial funds? How many and for what purposes?
Problem 10-9:
Seemingly similar situations make be accounted for and reported in different fund types.
For each of the following, indicate the fund, if any in which the government would account for the resources described. If a fiduciary, rather than a governmental fund, indicate the type of fund. Briefly justify your response.
- A government contributes to a pension fund maintained by a union representing some of its employees. The government determines all significant terms of the plan, most notably eligibility requirements and retiree benefits. However, all investment decisions, including when to buy and sell securities are made by a committee composed of union officers.
- A government holds the assets that its employees contribute to a defined contribution plan. It maintains the assets in separate trust funds for each employee and each employee can select among several mutual funds in which to invest the assets.
- A high school requires its athletic booster association to deposit with the school any cash it may have collected from members or earned through its activities. The school does not monitor or control how the association spends its resources. Upon request of the association, the school writes a check either to the association itself or to a party designated by the association. Essentially, the school serves merely as the association’s banker.
- A high school requires its athletic booster association to deposit with the school any cash it may have collected from members or earned through its activities. All expenditures of the association must be approved by the school’s athletic director to ensure that they conform to school policies.
- A county maintains an investment pool to which towns within its jurisdiction can deposit their cash reserves. Investment pool policies specify that it can invest only a securities that have short‐term maturities and satisfy other criteria that make them highly liquid. The pool is considered a trust and the assets are thereby protected from the claims of the government’s creditors.
- A county maintains an investment pool to which its various proprietary activities, such as its transportation service and its water utility can deposit their cash reserves. Investment pool policies specify that it can invest only in securities that have short‐term maturities and satisfy other criteria that make them highly liquid.
