Accounting

Question 1

The dual objectives of assessing interperiod equity and ensur- ing budgetary compliance may necessitate different accounting practices.

A city engages in the transactions that follow. For each transaction indicate the amount of revenue or expenditure that it should report in 2014. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a ‘‘modified’’ cash basis (that is, it expands the definition of cash to include short-term marketable securities), and its fiscal year ends on December 31.

1. Employees earned $128,000 in salaries and wages for the last five days in December 2014. They were paid on January 8, 2015.

2. A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225,000 to its firefighters’ pension fund for benefits earned in 2014. However, the city contributed only $170,000, the amount budgeted at the start of the year.

3. The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years.

4. On December 1, 2014, the city invested $99,000 in short-term commercial paper (promissory notes). The notes matured on January 1, 2015. The city received $100,000. The $1,000 difference between the two amounts represents the city’s return (interest) on the investment.

5. On January 2, 2014, the city acquired a new $10 million office building, financing it with 25-year serial bonds. The bonds are to be repaid evenly over the period they are outstanding—that is, $400,000 per year. The useful life of the building is 25 years.

Question 2

1. What are three main sections of the report?

2. Review the introductory section of the CAFR.

1. Was the entity’s annual report of the previous year awarded a ‘‘certificate of achievement for excellence in financial reporting’’ by the Government Finance Officers Association? What is the significance of this

award?

2. What are the key issues addressed in the letter of

transmittal?

3. Review the financial section.

1. Which, if any, independent audit firm performed an

audit of the CAFR?

2. Did the entity receive an ‘‘unqualified’’ audit opin-

ion? If not, why not?

3. Does the report contain management’s discussion

and analysis (MD&A)? If so, what are the key issues addressed?

d. Does the report provide a reconciliation between total governmental net position per the government- wide statement of net position and total governmen- tal fund balances per the governmental funds balance sheet? If so, what are the main reconciling items?

e. What are the major governmental funds maintained by the entity? Does the entity’s fund structure con- form to its organizational structure?

f. Does the report include ‘‘required supplementary information’’? If so, what are the main areas addressed?

g. Does the report include ‘‘combining statements’’? If so, what is the nature of these statements?

h. Does the report include other supplemental infor- mation? If so, what types of information are in this section of the report?

4. Review the statistical section. a. What is the population of the entity being

reported on? b. Who is the entity’s major employer? c. What types of information are included in the statis-

tical section?

P. 2-6 question 3

The nature of a transaction gives a clue as to the type of fund in which it should be recorded.

Kendal County engaged in the following transactions. For each, prepare an appropriate journal entry and indicate the type of fund in which it would most likely be recorded:

1. It levied and collected $1million in taxes and dedicated to the repayment of outstanding general obligation bonds.

2. It billed sponsors of a charity bicycle ride $5,000 for providing police patrols during the ride.

3. It recognized $60,000 of cash dividends on investments dedicated to the support of a county arts center.

4. It recognized $70,000 of cash dividends on investments dedicated to scholarships for needy county residents.

5. It incurred $6 million in construction costs to complete a new county jail. The new jail was funded entirely with the proceeds of long-term bonds.

6. It transferred $400,000 of unrestricted funds to an appropriate fund to be invested and eventually used to repay the principal on the long-term jail bonds (entries in two funds required).

7. It recognized depreciation of $100,000 on equipment in a vehicle repair center that services all county depart- ments that have motor vehicles.

8. It collected $30,000 in parking fees at the county owned garage.

9. It issued $8 million in bonds to improve the city-owned electric utility.

10. It distributed $3 million in taxes collected on behalf of school districts located within the country.