Solution Manual for Accounting for Governmental and Nonprofit Entities, 15th edition

Name: Solution Manual for Accounting for Governmental and Nonprofit Entities, 15th edition
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Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-1
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL
REPORTING FOR GOVERNMENTAL AND NOT-FOR-
PROFIT ENTITIES
OUTLINE
Number Topic Type/Task Status
(re: 14/e)
Questions:
1-1 Distinguishing between general purpose and
special purpose governments
Justify/Explain 1-3 revised
1-2 Distinguishing GNP accounting and reporting
standards from business entities
Contrast New
1-3 Standards-setting bodies Contrast 1-4 revised
1-4 Determining whether a not-for-profit
organization is governmental
Identify/Explain New
1-5 Conceptual basis for reporting Evaluate/Explain Revised
1-6 Types of accountability Contrast Revised
1-7 Measurement focus and basis of accounting Explain New
1-8 Distinguishing bases of accounting Explain New
1-9 Comprehensive annual financial report Describe 1-7
1-10 Service efforts and accomplishments Explain New
Cases:
1-1 Internet Case—FASB Internet/Written
report
New
1-2 Internet Case—GASB Internet/Written
report
New
1-3 Internet Case—FASAB Internet/Written
report
Revised
1-4 Research Case—Government or NFP entity? Written report Revised
Exercises/Problems:
1-1 Examine the CAFR Examine Revised
1-2 Various Multiple Choice Items 1 is
new; several
other items
revised
1-3 Reporting characteristics of government-wide
and fund financial statements
Matching Same

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-2
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL
REPORTING FOR GOVERNMENTAL AND NOT-FOR-
PROFIT ENTITIES
Answers to Questions
1-1. General purpose governments differ from special purpose governments primarily in terms
of the scope of their legal powers and the range of services provided. General purpose
governments typically have much more power over citizens and provide a much greater
range of services than do special purpose governments. Examples of general purpose
governments include states, counties, townships, cities, and villages. Special purpose
governments typically include such special districts as those for police and fire
protection, sanitation, and water, and organizations such as school districts and public
colleges and universities.
1-2. Disagree. As discussed in this chapter, government and not-for-profit organizations serve
different functions in society than do business organizations. Not surprising, then, the
objectives of financial reporting for these organizations, as shown in Illustration 1-2, are
quite different from the objectives of business reporting. The most striking difference is
the need for government and not-for-profit organizations to report on accountability, in
addition to financial performance. The different functions served and different reporting
objectives lead to different accounting and reporting practices.
1-3. Illustration 1-1 depicts the standard-setting jurisdiction of the FASB, GASB and FASAB.
As shown, the FASB has responsibility for setting accounting and financial reporting
standards for business enterprises and nongovernmental not-for-profit organizations. The
GASB has responsibility for setting standards for state and local governments and
governmental not-for-profit organizations. The FASAB has responsibility for setting
accounting and reporting standards for federal agencies and departments.
1-4. One should apply the criteria discussed in the section headed Determining Whether a
Not-for-Profit Organization is Governmental. Essentially if an organization is a public
corporation or body corporate and politic or has certain government-like characteristics
described in this section, then it should be treated as a governmental organization and
GASB standards should be followed. Otherwise, one would follow FASB standards.
1-5. Interperiod equity, whether current period revenues were sufficient to pay for current
period services, is an important component of accountability. But, as noted in Chapter 1,
accountability is the cornerstone of governmental financial reporting and is a broader
concept than interperiod equity. See, for example, the discussion of fiscal and
operational accountability in the answer to Question 1-6.
1-6. Disagree. The statement is incomplete. While it is true that GASB standards assist in
assessing operational accountability of business-type activities, those standards assist in
assessing both fiscal accountability and operational accountability of governmental
activities. Specifically, governmental fund reporting standards promote fiscal

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-3
Ch. 1, Answers, Question 1-6 (Cont’d)
accountability reporting by helping elected officials demonstrate that they have complied
with spending restrictions related to the legally approved budget. Government-wide
reporting standards for governmental activities help officials report on operational
accountability—whether the government’s resources were utilized efficiently and
effectively in meeting operating objectives.
1-7. Financial information related to governmental activities is reported in two different ways
to meet two different reporting objectives. The government-wide financial statements are
intended to report on the government’s operational accountability and therefore
governmental activities are reported in those statements using accrual accounting with an
economic resources measurement focus—similar to commercial accounting. In the
governmental fund financial statements, the reporting objective is fiscal accountability,
leading to the use of modified accrual and a focus on the flow of current financial
resources. As a result, the same underlying transactions result in different amounts being
reported in the government-wide and governmental fund financial statements. These
differences must be reconciled so that readers can understand how the statements relate to
each other.
1-8. Modified accrual accounting is used for preparing governmental fund financial
statements since those statements focus on the flow of current (i.e., expendable) financial
resources and whether resources were raised and expended in conformity with budget and
other fiscal constraints. Revenues that will not be collected in time to pay current period
obligations cannot be used to meet the current year budget. Similarly, obligations that
will not be paid from currently available financial resources do not affect current period
fiscal performance. Thus, under modified accrual only revenues that will be collected in
time to pay for current obligations and only expenditures that will be paid in the current
period or shortly thereafter are recognized in the current period. By contrast, the
government-wide financial statements, as well as proprietary and fiduciary fund financial
statements, focus on the flow of economic resources, both current and noncurrent.
Consequently, the use of the accrual basis of accounting, similar to that used by business
entities, is appropriate for these statements.
1-9. A CAFR should have an introductory section, financial section, and statistical section,
the contents of which are discussed in this chapter. The basic financial statements
required under GASBS 34 are the government-wide financial statements and fund
financial statements with accompanying notes. The basic financial statements, along
with the Management Discussion & Analysis, and other required supplementary
information (RSI), comprise only part of the financial section of a typical CAFR. The
contents of each section are described briefly in the section headed Comprehensive
Annual Financial Report.

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-4
Ch. 1, Answers (Cont’d)
1-10. The GASB recognizes that while financial information is helpful in assessing operational
accountability, additional information about an organization’s service efforts and
accomplishments is essential for a complete understanding of whether a government’s
resources have been utilized efficiently and effectively. Information about service
efforts includes indicators of nonmonetary resource inputs as well as monetary.
Information about service accomplishments includes indicators of output measures (i.e.,
units of work accomplished) and outcome measures (i.e., impact of work on achieving
goals and objectives). To date the GASB has conducted significant research on SEA
measures and continues to encourage governments to experiment with SEA reporting.
Solutions to Cases
1-1. A search of the FASB’s Web site, www.fasb.org, should reveal the following Statements
of Financial Accounting Standards that are focused on not-for-profit organizations:
Statement No. 136
Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or
Holds Contributions for Others
(Issue Date 6/99)
Statement No. 124
Accounting for Certain Investments Held by Not-for-Profit Organizations
(Issue Date 11/95)
Statement No. 117
Financial Statements of Not-for-Profit Organizations
(Issue Date 6/93)
Statement No. 116
Accounting for Contributions Received and Contributions Made
(Issue Date 6/93)
Statement No. 99
Deferral of the Effective Date of Recognition of Depreciation by Not-for-Profit
Organizations—an amendment of FASB Statement No. 93
(Issue Date 9/88)
Statement No. 93
Recognition of Depreciation by Not-for-Profit Organizations
(Issue Date 8/87)
In addition, the FASB has issued one Statement of Financial Accounting Concepts
related to not-for-profit organizations:

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-5
Ch. 1, Solutions, Case 1-1 (Cont’d)
Concepts Statement No. 4
Objectives of Financial Reporting by Nonbusiness Organizations
(Issue Date 12/80)
Brief summaries of each statement are also provided at the Web site.
There is also a Proposed FASB Staff Position, FAS 117-a, Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the
Uniform Prudent management of Institutions Fund Act, and Enhanced Disclosures. In
addition, the FASB is re-deliberating two proposed statements relating to not-for-profit
organizations involved in mergers and acquisitions.
Many FASB standards applicable to for-profit entities may also apply to
nongovernmental not-for-profit organizations. Full-text copies of all FASB
pronouncements can be downloaded free of charge from the FASB’s Web site.
1-2. Instructors may wish to provide specific instructions for the students' brief reports. The
GASB’s Web site provides extensive information about the Board’s mission, structure,
and the due-process it follows in setting standards. Significant information about the
GASB’s strategic plan is also provided at the Web site.
Obviously, the content of GASB’s technical agenda and members of its advisory council
will change over time. Although exposure drafts of proposed statements and abbreviated
summaries of new pronouncements can be downloaded from the GASB’s Web site at no
charge, the full-text of statements and other pronouncements can only be obtained by
purchasing them from the GASB’s publication department. In addition, the GASB sells
two annually updated compendiums of its official pronouncements—Original
Pronouncements and Codification of Governmental Accounting and Financial Reporting
Standards—and an annually updated Comprehensive Implementation Guide. All of these
documents are available in hardcopy or as a searchable computer data base called GARS,
the Governmental Accounting Research System. GASB’s Web site provides full
information on how to order all publications and their cost, as well as information about
becoming an annual subscriber to GASB pronouncements and due-process documents.
1-3. Instructors may wish to provide specific instructions for their students' brief reports.
FASAB’s Web site may change over time, but the Web site does provide extensive
information about the FASAB’s mission, structure, and due-process. A good source of
information is the Memorandum of Understanding between the Comptroller General,
Director of OMB, and the Secretary of the Treasury that created the FASAB, which
currently is a 10-member board. Because FASAB’s technical projects and members of
the Accounting and Auditing Policy Committee will change over time, students should
describe the projects and committee representation that currently exist.

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Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities
1-8
Ch. 1, Solutions, 1-3 (Cont’d)
statements, enough of it is to justify giving credit for this answer as well, as long as
the student understands that the long-term components of GA do not belong in these
cells. Similarly, you may wish to grant credit to students who put BTA in the three
cells for proprietary fund statements, although internal service fund information in
these statements is usually considered part of GA rather than BTA.

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Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-2
CHAPTER 2: PRINCIPLES OF ACCOUNTING AND FINANCIAL
REPORTING FOR STATE AND LOCAL
GOVERNMENTS
Answers to Questions
2-1. Certain core services are provided by most general purpose governments—those related
to the protection of life and property (e.g., police and fire protection), public works (e.g.,
streets and highways, bridges, and public buildings), parks and recreation facilities and
programs, and cultural and social services, among others. Governments must also incur
costs for general administrative support (such as, data processing, finance, and personnel)
of its service departments. Core governmental services, together with general
administrative support, comprise the major part of what GASB refers to as governmental
activities. The measurement focus and basis of accounting for these activities is on the
flow of current financial resources on the modified accrual basis in the governmental
funds and on the flow of economic resources on the accrual basis in the Governmental
Activities column of the government-wide financial statements.
2-2. The business-type activities of a government include public utilities (such as electric,
water, gas, and sewer utilities), transportation systems, toll roads and bridges, hospitals,
parking garages and lots, liquor stores, golf courses, airports, and swimming pools,
among other activities. Many of these activities are intended to be self-supporting by
charging users for the services they receive. Focusing financial reporting on economic
resources recognized on the accrual basis of accounting allows the government to
determine whether charges for services are sufficient to cover the full cost of the activity.
This measurement focus and basis of accounting is the same used for reporting
governmental activities in the government-wide financial statements, but quite different
from the current financial resources measurement focus and modified accrual basis of
accounting used in the governmental funds.
2-3. Fiduciary activities of a government involve the government’s discharge of its fiduciary
responsibilities, either as an agent or trustee, for parties outside the government. For
example, a government may serve as agent for other governments in the administering
and collecting of taxes. Fiduciary activities are accounted for in agency funds, investment
trust funds, pension trust funds, and private-purpose trust funds.
Fiduciary activities are reported only in the fund financial statements and not in the
government-wide financial statements because these resources belong to external parties,
not the government. Fiduciary funds use accrual accounting and focus on economic
resources, as do business-type activities. However, reporting for fiduciary activities
differs from that for governmental funds since the latter funds focus primarily

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Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-3
Ch. 2, Answers (Cont’d)
2-4. A reporting entity consists of the primary government and all other legally separate
organizations for which the government is financially accountable. A primary
government is defined as a state government, a general purpose local government, or a
special purpose government that has a separately elected governing body and that is
fiscally independent of other state and local governments. A component unit differs from
the primary government mainly in terms of the direction of fiscal accountability. A
component unit is financially accountable to the primary government whereas the
primary government is financially accountable for a component unit.
2-5. False. GASB standards indicate that individual component units should prepare separate
financial statements and make them available to the public. Reporting financial
information of component units in one or more separate columns to the right of those for
the primary government in the government-wide financial statements is known as a
discrete presentation. Blending is the alternative method if the financial activities of the
component unit are so intertwined with those of the primary government that they are, in
substance, the same as the primary government. In blended reporting, the financial
information of the component unit is blended with that of the primary government, both
in the appropriate fund and government-wide statements.
2-6. The three categories of funds are governmental, proprietary, and fiduciary. The fund
types included in each category are shown below:
Governmental Proprietary Fiduciary
General Fund
Special revenue funds
Debt service funds
Capital projects funds
Permanent funds
Enterprise funds
Internal service funds
Agency funds
Investment trust funds
Pension trust funds
Private purpose trust
funds

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Chapter 02 - Principles of Accounting and Financial Reporting for State and Local Governments
2-4
Ch. 2, Answers (Cont’d)
2-9. General Fund Debits Credits
Cash 1,000,000
Other Financing Sources—
Proceeds of 5-Year Note 1,000,000
Governmental Activities, Government-wide
Cash 1,000,000
Mortgage Note Payable 1,000,000
General Fund
Expenditures—Capital Outlay 1,000,000
Cash 1,000,000
Governmental Activities, Government-wide

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