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 Entities1-1CHAPTER 1:INTRODUCTION TO ACCOUNTING ANDFINANCIALREPORTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT ENTITIESOUTLINENumberTopicType/TaskStatus(re: 14/e)Questions:1-1Distinguishing between general purpose andspecial purpose governmentsJustify/Explain1-3 revised1-2Distinguishing GNPaccounting and reportingstandardsfrom business entitiesContrastNew1-3Standards-setting bodiesContrast1-4 revised1-4Determining whether a not-for-profitorganization is governmentalIdentify/ExplainNew1-5Conceptual basis for reportingEvaluate/ExplainRevised1-6Types of accountabilityContrastRevised1-7Measurement focus and basis of accountingExplainNew1-8Distinguishing bases of accountingExplainNew1-9Comprehensive annual financial reportDescribe1-71-10Serviceefforts andaccomplishmentsExplainNewCases:1-1Internet Case—FASBInternet/WrittenreportNew1-2Internet Case—GASBInternet/WrittenreportNew1-3Internet Case—FASABInternet/WrittenreportRevised1-4Research Case—Government or NFP entity?Written reportRevisedExercises/Problems:1-1Examine the CAFRExamineRevised1-2VariousMultiple ChoiceItems1 isnew;severalother itemsrevised1-3Reporting characteristics of government-wideand fund financial statementsMatchingSame

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-2CHAPTER 1:INTRODUCTION TO ACCOUNTING ANDFINANCIALREPORTING FOR GOVERNMENTAL AND NOT-FOR-PROFIT ENTITIESAnswers to Questions1-1.General purpose governments differ from special purpose governments primarily in termsof the scope of their legal powers and the range of services provided. General purposegovernments typically have much more power over citizens and provide a much greaterrange of services than do special purpose governments. Examples of general purposegovernments includestates, counties, townships, cities, and villages. Specialpurposegovernments typically include such specialdistrictsas thosefor police and fireprotection, sanitation, and water, and organizations such as school districts and publiccolleges and universities.1-2.Disagree.As discussed inthis chapter, government and not-for-profit organizations servedifferent functions in society than do business organizations. Not surprising, then, theobjectives of financial reporting for these organizations, as shown in Illustration 1-2,arequite different from the objectives of business reporting. The most striking difference isthe need for government and not-for-profit organizations to report on accountability, inaddition tofinancial performance. The different functions served and differentreportingobjectives 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 reportingstandards for business enterprises andnongovernmentalnot-for-profit organizations. TheGASB has responsibility for setting standards for state and local governments andgovernmentalnot-for-profit organizations. The FASAB has responsibility for settingaccounting and reporting standards for federal agencies and departments.1-4.One should apply the criteria discussedinthesectionheadedDetermining Whether aNot-for-Profit Organization is Governmental. Essentially if an organization is a publiccorporation or body corporate and politic or has certain government-like characteristicsdescribed in this section, then it should be treated as a governmental organization andGASB standards should be followed. Otherwise, one would follow FASB standards.1-5.Interperiod equity, whether current period revenues were sufficient to pay for currentperiod services, is an important component of accountability. But, as noted in Chapter 1,accountability is the cornerstone of governmental financial reportingand is a broaderconcept than interperiod equity.See, for example, the discussion of fiscal andoperational accountability in the answer to Question 1-6.1-6.Disagree. The statement is incomplete.While it is true that GASB standards assist inassessingoperational accountabilityof business-type activities, those standards assist inassessingbothfiscal accountabilityand operational accountability of governmentalactivities. Specifically, governmental fund reporting standards promote fiscal

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-3Ch. 1, Answers,Question1-6(Cont’d)accountability reporting by helpingelected officials demonstratethattheyhave compliedwith spending restrictionsrelated tothe legally approved budget. Government-widereporting standards for governmental activitieshelp officials report onoperationalaccountability—whetherthe government’s resourceswere utilizedefficiently andeffectively in meeting operating objectives.1-7.Financial information related to governmental activities is reported in two different waysto meet two different reporting objectives. The government-wide financial statements areintended to report on the government’s operational accountability and thereforegovernmental activities are reported in those statements using accrual accounting with aneconomic resources measurement focus—similar to commercial accounting. In thegovernmental fund financial statements, the reporting objective is fiscal accountability,leading to the use of modified accrual and a focus on the flow of current financialresources. As a result, the same underlying transactions result in different amounts beingreported in the government-wide and governmental fund financial statements. Thesedifferences must be reconciled so that readers can understand how the statements relate toeach other.1-8.Modified accrual accounting is used for preparing governmental fund financialstatements since those statements focus on the flow of current (i.e., expendable) financialresources and whether resources were raised and expended in conformity with budget andother fiscal constraints.Revenues that will not be collected in time to pay current periodobligations cannot be used to meet the current year budget. Similarly, obligations thatwill not be paid from currently available financial resources do not affect current periodfiscal performance. Thus, under modified accrual only revenues that will be collected intime to pay for current obligations and only expenditures thatwill bepaid in the currentperiod or shortly thereafter are recognized in the current period.By contrast, thegovernment-wide financial statements, as well as proprietary and fiduciary fund financialstatements, 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 businessentities, 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 statementsrequired underGASBS 34are the government-wide financial statements and fundfinancial statements with accompanying notes. The basic financial statements,alongwith the Management Discussion & Analysis,andother required supplementaryinformation (RSI), comprise only part of the financial section of a typical CAFR.Thecontents of each section are describedbrieflyinthesectionheadedComprehensiveAnnual Financial Report.

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-4Ch. 1, Answers (Cont’d)1-10.The GASB recognizesthat while financial information is helpful in assessing operationalaccountability, additional information about an organization’s service efforts andaccomplishments is essential for a complete understanding of whether a government’sresources have been utilized efficiently and effectively.Information about serviceefforts includes indicators of nonmonetary resource inputs as well as monetary.Information about service accomplishments includesindicators of output measures (i.e.,units of work accomplished) and outcome measures (i.e.,impact of work on achievinggoals and objectives).To date the GASB has conducted significant research on SEAmeasures and continues to encourage governments to experiment with SEA reporting.Solutions to Cases1-1.A search of the FASB’sWebsite,www.fasb.org, should reveal the following Statementsof Financial Accounting Standards that are focused on not-for-profit organizations:Statement No. 136Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises orHolds Contributions for Others(Issue Date 6/99)Statement No. 124Accounting for Certain Investments Held by Not-for-Profit Organizations(Issue Date 11/95)Statement No. 117Financial Statements of Not-for-Profit Organizations(Issue Date 6/93)Statement No. 116Accounting for Contributions Received and Contributions Made(Issue Date 6/93)Statement No. 99Deferral of the Effective Date of Recognition of Depreciation by Not-for-ProfitOrganizations—an amendment of FASB Statement No. 93(Issue Date 9/88)Statement No. 93Recognition of Depreciation by Not-for-Profit Organizations(Issue Date 8/87)In addition, the FASB has issued one Statement of Financial Accounting Conceptsrelated to not-for-profit organizations:

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-5Ch. 1, Solutions, Case 1-1 (Cont’d)Concepts Statement No. 4Objectives 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-ProfitOrganizations: Net Asset Classification of Funds Subject to an Enacted Version of theUniform Prudent management of Institutions Fund Act, and Enhanced Disclosures.Inaddition, the FASB is re-deliberating two proposed statements relating to not-for-profitorganizations involved in mergers and acquisitions.Many FASB standards applicable to for-profit entitiesmayalso apply tonongovernmental not-for-profit organizations.Full-text copies of all FASBpronouncements 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. TheGASB’s Web site provides extensive information about the Board’s mission, structure,and the due-process it follows in setting standards. Significant information about theGASB’s strategic plan is also provided at the Web site.Obviously, the content of GASB’stechnicalagenda and members ofits advisorycouncilwill change over time. Although exposure drafts of proposed statements and abbreviatedsummaries of new pronouncements can be downloaded from the GASB’s Web site at nocharge, the full-text of statements and other pronouncements can only be obtained bypurchasing them from the GASB’s publication department. In addition, the GASB sellstwo annually updated compendiums of its official pronouncements—OriginalPronouncements and Codification of Governmental Accounting and Financial ReportingStandards—and an annually updatedComprehensive Implementation Guide. All of thesedocuments are available in hardcopy or as a searchable computer data base called GARS,the Governmental Accounting Research System. GASB’s Web site provides fullinformation on how to order all publications and their cost, as well as information aboutbecoming 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 extensiveinformation about the FASAB’s mission, structure, and due-process. A good source ofinformation is the Memorandum of Understanding between the Comptroller General,Director of OMB, and the Secretary of the Treasury that created the FASAB, whichcurrently is a 10-member board.BecauseFASAB’s technical projects and members ofthe Accounting and Auditing Policy Committee will change over time, studentsshoulddescribe 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 Entities1-6Ch. 1, Solutions, Case 1-3 (Cont’d)All statements and other pronouncements of the FASAB, including compendiums of alloriginal pronouncements and a Current Text that codifies all pronouncements in topicalformat are available for downloading from its Web site at no charge. All due-processdocuments are available at that site as well.1-4.Issue:Is the Native-American Heritage Center and Museum a governmental not-for-profit entity or nongovernmental not-for-profit entity?This is an essential determinationbecause ifthemuseumis governmental the auditor will need to examine whether themuseum’s financial statements are in conformity with GASB standards. If it isnongovernmental,its financial statements must conform to FASB standards.Analysis:There is no evidence to suggest that theHeritage Center and Museumis agovernmentper se, that is, a “public corporation or body corporate and politic.” Thus, itis necessary to apply the three criteria listed in the text to determine whether theorganizationis governmental in character. A controlling majority of its governing boardis appointed or approved by theMoundCity Council, thus, criterionais clearly met.Criterionbis likely met as well, considering that the City could probably dissolve thecenter andmuseum if they wished to do so according to the original charter. It doesn’tappear that theorganizationhas the power to enact or enforce a tax levy (criterionc).Only one of the three criteria needs to be met for themuseumto be consideredgovernmental in character. Criterionais clearly met andbis likely met,so carefulapplication of the AICPA criteriatothe fact situation in this case should lead one to reachthe conclusion that theorganizationis governmental in character and therefore shouldconform to GASB financial reporting standards if it expects to receive an unqualified(clean) audit opinion. [Note to instructors: In order to avoid confusing students this earlyin the course, we have intentionally not discussed specific GASB and FASB standardsapplicable to not-for-profit organizations. Unusually inquisitive students can be referredto Chapter 14 for further information.]Solutions to Exercises and Problems1-1.As studentsmay havedifferent CAFRs, there is nosinglesolution to this exercise. Itworks well to devote class time to asking students some of the questions listed in theexercise, and perhaps tabulating the numbers of reports containing statements that areaudited (1) by CPAs, (2) by state auditors, and (3) by employees of the reportinggovernment. If such a tabulation is made, studentsmay beinterested in knowing in whichstates the local governmental units are located that are audited by each of the classes ofauditors (or whatever other characteristic is being tabulated). Requiring that studentsdownload orobtain ahardcopyCAFR is a good exercise in obtaining financialinformation. Allow students to share their experiences, as some organizations make iteasier to get CAFRs than others. Remind students thatgovernments are not required toprepareafullCAFR, so some governments may simply refer to their reportas the“audited annual financial statement,”or even the “audit report.”Budgets are often quitedetailed andcanbe most useful for Chapter 13, so instructors may wish to have theirstudent’s download or request ahardcopybudget document in addition to the CAFR.

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-7Ch. 1, Solutions (Cont’d)1-2.1.a.6.b.2.d.7.a.3.c.8.c.4.d.9.d.5.b.10.a.1-3.This is an exercise that may generate considerable discussion in class, as some of theanswers depend on individual judgments and interpretations. Keeping this in mind, youmay wish to provide some leeway in grading this exercise, depending on how literallyyou interpret the terms “funds” and “activities.” See Notes a and bfor suggestedguidelines.Financial StatementsActivities orFunds ReportedBasisOfAccountingMeasurementFocusStatement of net assets—government–wideGA, BTA(see Note a)AERStatement of activities—government-wideGA, BTA(see Note a)AERBalance sheet—governmental fundsGF(see Note b)MACFRStatement of revenues, expenditures,and changes in fund balances—governmental fundsGF(see Note b)MACFRStatement of net assets—proprietaryfundsPF(see Note b)AERStatement of revenues, expenses, andchanges in fund net assets—proprietary fundsPF(see Note b)AERStatement of cash flows—proprietaryfundsPF(see Note b)AERStatement of fiduciary net assetsFFAERStatement of changes in fiduciary netassetsFFAERNotes:a.Some students may wish to put governmental funds (GF) and proprietary funds (PF)here, but technically that would be incorrect asthe informationreported in funds isnot the sameasthat reported at the government-wide level. Nevertheless, you couldgivefull or partialcredit for these answers and use the opportunity to point out thedifferences.b.Some students mayunderstandablyviewfinancial information forgovernmentalactivities as beingreportedin boththe governmental funds and the governmentalactivities column of the government-wide statements. If so, they will put GA in thecells for the two governmental funds statements, in addition to GF. Although not allgovernmental activities financial information is reported in the fund financial

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Chapter 01-Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities1-8Ch. 1, Solutions, 1-3 (Cont’d)statements, enough of it is to justify giving credit for this answer as well, as long asthe student understands that the long-term components of GA do not belong in thesecells.Similarly, you may wish to grant credit to students who put BTA in the threecells for proprietary fund statements, although internal service fund information inthese statements is usually considered part ofGA rather thanBTA.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-1CHAPTER 2:PRINCIPLES OF ACCOUNTING AND FINANCIALREPORTING FOR STATE AND LOCALGOVERNMENTSOUTLINENumberTopicType/TaskStatus(re: 14/e)Questions:2-1Governmental activitiesDescribeSame2-2Business-type activitiesDescribeSame2-3Fiduciary activitiesDescribeSame2-4Reporting entityDefineand explainRevised2-5Component unit reportingExplainSame2-6Fund categoriesExplainNew2-7Definition of fundExplainNew2-8Modified accrual; definition and rulesDistinguishNew2-9Distinguishing effects of governmentaltransactionsJournalizeNew2-10Major fund criteriaExplainNewCases:2-1Defining the reporting entityInternet; locatinginformation in theCAFRSame2-2Accounting and reporting principlesIdentificationAnalysis; explanation2-32-3Identification of major funds; application ofmajor fund criteriaInternet; identifi-cation; calculationNewExercises/Problems:2-1Examine the CAFRExamineRevised2-2VariousMultiple ChoiceItems 1,3, and5 revised;Other itemsare new2-3VariousTrue/FalseRevised2-4Matchinggovernment-wide and fund financialreporting characteristicsMatchingRevisedformat2-5Matching transactions withfundsMatchingSame2-6General long-term liability and general capitalasset transactionsJournalizeandexplain2-7 revised2-7Determination of major fundsCalculation; writtenreport2-6 revised

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-2CHAPTER 2:PRINCIPLES OF ACCOUNTING AND FINANCIALREPORTING FOR STATE AND LOCALGOVERNMENTSAnswers to Questions2-1.Certain core services are provided by most general purpose governments—those relatedtotheprotection 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 andprograms, and cultural and social services, among others. Governments must also incurcosts for general administrative support(such as,data processing, finance, and personnel)of its service departments. Core governmental services, together with generaladministrative support, comprise the major part of what GASB refers to asgovernmentalactivities. The measurement focus and basis of accounting for these activities is on theflow of current financial resources on the modified accrual basis in the governmentalfunds and on the flow of economic resources on the accrual basis in theGovernmentalActivities column of the government-wide financial statements.2-2.Thebusiness-type activitiesof 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 otheractivities. Many of these activities are intended to be self-supporting bycharging users for the services they receive. Focusingfinancial reportingon economicresourcesrecognizedon the accrual basis of accounting allows the government todetermine 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 reportinggovernmental activities in the government-wide financial statements, but quite differentfrom the current financial resources measurement focus and modified accrual basis ofaccounting used in the governmental funds.2-3.Fiduciary activitiesof a government involve the government’s discharge of its fiduciaryresponsibilities, either as an agent or trustee, for parties outside the government. Forexample, a government may serve as agent for other governments in the administeringand collecting of taxes.Fiduciary activities are accounted for in agency funds, investmenttrust funds, pension trust funds, and private-purpose trust funds.Fiduciary activities are reported onlyin the fund financial statements and not in thegovernment-wide financial statements because theseresourcesbelong to external parties,notthe government. Fiduciary funds use accrual accounting and focus on economicresources,as do business-type activities. However,reporting for fiduciary activitiesdiffers from that for governmental funds since the latter fundsfocusprimarilyon thebudget and current financial resources.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-3Ch. 2, Answers(Cont’d)2-4.Areporting entityconsists of the primary government and all other legally separateorganizations for which the government is financially accountable.Aprimarygovernmentis defined as a state government, a general purpose local government, or aspecial purpose government that has a separately elected governing body and that isfiscally independent of other state and local governments. Acomponent unitdiffers fromtheprimary government mainlyin terms of the direction of fiscal accountability.Acomponent unitis financially accountabletotheprimary governmentwhereastheprimary government isfinancially accountableforacomponent unit.2-5.False. GASB standards indicate that individual component units should prepare separatefinancial statements and make them available to the public. Reporting financialinformationof component unitsin one or more separate columnsto the right of those forthe primary government in the government-wide financial statements is known as adiscrete presentation. Blending is the alternative method if the financial activities of thecomponent unit are so intertwined with those of the primary government that they are, insubstance, the same as the primary government. In blended reporting, the financialinformation of the component unit is blended with that of the primary government, bothin the appropriate fund and government-wide statements.2-6.The three categories of funds are governmental, proprietary, and fiduciary. The fundtypes includedin each category are shown below:GovernmentalProprietaryFiduciaryGeneral FundSpecial revenue fundsDebt service fundsCapital projects fundsPermanent fundsEnterprise fundsInternal service fundsAgency fundsInvestment trust fundsPension trust fundsPrivate purpose trustfundsThese categories correspond to the three activity categories with the exception thatfinancial information for internal service funds is generally reported in the GovernmentalActivities column of the government-wide financial statements. However, if an internalservice fund predominantly serves an enterprise fund, its financial information is reportedin the Business-type Activities column.2-7.As a fiscal entity, a fund has its own resources and can incur liabilities to be repaid fromthe fund resources. As an accounting entity, the fund has its own self-balancing set ofaccounts.2-8.Governmental funds, the five fund types listed inIllustration 2-2 of the text,focus on theflow of current financial resources. Consequently, these funds use the modified accrualbasis of accounting. Under modified accrual revenues are recognized if the inflow ismeasurable and available to pay current period obligations. Expenditures are recognizedas incurred if they will be paid from available resources.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-4Ch. 2, Answers (Cont’d)2-9.General FundDebitsCreditsCash1,000,000Other Financing Sources—Proceeds of 5-Year Note1,000,000Governmental Activities, Government-wideCash1,000,000Mortgage Note Payable1,000,000General FundExpenditures—Capital Outlay1,000,000Cash1,000,000Governmental Activities, Government-wideBuildings1,000,000Cash1,000,0002-10.GASBS34requires that any fund that meets the following relative size criteria bedesignated as major:a.Total assets, liabilities, revenues or expenditures/expenses of that governmental or enterprise fund areat least 10 percent of the corresponding element total (assets, liabilities, and so forth) for all funds ofthat category or type (that is, total governmental or total enterprise funds),and(emphasis added)b.The same element that met the 10 percent criterion in (a) is at least 5 percent of the correspondingelement total for all governmental and enterprise funds combined.In additionto funds that meet these two criteria, the General Fund of a state or localgovernment must always be reported as a major fund.Finally, at its discretionmanagement can report as a major fund any othergovernmental or enterprise fund thatitconsiders of significant importance to financial statement users.Solutions to Cases2-1.Obtaining a CAFR is becoming less difficult as a growing number of local governmentspost their CAFRs and budgets on theirWebsites, as well as on the GASB’sWebsite.Usually a bit of surfing under the Finance Departmentlink of a government’s Web sitewill reveal the CAFR, which typically is downloadable as an Adobe Acrobat file. At anyrate, once a CAFR is obtained it should be a relatively easy task to scroll down to thenotes to the financial statements. Under the headingSummary of Significant AccountingPolicies,the first noteusuallyfound isthe description of the reporting entity.Allinformation needed to complete this case should be readily available once the studentfinds the reporting entity note.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-5Ch. 2,Solutions(Cont’d)2-2.A quick look at these financial statements reveals that Ms. Eager has almost noknowledge ofGASBreporting requirements. Let’s examine these financial statementsfrom the viewpoint of (a) a local CPA who is considering auditing thetown’s financialstatements and (b) a member of thetowncouncil or a citizen.a.As a CPA knowledgeable about governmental accounting, you should see many redflags regarding this potential audit engagement. Do the financial statementsthatMs.Eager has prepared conform to GAAP?The short answer is no! To the CPAcontemplatingwhether toserveas auditor, these financial statements should set offalarm bells. Heorshe only has to compare these statements to the variety ofgovernment-wide and fund financial statements required byGASB standards(seeIllustrationsA1-1throughA1-11) to realize that theyfall far short ofwhat is requiredbyGAAP. Amongthe manyproblemsthe CPA should detect (although students willprobably miss many of theseproblemsat this early point in the course) arethefollowing.1.Thetown does not present separate government-wide and fund financialstatements, although with a little work the balance sheet could be converted into agovernment-wide statement of net assets.2.The statement of activities is not in the cost of services format prescribed byGASB.3.Because no fund financial statements are prepared, key information such asunreserved and reserved fund balances of the General Fund(see IllustrationA1-3,for example)andtheRoad Tax Fund are not presented.4.Budget and actual comparison informationis not presented, either as basicstatements or required supplementary information schedules,as required(see theAppendix to this chapter).5.Expense detail is lacking. Morefunctionaldetail is needed under “Governmentservices,” suchas general government, public safety, public works, and otherrelevant functions, so the amounts expended for each service area can bedetermined.Presumably, this would also reduce the relatively large amountreported as “Miscellaneous.”6.Why are accounts receivable relating to the Sewer Fund missing from the balancesheet? The presence of sewer fees on the statement of activities suggests that theSewer Fund is being operated as an enterprise fund. If so, billings that have notbeen collected at year-end should be reported. In addition, GAAP requiresaccrual of a receivable and revenue for services provided but unbilled at year-end.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-6Ch. 2, Solutions, 2-2(Cont’d)7.If the Sewer Fund is an enterprise fund, then a statement of cash flows is requiredfor that fund.8.Where are the notes to the financial statements? The notes are a required andintegral part of any set of financial statements.9.Where is the MD&A—also required by GAAP?Given the serious reporting deficiencies observed, it is likely the CPA would be requiredto render an adverse opinion, since it appearsthat the financial statements do not fairlypresent financialinformationin conformity with GAAP. Depending on the quality ofthetown’s financial records, it isalsopossible that the CPA would have to issue adisclaimer report due tomissing orinsufficient financial information.(Note: You maywish to look at Chapter 12for the meaning of adverse and disclaimed audit reports.)b.A member of thetowncouncil or a citizen of thetown should be concerned as wellabout several of the points made in partaabove. Although thetreasurer may still bepreparing statements of cash receipts and disbursements for each fund, the lack ofinformation about cost of services for governmental functions and sewer operationsshould be of concern. Moreover, unless thetown budgets on a cash basis, the lack ofGAAP-based fund statements results inalack of full information about availablefinancial resources in the General and Road Tax Fundsfor budgeting purposes.Thelack of budget and actual comparison statements or schedules should also be ofconcern to a member of thetowncouncil or a citizen.2-3.Identification of which funds are reported as major funds is readily accomplished byviewing the governmental funds balance sheet and statement of revenues, expenditures,and changes in fund balances. Once a student calculates 10 percent of total governmentalfund assets, liabilities, revenues, and expenditures, and 5 percent of governmental andenterprise fund totals for the same elements, it should be relatively simple to compare thetotals fortheseelements for each major fund to the 10 percent and 5 percent amounts.Comparisons for the General Fund are unnecessary since this fund is always reported as amajor fund.Solutions to Exercises and Problems2-1.Each student should have a different governmental annual report, so will have differentanswers to questions in this exercise.We suggestallowingstudents todiscusstheiranswerswhich will give them anidea of the range of the answers of other students.2-2.1.b.6.b.2.c.7.b.3.b.8.c.4.a.9.d.5.d.10.c.

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-7Ch. 2, Solutions (Cont’d)2-3.1.T.2.T.3.F.Fiduciary activities are reported only in the fiduciary fund financial statements.4.T.5.F.Integration of budgetary accounts is required for certain governmental fundtypes, but is not recommended for proprietary funds.6.F.A component unit whose activities are closely intertwined with those of theprimary government are reported by blending, which reports the component unitfinancial information in the same columns as the primary government.7.T.8.F.While it is true that all enterprise fund financial information is reported in theBusiness-type Activities column of the government-wide financial statements,most internal service funds predominantly provide goods or services togovernmental funds and therefore the financial information of these funds isgenerally reported in the Governmental Activities column.9.F.Depreciation of general capital assets should be reported in theGovernmentalActivities column of thegovernment-widefinancialstatementsbut not in thegovernmental fund financial statements.10.T.2-4.1.Governmental fundsb, e, f, i2.Proprietary fundsa, d, g, h,j3.Fiduciary fundsa, c, g, k4.Governmental activities,a, g,h,j(Note: Internal service fund informationgovernment-wideis typically reported in govern-mental activities)5.Business-type activities,a, g, jgovernment-wide

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-8Ch. 2, Solutions (Cont’d)2-5.1.k.7.e.2.a.8.i.3.j.9.f.4.g.10.c.5.b.11.h.6.d.2-6.1.Record issuance of $100,000, 3-year note:General Fund:DebitsCreditsCash100,000Other Financing Sources—3-Year Note Payable100,000Governmental Activities:Cash100,000Notes Payable100,0002.Record purchase of vehicles at a total cost of $100,000.General Fund:DebitsCreditsExpenditures—Capital Outlay100,000Cash100,000Governmental Activities:Equipment100,000Cash100,0003.Recording these transactions in this manner is completely consistent with GASBstandards. Because the General Fund focuses on current financial resources and usesthe modified accrual basis of accounting, it does not record long-term liabilities, butdoes record the inflow of the proceeds of the loan as anOther Financing Source.This is a temporary account that increases fund balance in the General Fund. At thegovernment-wide level, however, the focus is on the flow of economic resourcesusing the accrual basis of accounting. Consequently, the long-term liability for the$100,000 3-year note is recorded in the Governmental Activitiesgeneraljournal andreported in the Governmental Activities column of the government-wide statementof net assets.Similarly, the General Fund records the outflow of current financial resources as anExpenditure, a temporary account that reduces fund balance of the General Fund.The general capital assets are recorded as

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Chapter 02-Principles of Accounting and Financial Reporting for State and Local Governments2-9Ch. 2, Solutions, 2-6 (Cont’d)an asset,Equipment, in the Governmental Activitiesgeneraljournal at thegovernment-wide level. The police vehicles will be depreciated at thegovernment-wide level each year. Depreciation has no effect on the General Fund.2-7.DATE:xxxMEMO TO:TownManager,TownofTrentonFROM:Independent AuditorRE:Major Special Revenue FundsAs shown by the blue shading in thecalculations provided below, only theHousing and Urban Development Grantmust bereported asa major fund.Neither the Gas Tax Revenue Fund nor theTrenton LibraryFundmeetstheGASB threshold for major fund reporting; that is, none of thefour elements ofthose funds(assets, liabilities, revenues, or expenditures)isat least10% of thecorresponding total of all governmental fundsandat least5% of thecorresponding total of all governmental andenterprisefunds.Both total assetsand totalrevenues of the Housing and Urban Development Grantmeet the 10percentof all governmental funds and 5percentof all governmental andenterprisefundscombined criteria.Althoughthe Gas Tax Revenue Funds did notmeet the criteria for major fund reporting,rapidlyescalating gas taxes tied to thecurrent high price of gasoline might warrant reporting this fund as a major fund toimprove accountability to citizens.GASBS 34permits government officials todesignateany governmental or enterprise fundas a major fund if, in theirjudgment, the fund is of sufficient importance to warrant designation as a majorfund.Calculation of Major Fund ThresholdsFinancialStatementElementsGas Tax Revenue FundHousing and UrbanDevelopment FundTrenton LibraryFund>10% ofGovern-mentalFunds>5% ofGovern-mental andEnterpriseFunds>10% ofGovern-mentalFunds>5% ofGovern-mental andEnterpriseFunds>10% ofGovern-mentalFunds>5% ofGovern-mental andEnterpriseFundsAssetsYes-10.3%No-4.6%Yes-11.2%Yes-5.01%No-6.5%No-2.9%LiabilitiesNo-8.4%No-4.9%No-9.8%Yes-5.7%No-0.0%No-0.0%RevenuesNo-9.0%No-4.6%Yes-11.1%Yes-5.7%No-7.8%No-4.0%ExpendituresNo-8.3%No-4.6%No-8.7%No-4.9%No-8.0%No-4.5%

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-1CHAPTER 3:GOVERNMENTAL OPERATING STATEMENTACCOUNTS; BUDGETARY ACCOUNTINGOUTLINENumberTopicType/TaskStatus(re: 14/e)Questions:3-1GASBS 34reportingmodelExplainNew3-2Statement of activities formatDescribeSame3-3Depreciation expense/direct expensesDefine3-3revised3-4Program and general revenueDistinguishSame3-5Extraordinary compared with special itemsDefine and compareNew3-6Expenditure classifications-examplesClassify3-73-7Temporary and permanent accountsDistinguish3-63-8Revenue classificationsClassifySame3-9Budgetary comparison schedules/statementsExplainNew3-10Public school systemsExplainSameCases:3-1Revenue and expense/expenditureclassificationInternet, examine,describeSame3-2Budgetary comparison scheduleInternet,examine,describeSame3-3Charter schools(public school academies)Internet, explainSameExercises/Problems:3-1CAFRExamineSame3-2VariousMultiple ChoiceSome newitems; rest arerevised3-3Village of WymetteExplain and calculateNew3-4Cityof Marion—recordingbudgetJournal Entries3-3revised3-5City of Marion—recording encumbrancesJournal Entries3-4revised3-5GF trial balance and closing entriesCalculate3-5 revised3-6Subsidiary ledgersCalculateSame3-7Appropriations,encumbrances,expendituresCalculateSame3-8Computerized accounting system—depart-mental budgetary comparison reportAnalyze and explainNew3-9Recording budget and operating transactionsJournal entries;Calculate3-83-10Government-wide statement of activitiesPrepare3-9 revised

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-2CHAPTER 3:GOVERNMENTAL OPERATING STATEMENTACCOUNTS; BUDGETARY ACCOUNTINGAnswers to Questions3-1.The governmental fund financial statements report current financial resourcesinformation intended to help users assesscurrent periodfiscal accountability—whetherrevenues were raised only from authorized sources and expended for authorizedpurposes. As such, the governmental fund statements lack the mid-to long-term focus oneconomic resources and cost of services needed toassessoperationalaccountability.3-2.Using the net (expense) or revenueformat, sometimes referred to as the “cost of services”approach, identifies the extent to which each function or program is self-supporting fromfees and intergovernmental aid, ormust besubsidized by general revenues of thegovernment.3-3.Depreciation expense is reported as a direct expense when it relates to capital assets thatare clearly identified with a function or programbecause it captures a real cost of usingcapital assets to provide that service function or program. Even depreciation expense forinfrastructure assets should be reported as a direct expense of the public works ortransportation function, if that is the function responsible for those assets.3-4.a.Generalrevenues.b.Programrevenues.c.Programrevenues.d.Programrevenues.e.Program revenues.f.Generalrevenues.g.Generalrevenues.3-5.Extraordinary itemsare those items (gains or losses) that are both unusual in nature andinfrequent in occurrence.Special itemsare either unusual in nature or infrequent inoccurrence, but not both. Special items also differ from extraordinary items in that theyare within the control of management. Both types of items are reported as separate lineitems below General Revenues in the statement of activities.3-6.a.Organization unitf.Both character and objectb.Functiong.Programc.Activityh.Functiond.Activityi.Organization unite.Objectj.Object

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-3Ch. 3, Answers (Cont’d)3-7.Definitions of these terms are given in the Glossary of the text. Below are brieferstatements:a.ExpendituresandEncumbrancesare both charges against appropriations. Anencumbranceis a charge for an estimated amount at the time goods are ordered; anexpenditureis a charge for an actual amount at the time the goods are received(accrual and modified accrual basis) or paid (cash basis).Encumbrance accountingis used only in those funds where it is needed to achieve budgetary control overexpenditures.b.Revenuesare increases in net assets of the government as a whole or of a fundother than from interfund transfers or debt issue proceeds, recognized at the timethe increase is earned (accrual basis), available for use (modified accrual basis) orreceived in cash (cash basis).Estimated revenuesare amounts expected to beavailable for use or received under enabling legislation during a budget period.Estimated Revenues is a budgetary accountrepresenting the expected amount ofrevenues to be realized from various sources.c.The term encumbrancesis defined inaabove.Reserve for Encumbrancesis abalance sheetaccount representing the amount segregated fromfundbalance forexpected liabilities resulting frompurchase orders and contractsissued.d.Reserve for Encumbrancesis defined incabove. TheFund Balanceof agovernmental fund is the excess of fund assets over fund liabilities,appropriations, and reserves; in short, the assets available for appropriation[defined inebelow] in governmentalfunds.e.Expendituresisdefined inaabove. AnAppropriationis an authorization by thelegislative branch for administrators to incur expenditures for specified purposesnot to exceed specified amounts. Usually the authorization is for a limited time.Appropriationsis a budgetary account.f.Expenditures, defined inaabove,represent outflow of current financial resourcesfor asset acquisition as well as for salaries, supplies for immediate consumption,travel,and so forth—whatever is specified in the appropriations. The termisusedin fund financial statements.Expenses, in governmental accounting as well asbusiness accounting, are expired costs; the full cost of services or goodsconsumed in providing services to citizens and others. Expenses are found in thegovernment-wide financial statements as well as in the proprietary financialstatements.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-4Ch. 3, Answers (Cont'd)3-8.a.Taxese.Intergovernmental revenueb.Charges for servicesf.Miscellaneous revenuesc.Licenses and permitsg.Charges for servicesd.Fines and forfeitsh.Licenses and permits3-9.Budgetary comparison schedules (or statements) must be provided for the General Fundand each major special revenue fund for which a budget is adopted.In order for budgetto actual comparisons to be meaningful, actual revenues and expenditures must bereported in the same manner as the budgeted amounts. Actual revenues and expendituresreported in the statement of revenues, expenditures, and changes in fund balances shouldbe on the GAAP basis.GASB standards identify several possible differences betweenGAAP and budgetary financial accounting. These include basis, timing, perspective, andentity.GASBS 34requires that reconciliation of the differences between amounts reportedin the GAAP basis operating statement and those reported in the budgetary comparisonschedule, either on the face of the budgetary comparison schedule or on a separate page.3-10.Public school systems are expected to follow the classification system specified by theNational Center for Education Statistics (NCES),as refined ormandated bya stateeducation oversight body.The NCES system combines the GASB expenditureclassification structure intoninecategories, most of which are necessary for adequateinternal management andcomparablefinancial reportingacross schools.The NCES revenue classification scheme also groups classifications intonumerouscategories, but are generally classified by fund, source, and project/reporting code. TheNCES expenditure and revenue dimensions should be compared with the correspondingGASB expenditure and revenue classifications described in this chapter. GASB standardsrequire that expenditures be classified by fund, function or program, organization unit,activity, character, and object and that revenues be classified by fund and source.Comparison of the NCES and GASB classification show that they are generallycompatible, butthe NCES classification structure isconsiderablymore detailed to meetthe unique reporting needs of public school systems.Solutions to Cases3-1.Students should easily be able to locate a city’s Web site, then explore the FinanceDepartment (or comparable name) link and look for links to financial reports.Alternatively, a number of cities have links to their CAFRs from the “ProjectPages/Statement 34” link of the GASB Web site (www.gasb.org). Responses to each ofthe questions in this case will depend on how a particular city classifies its revenues andexpenses/expenditures.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-5Ch. 3, Solutions, Case 3-1 (Cont’d)a.Occasionally, onemayfind a city that classifies its program revenues and directexpenses by program, but functional classifications, similar to thosedescribed in thischapter, are much more common. In most cases, all function or program line itemson the statement of activities will report a net expense, with numbers in parentheses.b.On the statement of revenues, expenditures, and changes in fund balances, revenuesand expenditures are reported in separate columns for the General Fund and othermajorgovernmental funds. Information for all nonmajor governmental funds isreported in aggregate in a single column. Students will likely find that the revenuesreported on this statementareclassified by source (taxes, licenses and permits,charges for services, etc.).Some cities will report a different amount for taxrevenues on their statement of activities than on their statement of revenues,expenditures, and changes in fund balances because all tax revenues levied for theyear will be reported on the former statement, while those that will not be collectedduring the current fiscal year or within 60 days thereafter will be reported as deferredtaxes on the latter statement.c.Expenditureswill generally be classified byfunction on the statement of revenues,expenditures, and changes in fund balancesand, infrequently, by program.Studentsare almost certain to find different amounts reported for expenses on the statement ofactivities and expenditures on statement of revenues, expenditures, and changes infund balances. Among other explanations, expenses exclude outlays for capitalizedassets, but include depreciation expense; expenditures include capital outlays butexclude depreciation expense.Generally, expenses and expenditures will not be thesame amounts for the reasons just explained.3-2.Again the responses to individual questions will depend on the practices of the particularcity selected. Some general expectations for each questioninclude:a.Typically more detail is provided for revenues and expenditures in the budgetarycomparison schedule, though not always. The reason for including more detail in thebudgetary comparison schedule, both for revenues and expenditures, is to bettermatch the level of detail used in the budget document. For revenues, cities oftenreport budget and actual information for subclasses of sources, such as various typesof taxes. For expenditures, cities sometimes report budget and actual information fororganization units and objects.b.Students will probably find that actual revenues on the budgetary comparisonschedule agree in amount with those reported on the GAAP operating statement. If adifference is noted between these amounts, itis likelyattributable to revenues beingrecognized on a cash basis for budgetary purposes, rather than modified accrual.c.Some students will discover that actual expenditures on the budgetary comparisonschedule differ from those reported on the GAAP operating statement. Theexplanation given in most of these cases will be that expenditures on the budgetarycomparison schedule also include encumbrances outstanding at year-end.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-6Ch. 3, Solutions, Case 3-2 (Cont’d)d.If actual revenues and/or expenditures are prepared on a non-GAAP budgetary basis,the budgetary comparison schedule should indicate such, either in the scheduleheading or the Actual column heading.e.Although a variance column is not required by GASB standards, it is difficult toimagine a city not providinga column showing the variance between actualandeithertheadoptedor finalbudget amounts.3-3.a.In most states, charter schools (or public school academies) are considered publicschools receiving public funds. Consequently, these schools should follow GASBstandards in order to ensure that financial statements conform to generally acceptedaccounting principles. Generally, these schools are small and may only have needfor a General Fund and a special revenue fund for their food service program. Therevenue and expense classification scheme described in the Appendix to Chapter 3,based on NCES guidance,is an appropriate starting place for building a chart ofaccounts and an accounting information system. Budgetary accounting is requiredby GAAP.b.Students should check their own state’s Department of Education(or comparableagency)for other guidance for traditional pre-K through 12 schools. The MichiganAssociation of Public School Academies also provides resources for charter schoolsand their accountants (www.charterschools.org).The U.S. Charter Schools website(www.uscharterschools.org) provides valuable guidance in developing systems offinancial and operational accountability for those who are new to charter schools, aswell as links to other resources.Solutions to Exercises and Problems3-1.Each student should have a different governmental annual report, so will have differentanswers to the questions in this exercise. Some time spent in class to allow students toreport on their own answers and to get an idea of the range of answers of other students isuseful.3-2.1.d.6.b.2.b.7.b.3.c.8.c.4.a.9.b.5.a.10.c.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-7Chapter 3, Solutions(Cont’d)3-3.a.The answer is no to bothparts of thequestion. Subject to an ordinance orpolicy thatrequiresa minimum end-of-year fund balance, any unreservedfund balanceabove that amountcan be consideredavailableforappropriation in the same manner as revenues and other financingsources. Consequently,if the sum of any excess fund balance andestimated revenuesexceeds appropriations, then village officials would bein compliance with any balanced budget requirement. In fact, legislativebodies often budget the use of a portion of fund balance if it exceeds anyminimum requirement established by law or policy.b.Fund Balance at 6-30-2010 after all closing entrieswill be$595,000, asshown below:FUND BALANCE$580,000Balance as of6-30-20093,190,000Toclose revenues for the year(3,175,000)To close expenditures for the year$595,000Balance as of 6-30-2010Note: Estimated Revenues and Appropriations are closed to BudgetaryFund Balance by reversing the original budgetary entry. So thebalance of Budgetary Fund Balance will be zero.3-4.Cityof Mariona.Estimated revenues total—FY2011$4,650,000Appropriations total—FY20114,800,000Therefore, fund balance at the end ofFY2010must be at least$150,000orelsethe fund would be thrown into a deficit.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-8Ch. 3, Solutions,3-4 (Cont’d)General LedgerSubsidiary LedgerDebitsCreditsDebitsCreditsb.ESTIMATED REVENUES4,650,000BUDGETARYFUNDBALANCE150,000APPROPRIATIONS4,800,000Estimated Revenues Ledger:TAXES3,000,000INTERGOVERNMENTAL REVENUES1,000,000LICENSES AND PERMITS400,000FINES AND FORFEITS150,000MISCELLANEOUS REVENUES100,000Appropriations Ledger:GENERALGOVERNMENT950,000PUBLIC SAFETY2,000,000PUBLIC WORKS950,000HEALTH AND WELFARE850,000MISCELLANEOUS50,000

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-9Ch. 3, Solutions (Cont'd)3-5.General LedgerSubsidiary LedgerDebitsCreditsDebitsCreditsa.ENCUMBRANCES⎯2011394,000RESERVE FORENCUMBRANCES⎯2011394,000Encumbrances Ledger:GENERALGOVERNMENT50,000PUBLIC SAFETY200,000PUBLIC WORKS75,000HEALTH AND WELFARE65,000MISCELLANEOUS4,000b.Purchase orders issued by a governmental fund have the effect of using allor a portion of one or more appropriations for that fund.Issuance ofpurchase orders or other commitment documents is a step in theexpenditure of an appropriation; administrators may be subject to legalpenalties if theyexpendmoreresourcesthan wereappropriated.Recordingencumbrances helps administrators avoid overexpending appropriations.The samelegal issuesdo not exist in business organizations, although awell-managed business shouldcertainlykeep track of outstandingpurchase orders and contracts to have a clear understanding of whattransactions are in process that will result in the acquisition of assets, theincurring of expenses, and the incurring of liabilities.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-10Ch. 3, Solutions (Cont'd)3-6.a.$14,980,000 (the sum of the amounts presently in the Estimated Revenuescolumn of the subsidiary ledgers).b.$15,000,000 (the sum of the 01/01 entries in the Estimated Revenuescolumn)c.1. Yes2. 02/28 (45 6folioentry to Property Taxes)3. $20,0004. Decreasedd.$12,080,000 (the sum of the amounts in the Revenues column)e.Property tax revenue is being accrued;revenue from the other three sourcesis being recognized when the cash is received. That is, when it isfirstmeasurable and available according to the modified accrual basis ofaccounting.

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-11Ch. 3, Solutions (Cont'd)3-7.a.$62,200.The refund of prior year expenditure and the refund on P.O. 350do not add to appropriation authority⎯the former is generally reported asrevenue of the current year; the latter is a reduction of expenditures fromthis year's appropriation. Similarly, the cost of stationery transferred to theTown Water Utility is a reimbursement of expenditures from this year'sappropriation. The unauthorized transfer of $46,000 from Office Suppliesto Personal Services should be disregarded.b.None. The outstanding purchase orders, #378 and #385, are not for officesuppliesbut for officeequipmentand should not have been charged to thisappropriation.Clerical errors in recording the encumbrance for #356, the encumbrancecredit for #350, and the erroneous charge of #380 to this appropriation andfailure to credit Encumbrances when #380 was filled do not affect thecomputation of the correct answer tob, although they would need to becorrected in the account—if the "comparison" is a subsidiary ledgeraccount.c.$1,110(#350, $605; #356, $420; #370, $425; less $330 and $10 consideredreimbursements of this year's expenditures of this appropriation).d.$61,090($62,200-$1,110).

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-12Ch. 3, Solutions (Cont'd)3-8.a.Apparently, Lincoln City uses a 10-digit account number structure havingthree segments.Presumably, the first segment is the fund code, with 01representing the General Fund.As the heading implies, the secondsegment (divided into two sub-segments) is the organizational unit, with 08-00assigned tothe Parks and Recreation Department.The zeros in thesecond sub-segment can be replaced with numbers representing activitieswithin the department, such asparks, aquatic recreation, athletic facilities,administration, and so forth. The third segment represents the object ofexpenditure. This segment can be further subdivided to provide greaterexpenditure detail, such as 7120 for building materials, 7130 formaintenance supplies, and 7140 for office supplies. This account structureappearsto meet the GASB’s expenditure classification requirements.b.Encumbrance control procedures are generally used only for purchases ofgoods and services for which there is delay between placing the order orcontract and receipt of the goods or services. Recurring expenditurerequirements such as payroll and utilities are fairly predictable, soencumbrance procedures aregenerallynot necessary toadequatelycontrolthese expenditures. Conferences and training are usuallynot“ordered” inadvancein the sense of a purchase order or contract for future service.Even if conference registrationsor airline reservations are made in advance,those are usually paid at the time of the registration or reservation and thusare actual, not estimated, expenditures.c.At the mid-point of FY2010, the Parks and Recreation Department hasexpended or encumbered the following percentages of its appropriations:Personnel Services45.5%Materials and Supplies62.5%Conferences and Training37.5%Contractual Services69.5%

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Chapter 03-Governmental Operating Statement Accounts; Budgetary Accounting3-13Ch. 3, Solutions, 3-8 (Cont'd)Utilities51.1%Capital Outlay43.1%Other72.1%At first glance, it appears that the Materials and Supplies, ContractualServices, and Other accounts couldexpendtheir appropriations well beforethe end of the fiscal year.Additional information about normal seasonalusage patterns would be required, however,to confirm if the spending rateis too rapid for these accounts. Larger quantities of materials and suppliesmaybeused every spring and early summer in preparing parks andrecreation facilities for heavy summer use. Contractual services may haveinvolved a larger than average service contract that was fulfilled early in theyear and contracts may have been signed early in the year for services to beprovided later in the year.Otheris a miscellaneous category, albeit a largeone, for which analysis of what it entails and expected spending rates wouldneed to undertaken before any conclusions can be reached.d.It may appear thatthePersonnel Services, Conferences and Training, andCapital Outlayaccountscould get by with lower appropriations. This islikely not the case, however, since departments typically have to defendtheir appropriation requests during the budgeting process. Parksandrecreationdepartmentsoftenrequiremore laborin the summer for groundsmaintenance, swimming pool lifeguards,recreational activityinstructors,andforother purposes. Consequently, personnel expenditures will likely begreater in the second half of the fiscal year.Similarly, many conferencesare held in late summer and fall so it may be that department officers andstaff will be attending conferences or training events laterin the year. Therelatively small budget authorization for capital outlay suggests that thepurposeof the accountis to acquire equipment. Late acquisition ofequipment might reflect a strategy to hold off until it is known whether thesemonies might beneeded for other purposes, or perhaps management is

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