Solution Manual For Essentials of Accounting for Governmental and Not-for-Profit Organizations, 14th Edition

Name: Solution Manual For Essentials of Accounting for Governmental and Not-for-Profit Organizations, 14th Edition
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Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit
Organizations
1-1
INSTRUCTOR’S MANUAL
TO ACCOMPANY
ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL
AND NOT-FOR-PROFIT ORGANIZATIONS:
14TH EDITION
PREPARED BY:
PAUL A. COPLEY
MARY LORETTA MANKTELOW

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit
Organizations
1-2
CHAPTER 1 Introduction to Accounting and Financial Reporting for Governmental and
Not-for-Profit Organizations
1-1. THE SOLUTION TO THIS AND THE FIRST EXERCISE OF CHAPTERS 2 THROUGH 9 WILL
DIFFER FROM STUDENT TO STUDENT ASSUMING EACH HAS A DIFFERENT CAFR.
1-2.
1) ORGANIZATIONAL PURPOSES: WHILE THE PURPOSE OF A COMMERCIAL BUSINESS
IS TO GENERATE A PROFIT FOR THE BENEFIT OF ITS OWNERS, GOVERNMENTS EXIST
FOR THE WELL BEING OF CITIZENS BY PROVIDING PUBLIC SERVICES – WHETHER OR
NOT THE SERVICES ARE PROFITABLE UNDERTAKINGS.
2) SOURCES OF REVENUES: GOVERNMENTS DERIVE MANY OF THEIR RESOURCES
FROM TAXES. INDIVIDUALS AND BUSINESSES PAY TAXES TO AVOID PENALTY, NOT
VOLUNTARILY BECAUSE THEY PERCEIVE GOVERNMENT SERVICES TO BE OF VALUE
AND FAIRLY PRICED. SINCE TAXES DO NOT INVOLVE AN EARNINGS PROCESS, THE
TIMING OF THE RECOGNITION OF TAX REVENUE IS NOT ALWAYS CLEAR.
3) POTENTIAL FOR LONGEVITY: BECAUSE THE U.S. AND STATE CONSTITUTIONS
GRANT STATE AND LOCAL GOVERNMENTS THE ABILITY TO TAX, GOVERNMENTS
VERY RARELY GO OUT OF BUSINESS. THIS LONG-TERM VIEW OF OPERATIONS
CHANGES THE FOCUS OF ACCOUNTING FROM ONE OF NEAR-TERM RECOVERY OF
AMOUNTS INVESTED IN ASSETS TO A LONGER-TERM FOCUS ON THE SUSTAINABILITY
OF SERVICES AND THE ABILITY TO MEET FUTURE DEMAND.
4) RELATIONSHIP WITH STAKEHOLDERS: TAXES ARE CREATED THROUGH THE
LEGISLATIVE PROCESS BY OFFICIALS ELECTED BY THE CITIZENS. BECAUSE CITIZENS
AND BUSINESSES ARE THEN REQUIRED TO PAY THESE TAXES, GOVERNMENTS HAVE
AN OBLIGATION TO DEMONSTRATE ACCOUNTABILITY FOR THESE PUBLIC FUNDS.
5) ROLE OF THE BUDGET: GOVERNMENT BUDGETS ARE EXPRESSIONS OF PUBLIC
POLICY AND OFTEN CARRY THE AUTHORITY OF LAW, PREVENTING PUBLIC OFFICIALS
FROM SPENDING OUTSIDE THEIR BUDGETARY AUTHORITY. THE INCREASED
IMPORTANCE OF BUDGETS IS REFLECTED IN GOVERNMENT FINANCIAL REPORTS BY A
REQUIRED REPORT COMPARING BUDGETED AND ACTUAL AMOUNTS.
1-3. THE THREE STANDARDS SETTING BODIES IN QUESTION ARE THE FEDERAL ACCOUNTING
STANDARDS ACCOUNTING ADVISORY BOARD (FASAB), THE GOVERNMENTAL
ACCOUNTING STANDARDS BOARD (GASB), AND THE FINANCIAL ACCOUNTING
STANDARDS BOARD (FASB). THE FASAB ESTABLISHES ACCOUNTING AND REPORTING
STANDARDS FOR THE FEDERAL GOVERNMENT AND ITS AGENCIES UNLESS OBJECTED TO
BY ONE OF THE "PRINCIPALS" (THE DIRECTOR OF THE OFFICE OF MANAGEMENT AND
BUDGET, THE COMPTROLLER GENERAL OF THE UNITED STATES (GAO), AND THE
SECRETARY OF THE TREASURY). WHEN THE "PRINCIPALS" APPROVE, THE FASAB
STANDARDS BECOME GAAP. THE GASB SETS ACCOUNTING AND FINANCIAL
REPORTING STANDARDS FOR STATE AND LOCAL GOVERNMENTAL ORGANIZATIONS,
INCLUDING THOSE NOT-FOR-PROFIT ORGANIZATIONS THAT ARE DETERMINED TO BE
STATE AND LOCAL GOVERNMENTS. THE FASB SETS ACCOUNTING AND FINANCIAL
REPORTING STANDARDS FOR PROFIT SEEKING BUSINESSES AND FOR
NONGOVERNMENTAL, NOT-FOR-PROFIT ENTITIES.

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit
Organizations
1-3
1-4. THE DEFINITION OF A GOVERNMENT, AS AGREED TO BY THE FASB AND THE GASB IS
AS FOLLOWS:
“PUBLIC CORPORATIONS AND BODIES CORPORATE AND POLITIC ARE GOVERNMENTAL
ORGANIZATIONS. OTHER ORGANIZATIONS ARE GOVERNMENTAL ORGANIZATIONS IF
THEY HAVE ONE OR MORE OF THE FOLLOWING CHARACTERISTICS:
1. POPULAR ELECTION OF OFFICERS OR APPOINTMENT (OR APPROVAL) OF A
CONTROLLING MAJORITY OF THE MEMBERS OF THE ORGANIZATION’S
GOVERNING BODY BY OFFICIALS OF ONE OR MORE STATE OR LOCAL
GOVERNMENTS;
2. THE POTENTIAL FOR UNILATERAL DISSOLUTION BY A GOVERNMENT WITH THE
NET ASSETS REVERTING TO A GOVERNMENT, OR
3. THE POWER TO ENACT AND ENFORCE A TAX LEVY.
FURTHERMORE, ORGANIZATIONS ARE PRESUMED TO BE GOVERNMENTAL IF THEY HAVE
THE ABILITY TO ISSUE DIRECTLY (RATHER THAN THROUGH A STATE OR MUNICIPAL
AUTHORITY) DEBT THAT PAYS INTEREST EXEMPT FROM FEDERAL TAXATION.

Chapter 01 - Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit
Organizations
1-4
1-5. THE SOURCES OF AUTHORITATIVE GAAP FOR STATE AND LOCAL GOVERNMENTS ARE:
− CATEGORY A: GASB STATEMENTS (AND INTERPRETATIONS)
− CATEGORY B: GASB IMPLEMENTATION GUIDES, GASB TECHNICAL
BULLETINS AND LITERATURE OF THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS (AICPA) SPECIFICALLY CLEARED BY THE GASB
IF THE ACCOUNTING TREATMENT FOR A GIVEN TRANSACTION IS NOT SPECIFIED BY A
STATEMENT IN CATEGORY A, A STATE AND LOCAL GOVERNMENT SHOULD CONSIDER
WHETHER IT IS COVERED BY ONE OF THE SOURCES IDENTIFIED IN CATEGORY B. IF THE
ACCOUNTING TREATMENT IS NOT SPECIFIED WITHIN ONE OF THESE AUTHORITATIVE
SOURCES, THE GOVERNMENT SHOULD CONSIDER WHETHER THE TRANSACTION IS
SUFFICIENTLY SIMILAR TO ONES COVERED BY ONE OF THE AUTHORITATIVE SOURCES
THAT A SIMILAR ACCOUNTING TREATMENT CAN BE APPLIED. IF NOT, THE
GOVERNMENT MAY USE NON-AUTHORITATIVE SOURCES FOR GUIDANCE, INCLUDING:
− GASB CONCEPT STATEMENTS,
− FASB, FASAB, OR INTERNATIONAL STANDARDS BOARD
PRONOUNCEMENTS,
− AICPA LITERATURE NOT SPECIFICALLY CLEARED BY THE GASB,
− OTHER SOURCES PROVIDED BY PROFESSIONAL ORGANIZATIONS,
REGULATORY AGENCIES, TEXTBOOKS, AND PUBLISHED ARTICLES, OR
− PREVALENT PRACTICES THAT EVOLVED AMONG GOVERNMENTS WITHOUT
SPECIFIC AUTHORITATIVE ACTION.

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Solution Manual For Essentials of Accounting for Governmental and Not-for-Profit Organizations, 14th Edition

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