Solution Manual For Accounting For Governmental and Nonprofit Entities 18th Edition Reck

Solution Manual for Accounting for Governmental
and Nonprofit Entities 18th Edition Reck Â
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Solution Manual for Accounting for Governmental and Nonprofit Entities 18th Edition Reck Â
Chapter 10 - Analysis of Government Financial Performance
CHAPTER 10: ANALYSIS OF GOVERNMENT FINANCIAL

PERFORMANCE
OUTLINE
Number Topic Type/Task Status

(re: 17/e)
Questions:
10-1 Economic condition Identify, define 10-2
10-2 Financial Trend Monitoring System Define, explain New
10-3 Financial condition Identify, explain Same
10-4 Financial Trend Monitoring System and Identify, explain Same
citizens
10-5 Economic condition and ratio analysis Explain, relate Same
10-6 Organizational factors in the FTMS Explain Same
10-7 Pension plan funding Explain Same
10-8 Financial position Explain, relate Same
10-9 Electronic Municipal Market Access Define, explain Same
10-10 Benchmarking Explain New
10-11 Credit rating agencies Identify, explain 10-10
Cases:
10-12 Electronic Municipal Market Access Research 10-11 revised
10-13 Financial analysis Analyze 10-12 revised
10-14 Financial analysis Analyze New
10-15 Financial trends Analyze 10-4
Exercises/Problems:
10-16 Examine the CAFR Analyze 10-15
10-17 Various Multiple Choice 10-16, 10-14
new
10-18 Financial condition Matching 10-17
10-19 Benchmarks Evaluate 10-18
10-20 Financial analysis Analyze New
10-21 City of Arborland financial ratios Calculate 10-20
10-1
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CHAPTER 10: EVALUATION OF GOVERNMENT FINANCIAL

PERFORMANCE
Answers to Questions
10-1. The GASB identifies economic condition as a composite measure that comprises three
components: financial position, fiscal capacity, and service capacity. Financial position is
the status of the items on the government’s balance sheets and statements of financial
position. It relates to questions such as “What is the value of the government’s assets or
its liabilities?” Fiscal capacity is the government’s ongoing willingness and ability to
meet its financial obligations as they become due. It relates to questions such as “Is the
government willing and able to pay its bills when they are due?” Service capacity refers
to the government’s ongoing willingness and ability to meet commitments and provide
services. A question related to service capacity might be “Is the government maintaining
streets?”
General Problem Information: Economic condition

Learning Objective: 10-2
Topic: Government Financial Reporting Concepts
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: BB Industry
Level of Difficulty: Easy
10-2. The Financial Trend Monitoring System (FTMS) is a tool developed by the International
City/County Management Association that can be used to help governments track
financial performance. The FTMS tool provides a large number of quantifiable indicators
for different environmental, organizational and financial factors that can be used to
monitor financial performance over time.
General Problem Information: Financial Trend Monitoring System

Topic: Internal Financial Trend Monitoring
Bloom’s Taxonomy: Remember
10-3. The four types of solvency the ICMA describes are: cash solvency, budgetary solvency,
long-run solvency, and service-level solvency. If a government does not have cash
solvency it will not have enough cash over a 30- or 60-day period to pay its current
liabilities. A government that does not have budget solvency cannot generate enough
revenue over its normal budgetary period to meet its expenditures. Long-run solvency is
important because the government must be able to pay all the costs of doing business—
those that are due in the current year and beyond. If service-level solvency does not exist,
then the government is unable to provide public services at the level and quality that its
citizens demand and expect.
10-2
Ch. 10, Answers, Question 10-3 (Cont’d)
General Problem Information: Financial condition

Topic: Government Financial Reporting Concepts
Bloom’s Taxonomy: Understand
Level of Difficulty: Medium
10-4. As part of community needs and resources in Illustration 10-1 of the chapter several
citizen characteristics are identified that can impact the government’s financial condition.
Some of the characteristics include age, income, employment, and home
ownership/property values. These characteristics can impact both the demand for services
and ability to provide services. For example, the age of the citizenry can impact the need
for schools, public safety, and perhaps the types of parks and recreation facilities.
Additionally, it may impact the business climate given that the age of the population can
affect the types of businesses establishing in a location. The income level of the citizens
affects the demand for services and the ability to provide services. Lower income and
unemployed individuals generally have a greater need for government services but are
unable to provide the resources necessary for the services. The higher and more stable the
employment rate among citizens the greater the business activity, which also helps
contribute to higher and more stable government revenues. Higher levels of home
ownership and high property values help generate revenues for those governments that
rely on property taxes to fund services. Additionally, the revenues associated with home
ownership generally tend to be a more stable and reliable source of revenues for
governments. The citizen characteristics tend to be interrelated; for example, income,
employment and home ownership.
General Problem Information: Financial Trend Monitoring System and citizens

10-5. Ratios constructed from governmental fund financial statement information would reflect
the modified accrual basis of accounting. Modified accrual focuses on the current sources
and uses of funds. Since the focus is on cash and near-cash resources that will be
available to expend in the current period, ratios constructed using the governmental fund
information cannot provide information on long-run solvency or the ability of the
government to meet its financial obligations and service commitments into the future
(fiscal capacity and service capacity).
General Problem Information: Economic condition and ratio analysis

Topic: Analyzing Government Financial Statements
10-3
Accreditation Skills tag: AACSB: Communication, AICPA: BB Reporting

10-6. Organizational factors, such as management practices and legislative policies, play a
crucial role in determining fiscal policy. If sound management policies are in place, then
the financial problems that might arise from economic downturns or natural disasters can
be minimized. Sound financial policies that plan for adverse environmental events and
focus on long-term strategies for meeting government goals are critical determinants of
strong financial condition.
General Problem Information: Organizational factors in the FTMS

10-7. Yes, citizens should consider a decrease in the ratio of the fiduciary net position to total
pension liability from year to year to be a warning sign. Generally accepted accounting
principles require display and disclosure of pension information, but do not prescribe the
funding levels, so a decrease in the pension plan funding measure over time is not a
violation of GAAP. The value of plan assets may fluctuate with changes in the value of
investments of the plan, so the value of the fiduciary net pension amount does not reveal
direct information about contributions that have been made to the plan. However,
citizens, particularly those who are employees of the government, will likely view a
decreasing ratio of fiduciary net position to total pension liabilities as a trigger to look for
more information (usually in the notes to the financial statements) about the funding
status of the pension plan and its ability to meet future obligations.
General Problem Information: Pension plan funding

Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
10-8. The GASB defines financial position as the status of the government’s assets, deferred
outflows, liabilities, deferred inflows of resources, and net position, which are all
displayed on the balance sheet and/or the statement of net position. Thus, all of the ratios
displayed under Financial Position on Illustration 10-4 would be related to the definition.
A review of the ratios indicates that with the exception of ratio one, all of the ratios can
be calculated using only information from the statement of net position. Some students
may not have selected ratio one for this reason. However, the revenue denominator in
ratio one does help the user in assessing the status of the government’s net position. By
comparing the
10-4
unrestricted net position to the revenues generated in the current period, the user is able to
determine whether he/she believes the government has an adequate net position. A ratio
such as the one calculated provides a better reference for the user than does raw data such
as the total dollars in the unrestricted net position account. Without context it is difficult
to tell whether a raw number is adequate (large) or inadequate (small).
General Problem Information: Financial position

Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
10-9. EMMA is the Electronic Municipal Market Access, which is operated by the Municipal
Securities Rulemaking Board. EMMA is a free online service that is available to
investors or other users who are interested in learning more about the municipal securities
market and accessing information on specific state or local government debt issues.
A person might want to use EMMA to check on a debt issue he/she is interested in
purchasing. Someone may also want to follow a debt issue once he/she has purchased it.
Issuers are required to file continuing disclosure documents once debt is issued.
Continuing disclosures include financial reports and event disclosures such as defaults,
rating changes, and significant bond calls, among others.
General Problem Information: Electronic Municipal Market Access

Topic: Use of Benchmarks to Aid Interpretation
10-10. The most common type of benchmarking in government is the comparison over time of
the government to itself. According to the Government Finance Officers’ Association a
government’s past performance is the most relevant basis for considering the current year
performance. This is due to the fact that it is difficult to find comparable governments.
Governments tend to be quite diverse in the services offered, the population served, and
the political and geographic environments in which they operate.
General Problem Information: Benchmarking

10-5
Ch. 10, Answers (Cont’d)
10-11. Municipal bond rating agencies each have established criteria to conduct a bond rating
analysis. Although there is some difference in the criteria, they all give considerable
weight to the economy. Other factors that are common in the rating process are
management, debt, and some aspect of finance (this could include liquidity, budget, and
other more specific items). The factor over which management has the least control is the
economy. Although management cannot control the economy its ability to plan and adapt
to changes in the economy is important. Changes in the economy can impact both the
government’s ability to generate revenues and its expenditure levels. If an economy is
depressed, revenues derived from underlying transactions (e.g., sales and income taxes)
can be severely depressed. Additionally, as unemployment increases in an economic
downturn, there is an increased demand for services, driving up expenditures. This
combines with decreased revenues, putting a strain on the government’s ability to provide
the resources needed to meet the increased expenditure demand of its citizens. Thus,
government planning to ensure the existence of adequate “rainy day” funds becomes
important.
General Problem Information: Credit rating agencies

Solutions to Cases
10-12.
a. 1. According to the information provided on EMMA, an official statement is issued by

state and local governments in connection with a new bond issue. It provides a
detailed description of the bond terms and features. Although there is no required
financial information as a part of the official statement, the audited financial
statements are generally included as an appendix to the official statement.
2. Three factors provided in the MSRB’s “Evaluating a Municipal Bond’s Default Risk”
document that should be considered when assessing default risk are:
a. Financial condition should be evaluated through a review of the financial
information provided.
b. Credit ratings. Low credit ratings are an indicator of greater credit risk.
c. Presence of payment protection features such as bond insurance.
b. The answers for questions 1–4 will vary widely, depending on the municipality selected
by the student. Information for the four questions is easily available once a debt issue is
selected. The student should keep in mind that not all state and local governments opt to
pay for a credit rating for their debt issue. Students should be able to tell if the initial
10-6
Ch. 10, Solutions, Case 10-12 (Cont’d)
issue of a debt maturity was sold at premium or discount by looking at the initial price. If
the value provided is over 1.00 the issue sold at premium; whereas, if the value is below
1.00 the issue sold at discount. Students may not recognize the term CUSIP. CUSIP is a
unique identifier that is assigned to each maturity of a bond issue. Students can find this
definition by going to the EMMA glossary.
General Problem Information: Electronic Municipal Market Access

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Leveraging
Technology
10-13.
a. Following is a narrative of some of the indicators that students may address. However,
the indicators are not exhaustive and students may include additional information.
As the table below indicates since bankruptcy was declared in 2014, and Detroit received
financial relief, financial indicators have started to improve. Liquidity is now over the
acceptable benchmark of 1.0. There is still a struggle to ensure that expenditures are
covered by revenues, with Detroit only hitting a strong benchmark of 105 percent two of
the last ten years, both of which occurred recently. Obviously, the debt relief provided by
the bankruptcy has improved the trend in debt limit used. The debt service percentage
remains a bit high at over 10 percent; however it is not considered to be unacceptable or a
warning signal.
A review of other trend data indicates that the governmental unrestricted net position
remains negative but improved over 2014 and 2015. However, the negative position is
still larger than any of the other seven years in the trend data. The total net position is the
best Detroit has seen since 2009. After being negative for four years, the General Fund
unassigned governmental fund balances have been positive the past two years. The
movement in these indicators also indicates that Detroit is improving its financial
condition.
One disturbing trend is the continued decrease is assessed valuation of taxable property in
the city.
10-7
Ch. 10, Solutions, Case 10-13 (Cont’d)
Year Liquidity Revenues over Debt Limit Debt Service

Expenditures Used
2016 1.73 118.1% 34.5% 13.5%
2015 1.70 91.5% 56.9% 18.3%
2014 0.71 107.2% 65.2% 19.3%
2013 0.15 104.5% 66.7% 20.2%
2012 0.08 96.1% 92.7% 15.1%
2011 0.15 100.0% 84.2% 13.7%
2010 0.09 97.9% 75.5% 13.4%
2009 0.14 94.9% 59.1% 14.4%
2008 0.31 92.9% 54.5% 14.0%
2007 0.08 102.1% 49.7% 13.0%
b. Based on the above analysis, it would appear Detroit is moving in the right direction and at
the current time there seems to be no basis for a going-concern. Therefore, using just the
financial analysis conducted, the auditor’s opinion is justified.
c. Based on the information provided and in response to the warning indicators the following is
provided:
1. Decline or inadequate growth in revenues relative to expenses – there is not a decline
over the past four years and therefore this is not a warning indicator.
2. Decline in property values – the total assessed valuation of taxable property has declined
every year over the 10-year trend; therefore, this is a warning indicator.
3. A decline in economic activity – economic indicators are either stagnant or weak. The
population declined significantly at the time of the 2010 census. The unemployment rate
is trending downward, which is a good sign, but remains well above the national average
for 2016, which is a poor sign. Although per capita income has been increasing since
2013, it remains below the level prior to 2013.
4. There is inadequate information to assess the trends for items 4 through 6. However, a
review of note 9 related to pensions will indicate that the pension liabilities were a part of
the bankruptcy settlement, which would provide relief to Detroit with regard to this
indicator. Students will have different views on whether they think Detroit is still a
going-concern risk. It certainly isn’t in a strong financial condition and how the city
performs once it has been removed from the watchful Financial Review Commission will
be a test of the city’s financial strength.
General Problem Information: Financial analysis

Learning Objective: 10-3, 10-4
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB Critical Thinking
Level of Difficulty: Hard
10-8
Ch. 10, Solutions (Cont’d)
10-14.
The answers to the questions for this case will depend in part on which CAFR the students review. The
answers provided below are based on the 2016 CAFR. At the time this solution was written, the State of
Illinois had just approved a budget after operating without an approved budget for the past two years!
a.
1. Governmental fund revenues have been fairly stagnant over the past four years ranging in the area
of $62 billion to $65 billion. This is up from the first four years of the 10-year trend when
revenues were stagnant at around $50 billion. As can be seen, given the size of revenue amounts,
there has not been much growth over the 10-year period.
2. Governmental fund expenditures are greater than revenues, but they have remained relatively
constant over the past four years at between $63 billion and $66.5 billion. As a result the
expenditures are not growing faster than revenues, but they remain greater than revenues.
3. The General Fund unassigned fund balance is negative and it or the unreserved fund balance have
been negative over the 10-year trend. After three years of declining deficit the deficits again
increase in 2015 and in 2016.
4. The governmental activities unrestricted net position has been negative for 10-years, but more
disturbingly the deficit position has increased more than fourfold during that time period (from
negative $35 billion to negative $151 billion).
5. Federal revenues have gone up from 2012 ($18.2 billion) to 2016 ($21.7 billion). At almost 35%
of the governmental fund revenues, intergovernmental revenues are a significant part of the state
revenues. This has increased from about 30% in 2007. It should be noted that because the state
government is responsible for the distribution of a large amount of federal resources to local
governments it would not be unusual for it to have a higher percentage of intergovernmental
revenues than local governments.
b. Student answers may differ on this, but none of the indicators listed in part a are particularly
strong. Revenue growth and expenditure growth are stagnant, with expenditures continuing
to exceed revenues, a warning of fiscal stress. The negative General Fund unassigned fund
balances is negative and has been negative for ten years. In fact, the deficit has been
increasing the past two years, another sign of fiscal stress. The huge increase in negative
unrestricted net position is a sign of fiscal stress. Intergovernmental revenue has gone up
over the period, and is high, but given that fact this is a state government, the percentage of
total revenue may not be unduly troubling, of greater concern would be other revenue
sources and their growth and stability.

10-9
10-15.
a. The solution to this case will depend on which year’s Financial Trends report each
student obtains. In the 2016 report, the following indicators are labeled as “negative”
rather than “positive” or “warning”:
FINANCIAL FACTORS:
Revenue per capita: General Fund, total revenues and sales taxes (these are the
primary revenue sources listed)
Total expenditures per capita
Employees/1000 of population
b. Students will, of course, formulate different questions; however, you should expect them
to address the negative indicators identified in part a. For example: What is driving the
revenue problems? Is anything being done to counteract the situation? Is the revenue in
any way still being impacted by the recession? Given the explanation on the expenditures
per capita warning and employees per population what is being done to address the
situation? What impact will addressing this problem have on fund balances given the
issues with revenues? Encourage students to go beyond a simple question, such as “Why
is this a negative?” to one that suggests a cause for the negative that helps frame the
response of the financial manager at a public meeting where time is always a constraint.
Additionally, some of the signals appear to have implications for other financial ratios.
The persistence of some trends would indicate that perhaps additional work needs to be
done to determine what keeps preventing a change in the ratio.
General Problem Information: Financial trends

Solutions to Exercises and Problems
10-16. The specific solution to this exercise will depend on which city's CAFR is evaluated.
Generally, the analysis for each ratio should follow the approach shown in Illustrations
10-3 and 10-4. Each student should present a well-organized and well written paper,
detailing his or her analysis and conclusions. We recommend grading on the basis of both
the quality of the written presentation and the quality and depth of the analysis, with the
balance between these factors to be determined by each instructor. Regarding the
analysis, the authors suggest placing some importance on the amount and quality of the
graphical or tabular data support the student provides for his or her conclusions. Students
should be encouraged to be judicious in selecting data to portray and should be
discouraged from simply copying exhibits from the CAFR.
10-10
Ch. 10, Solutions Exercise 10-16 (Cont’d)
General Problem Information: Examine the CAFR

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Measurement and
Reporting
10-17. 1. b. 6. b. 11. c.
2. d. 7. c. 12. d.
3. c. 8. c. 13. b.
4. d. 9. b. 14. a.
5. a. 10. a. 15. c.
General Problem Information: Various

Learning Objective: 10-1, 10-2, 10-3, 10-5
Topic: Various Chapter Topics
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Critical
Thinking
10-18.
a. − f. + k. −
b. − g. − l. −
c. + h. − m. +
d. − i. + n. NE (see Note)
e. + j. − o. NE
Note: The effect of population growth on financial condition is indeterminate. Although
population growth normally leads to growth in the municipality's tax base, it also
leads to growing demands for capital expenditures and social services.
General Problem Information: Financial condition

Accreditation Skills tag: AACSB: Knowledge Application AICPA: FN Measurement
10-11
10-19.
a. Here is a graphical presentation of the Town of Oakdale compared to three reference
groups, other Aaa-rated municipalities in the same state, 11 other comparable
municipalities in a reference group (RG) in the state, and the state median for two
financial measures: total revenue and revenue per capita.
FY Total Revenue
200,000,000
$ of Total Revenue
150,000,000
100,000,000
50,000,000
0
Oakdale Aaa-Rated Comparison State Median
Median RG Median
Comparison Groups
FY Revenue per Capita
3500
$ of Revenue per Capita
3000
2500
2000
1500
1000
500
0
Oakdale Aaa-Rated Comparison State Median
Median RG Median
Comparison Groups
10-12
Ch. 10, Solutions, Exercise 10-19 (Cont’d)
b. Oakdale has a much higher amount of total revenue for the fiscal year than its reference
groups’ medians, most notably larger than the state median. Oakdale’s revenue per
capita, however, is only slightly higher than each of the benchmark groups’ medians.
Based on this financial measure alone, Oakdale appears to be performing as well in terms
of sources available to finance government services as its comparison groups.
c. Students should refer to Illustrations 10-3 and 10-4 in the text for examples of other
measures that would add valuable information to an assessment of overall financial
condition of the city. If students obtained a CAFR for a government to use for the
“Examine the CAFR” exercise in each of the preceding chapters, they should investigate
whether the government uses the Financial Trend Monitoring System and, if so, whether
it makes public how the government compares to other governments.

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Decision Making
10-20.
a. At 1.01 the total revenues over total expenditures ratio for 2020 indicates an average
position. The city is just covering its expenditures for the year with the revenues it is
generating. A deficit of 4.4 percent is a weak indicator; however, because it is slightly
less than a negative 5 percent it is not considered abnormally large when considered
within the context of a single year. The indication from this ratio is that the city was
unable to cover General Fund operating expenditures with current period operating
revenues. Although the General Fund is operating at a deficit in the current year, the fund
balances ratio of 19.5 percent indicates there are adequate reserves available to fund the
deficit. The liquidity ratio of 1.95 is a strong indicator that the city is able to adequately
cover its current liabilities, given that it is almost twice the industry benchmark of 1.0. At
7.9 percent the current liabilities ratio is high indicating weak performance. According to
industry benchmarks a ratio of 5 percent or higher is a warning sign. Debt service is also
high at 19.1 percent, given that a ratio of greater than 20 percent is considered a warning
sign. This should be considered a somewhat weak indicator. The city will want to reduce
its debt so it is able to free revenues for other purposes.
b. Over the time period the city has improved its revenues over expenditures ratio, moving
from weak performance at 0.92 to average performance at 1.01. It has been consistently
trending up over the five years. The city has also improved its General Fund operating
deficit position, moving from a negative 7.2 percent to a negative 4.4 percent. The
consecutive years of improvement is a strong indicator, however, the fact the city is still
operating at a deficit is a weak indicator. General Fund balance ratio has also increased
since 2016, another strong indicator. The liquidity ratio has generally been favorable over
10-13
time with only one year where the ratio was less than the benchmark of 1.0. Thus, the
liquidity ratio should be viewed as strong. The current liabilities ratio has been high
throughout the five year period, always at a warning level of 5 percent or greater.
Although the 2020 ratio is better than the first years of the trend it has increased since
2019, this ratio continues to be a weak indicator. Debt service has improved since 2019,
decreasing from a value of 20.8 percent to 19.1 percent. However, it is over 150 percent
higher than in 2016 and 2017, indicating weak performance.
c. Students will have different views on this given the city’s mixed performance. Generally,
the City of Alma has been trending in a positive direction over the five year period;
however, there are still several fairly weak performance indicators.
d. Students will come up with several different answers to this question. However, some
factors not included in the table, but which would impact financial performance, include:
environmental factors (community demographics, political culture, how the economy is
impacting Alma); organizational factors (management practices and experience);
financial factors such as revenue diversity, long-term debt structure, and unfunded
liabilities.

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Decision Making
10-21.
a. The performance measures shown in Illustration 10-4 use data from the basic financial
statements, which includes the government-wide financial statements as well as the fund
financial statements. The measures that can be calculated using the government-wide
financial statements presented in this case are:
1. Unrestricted net position

2. Capital asset condition
3. Debt to assets
4. Current ratio
5. Quick ratio
6. Change in net position
7. Interperiod equity
8. Business-type activities self-sufficiency
9. Revenue dispersion
Measures (10) bonded debt per capita, (11) available debt limit, and (13) property taxes
per capita can be calculated using the additional data on population and debt limit
presented in this case.
10-14
b.
City of Arborland
Government-wide Financial Performance Measures
2020 Calculations 2020 2019 2018

(see Ill. 10-4 for definition ($ or % or number of times)
of ratios)
1. Ending Governmental activities:
unrestricted net 4,597 17% 14% 13%
position as a % of 20,302+3,860+1,886+495
annual revenue Business-type activities:
3,546 68% 51% 85%
5,218+7
2. Capital asset Governmental activities:
condition (% of 15,039 40% 44% 50%
useful life left in (37,183+37,600)/2*
depreciable Business-type activities:
capital assets) 5,782 36% 60% 50%
(17,775+14,455)/2*
3. Debt to assets Governmental activities:
(total liabilities as 19,266 57% 61% 68%
a % of total 34,040
assets) Business-type activities:
7,167 49% 61% 57%
14,740
4. Current ratio Governmental activities:
9,299 2.76 4.49 2.03
3,366 times times times
Business-type activities:
3,966 5.95 6.19 6.86
667 times times times
5. Quick ratio Governmental activities:
9,299-253-26 2.68 4.31 1.92
3,366 times times times
5.85 6.10 6.75

Business-type activities: times times Times
3,966-8-58
667
10-15
6. Change in net 22,347 – 17,447 $4,900 $3,220 $3,867

position from the (change in
prior year total net
(governmental position
and business-type from 2018
activities total) statement of
activities)
7. Interperiod equity Governmental activities:
(number of times 20,302+3,860+1,886
revenue exceeds +495-100 1.10 1.16 1.15
expenses) 23,973 times times times
for BTA see next ratio
8. BTA self- 5,218 1.80 1.00 1.41
sufficiency 2,895 times times times
9. Revenue Governmental activities:
dispersion (% of 3,860+1,886+495+2,190+716 34.6% 37.7% 35.2%
own-source 20,302+3,860+1,886+495-
revenue) 100
Note: business-type activities
revenue is almost 100%
charges for services for each
year.
10. Bonded debt per Governmental activities:
capita 15,900,000 $522.68 $597.36 $602.87
30,420
11. Available legal Governmental activities: 79.5% 84.5% 79.5%

debt limit 15,900,000
(remaining % of 20,000,000
debt limit
available)
12. Property taxes Governmental activities:
per capita 17,296,000** $568.57 $481.39 $496.70
30,420
* Insufficient information is available (i.e., the beginning of the year balance of

depreciable assets) to calculate average depreciable assets for the year 2018. Thus, for
2018, the end of year balance was used in the denominator of the ratio.
** Actual property tax levy information was not provided, property tax revenues was used
instead.
10-16
Solution Manual for Accounting for Governmental and Nonprofit Entities 18th Edition Reck Â
c. The City of Arborland appears to be in strong financial condition based on the following
interpretations of the ratios calculated for part b: Unrestricted net position has increased
each of the three years in both governmental and business-type activities; capital assets
still have at least half of their useful lives to go; the current and quick ratios indicate that
the government is liquid and can pay its current liabilities; there is still capacity to issue
more debt if needed. Some indicators that should be watched include the relatively high
amount of debt as a percent of total assets.

Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Measuring
10-17
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Solution Manual For Accounting For Governmental and Nonprofit Entities 18th Edition Reck

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CHAPTER 10: ANALYSIS OF GOVERNMENT FINANCIAL

Number Topic Type/Task Status

CHAPTER 10: EVALUATION OF GOVERNMENT FINANCIAL

General Problem Information: Economic condition

General Problem Information: Financial Trend Monitoring System

Ch. 10, Answers, Question 10-3 (Cont’d)

General Problem Information: Financial condition

General Problem Information: Financial Trend Monitoring System and citizens

General Problem Information: Economic condition and ratio analysis

Ch. 10, Answers, Question 10-5 (Cont’d)

Accreditation Skills tag: AACSB: Communication, AICPA: BB Reporting

General Problem Information: Organizational factors in the FTMS

General Problem Information: Pension plan funding

Ch. 10, Answers, Question 10-8 (Cont’d)

General Problem Information: Financial position

General Problem Information: Electronic Municipal Market Access

General Problem Information: Benchmarking

Ch. 10, Answers (Cont’d)

General Problem Information: Credit rating agencies

a. 1. According to the information provided on EMMA, an official statement is issued by

Ch. 10, Solutions, Case 10-12 (Cont’d)

General Problem Information: Electronic Municipal Market Access

Ch. 10, Solutions, Case 10-13 (Cont’d)

Year Liquidity Revenues over Debt Limit Debt Service

General Problem Information: Financial analysis

Ch. 10, Solutions (Cont’d)

General Problem Information: Financial analysis

Ch. 10, Solutions (Cont’d)

General Problem Information: Financial trends

Solutions to Exercises and Problems

Ch. 10, Solutions Exercise 10-16 (Cont’d)

General Problem Information: Examine the CAFR

General Problem Information: Various

General Problem Information: Financial condition

Ch. 10, Solutions (Cont’d)

FY Revenue per Capita

Ch. 10, Solutions, Exercise 10-19 (Cont’d)

General Problem Information: Financial trends

Ch. 10, Solutions, Exercise 10-20 (Cont’d)

General Problem Information: Financial analysis

1. Unrestricted net position

Ch. 10, Solutions, Exercise 10-21 (Cont’d)

2020 Calculations 2020 2019 2018

5.85 6.10 6.75

Ch. 10, Solutions, Exercise 10-21 (Cont’d)

6. Change in net 22,347 – 17,447 $4,900 $3,220 $3,867

11. Available legal Governmental activities: 79.5% 84.5% 79.5%

* Insufficient information is available (i.e., the beginning of the year balance of

Ch. 10, Solutions, Exercise 10-21 (Cont’d)

General Problem Information: Financial trends

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