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

Accounting For Governmental And
Nonprofit Entities 18th Edition Reck

Solutions Manual
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Chapter 09 - Financial Reporting of State and Local Governments
CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

GOVERNMENTS
OUTLINE
Number Topic Type/Task Status

(re: 17/e)
Questions:
9-1 Primary governments Identify 9-2
9-2 Interim reports Explain 9-3
9-3 Financial reporting entity Define 9-4
9-4 Component units Define New
9-5 Types of component units Explain Same
9-6 CAFR and general purpose reports Identify Same
9-7 Required financial statements List Same
9-8 Reconciliations Explain New
9-9 Reconciliation of financial statements Identify 9-8
9-10 Popular Reporting Explain 9-9
9-11 Financial reporting project Explain New
Cases:
9-12 Identification of component units Analyze 9-11
9-13 MD&A and statistical tables Analyze 9-12 revised
9-14 Analyzing reconciliation of financial reports Analyze New
9-15 Popular reports Evaluate New
Exercises/Problems:
9-16 Examine the CAFR Evaluate 9-15
9-17 Various Multiple Choice 9-16, five
new
9-18 Primary governments Matching 9-17
9-19 Financial reporting Matching New
9-20 Comprehensive set of transactions Journal entries 9-18
9-21 Reconciliation of financial statements Report 9-19
preparation
9-22 Operating statement reconciliation Report New
preparation
9-23 Adjusting net position balances Matching 9-20
9-24 Change in net position Calculation 9-21
9-25 Governmental fund financial statements Error 9-22
identification
9-26 Government-wide financial statements Report 9-23
preparation
9-27 Modified accrual to accrual accounting Adjustments, JEs 9-24
9-1
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consent of McGraw-Hill Education.
CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

GOVERNMENTAL UNITS
Answers to Questions
9-1. A special purpose government can be considered a primary government if it has a
separately elected governing body, is legally separate from other entities, and is fiscally
independent of other state and local governments. To be legally separate the special
purpose government must be organized under its own identity and operate as an
“artificial person” separate and apart from its creator and all others. A special purpose
government is fiscally independent if it can determine its own budget, set its own rates or
charges, levy its own taxes, and issue bonded debt without approval of another
government.
General Problem Information: Primary governments

Learning Objective: 9-1
Topic: The Government Reporting Entity
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Easy
9-2. Disagree. Administrators need periodic reports in order to make day-to-day operating and
management decisions. Government council members should expect at least monthly
financial information so that they can provide oversight of the managers. Interim reports
are especially helpful in evaluating whether budgets and cash needs are being met.
General Problem Information: Interim reports

Topic: Government Financial Reports
Bloom’s Taxonomy: Understand
Level of Difficulty: Medium
9-3. According to the GASB a financial reporting entity is a primary government,

organizations for which the primary government is financially accountable, and other
organizations for which the nature of their relationships with the primary government are
such that exclusion would make the reporting entity’s basic financial statements
misleading. Organizations making up a financial reporting entity are the primary
government and its component units. The primary government is a state or local general-
purpose government, or a special-purpose government. Component units are the entities
for which the primary government is financially accountable.
General Problem Information: Financial reporting entity

9-2
Ch. 9, Answers, Question 9-3 (Cont’d)

9-4. Component units are recognized on the reporting entity’s financial statements. By
definition a component unit is a legally separate organization for which the elected
officials of the primary government are financially accountable. Additionally, a primary
government’s financial statements should include as a component unit any organization
that by the nature and significance of its relationship with the government would be
misleading to exclude, and any legally separate tax-exempt organization that meets
certain criteria identified by the GASB. The three criteria that must be met are: (1) the
assets received or held by the component unit are entirely or almost entirely for the direct
benefit of the primary government, its component units, or its constituents; (2) the
primary government, or its component units, is entitled to, or has the ability to otherwise
access, a majority of the assets received or held by the component unit and these assets
are significant to the primary government; and (3) the assets received or held by an
individual organization that the specific primary government, or its component units, is
entitled to or has the ability to otherwise access are significant to the primary
government.
General Problem Information: Component units

9-5. Component units for which the primary government is financially accountable are
reported in one of two ways—through blended or discrete presentation. A blended
component unit is one that is an integral part of the primary government, which can be
demonstrated through factors such as common governing boards, financial benefit/burden
relationships, operations that primarily provide services/benefits to the primary
government, and/or component unit debt that is expected to be paid by the primary
government. If a component unit is to be blended its financial data is reported as a fund
type and incorporated into the appropriate activities column on the government-wide
financial statements. The one exception to this would be the General Fund of a
component unit, which would be reported as a special revenue fund rather than being
blended with the primary government’s General Fund.
A discretely presented component unit is not as closely aligned with the primary
government as a blended component unit. It is more independent in one or more of the
areas that were identified when considering whether a component unit should be blended.
For example, the component unit may have a separately elected board, it may benefit
entities other than the primary government, and/or the primary government may not have
a debt responsibility. A discretely presented component unit will also exist if it is a
legally separate tax-exempt entity that meets the following three criteria:
9-3
1. The assets received or held by the component unit are entirely or almost entirely
for the direct benefit of the primary government, its component units, or its
constituents.
2. The primary government, or its component units, is entitled to, or has the ability
to otherwise access, a majority of the assets received or held by the component
unit and these assets are significant to the primary government.
3. The assets received or held by an individual organization that the specific primary
government, or its component units, is entitled to or has the ability to otherwise -
access are significant to the primary government.
A discretely presented component unit’s financial data is shown in one or more columns
that are separate from the financial data of the primary government. The columns will
appear to the right of the total columns for the primary government.
General Problem Information: Types of component units

9-6. General purpose external financial reports include management’s discussion and analysis
(MD&A), basic financial statements and related notes, and required supplementary
information. A CAFR provides information beyond the minimum requirements of the
general purpose external financial statements. Included in a CAFR are all general purpose
external financial report information, an auditor’s report (as appropriate), a narrative
section (introductory section), combining and individual fund statements and schedules,
and a statistical section.
General Problem Information: CAFR and general purpose reports

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
9-7. The nine required statements are:

• The two government-wide financial statements—statement of net position and
statement of activities.
• The two governmental fund financial statements—balance sheet and statement of
revenues, expenditures, and changes in fund balances.
• The three proprietary fund financial statements—statement of net position; statement
of revenues, expenses, and changes in fund net position; and statement of cash flows.
9-4
• The two fiduciary fund financial statements—statement of fiduciary net position and
statement of changes in fiduciary net position.
Recall that GASB standards allow the budgetary comparison information to be presented
as a statement or a schedule (required supplementary information). As a result, students
may list ten statements under the assumption that the budgetary comparison is required
when it is optional under the GASB standards.
General Problem Information: Required financial statements

9-8. The GASB requires two financial statement reconciliations: (1) a reconciliation of the
total governmental fund balances on the governmental funds balance sheet to the total
governmental activities net position on the government-wide statement of net position
and (2) a reconciliation of the net change in governmental fund balances on the statement
of revenues, expenditures, and changes in fund balances to the change in governmental
activities net position on the government-wide statement of activities. Reconciliations are
required since the governmental funds statements and the government-wide statements
report on two different bases of accounting. For this reason, the amounts reported on the
statements vary and reconciling the differences assists the reader in understanding why
the amounts on the statements vary.
General Problem Information: Reconciliations

Topic: Preparation of Basic Financial Statements
9-9. Chapter 9 provides a list of the items requiring reconciliation when going from the
modified accrual to accrual basis of accounting. Students should be able to provide
examples related to each of the nine items identified in Chapter 9. The use of a state or
local government’s CAFR (easily located through an Internet search) will help students
provide examples.
General Problem Information: Reconciliation of financial statements

9-5
9-10. Popular reporting is a highly condensed version of the CAFR, usually short in length. It
might be considered a “plain English” version of the CAFR. As such, the information
contained is simplified and summarized, and often contains graphs to illustrate the
information. It is not a substitute for the CAFR, since it does not contain many items
required by GAAP. In addition to financial information a popular report contain other
information of interest to citizens, such as performance measures. The popular report is
not audited, however, the content of the report should be based on information found in
the CAFR.
General Problem Information: Popular Reporting

Topic: Other Financial Reporting Issues and Topics
9-11. The financial reporting model project is a major GASB project involving the examination
of the measurement focus and basis of accounting used to recognize and report
information in the governmental funds. If the GASB determines a measurement focus
and basis of accounting other than modified accrual should be used by governmental
funds, it could significantly affect how governmental funds are reported.
General Problem Information: Financial reporting project

Solutions to Cases
9-12. a. Tesser Municipal Hospital is a component unit of the City of Tesser. Tesser is
financially accountable for the hospital since the mayor appoints the governing
board and the city is able to impose its will on the hospital through final approval
of the budget.
b. The Atkins Convention and Visitor’s Bureau is a component unit of the City of
Atkins. Since the city has the right to approve the rate of the tax (i.e., the city sets
the tax) it has the ability to impose its will on the Convention and Visitor’s
Bureau through its control over revenue. Because the city can impose its will on
the Convention and Visitors’ Bureau the city is financially accountable for the
bureau.
c. The Sports Authority is not a component unit of Dawson County. As indicated,

the Sports Authority is a legally separate entity with its own board; therefore, the
9-6
Ch. 9, Solutions, Case 9-12 (Cont’d)
only question is if there is fiscal dependency on the county. Since the actions of
the Sports Authority are voluntary and the recommendations of the county need
not be incorporated, no fiscal dependency is created.
d. The County Aviation Authority is a component unit of the City of Middle Falls. If
the city is legally obligated to assume debt responsibilities in the event of a
default a financial burden has been imposed on the city; therefore, the Aviation
Authority would be considered a component unit. The opinion that the likelihood
of default by the Aviation Authority is remote does not affect the decision.
e. Help for Kids is not a component unit of Alice County. Through its request the
county is performing what is referred to as a “ministerial” or compliance function
(GASB, Codification, Sec. 2100.116). A compliance function is not considered to
result in fiscal dependence.
General Problem Information: Identification of component units

Topic: The Governmental Reporting Entity
Bloom’s Taxonomy: Analyze
Level of Difficulty: Hard
9-13. a. The three largest revenue sources for the City and County of Denver are sales
taxes (34.64% of the 2016 total revenues), property taxes (20.46% of the 2016
total revenues), and charges for services (13.67% of the 2016 total revenues). A
close fourth for Denver is intergovernmental revenue at 11.43%.
b. With the exception of 2009, sales tax revenues have increased every year.
Relative to 2015, sales tax revenues have increased over 5.7% and over the period
from 2012 sales tax revenues are up almost 36.9%. Significant growth in revenues
since the 2009 recession can be seen in home furnishings, electronics, and
appliances along with building materials and supplies. This growth supports the
MD&A discussion that indicates Denver is experiencing economic growth and the
national economy has strengthened. An interesting area of revenue growth for
Denver has been marijuana sales. Taxes from retail sales have grown 45.3% and
31.8% over the last two years.
The strong sales tax trends would seem to indicate that sales tax revenues will
continue to grow over the next two to three years. However, two sales tax revenue
trends that are not as favorable are manufacturing, which as seen over a 16.3%
decline since 2015, and information producers and distributors, which seems
stagnant over the past five years. Both of these sales tax sectors would seemingly
be tied to the economic climate in Denver.
9-7
The three largest sources of expenditures in 2016 are public safety (32.12%),
general government (19.82%), and public works (9.95%). By far the most
significant source of expenditure is public safety. However, a review of the trend
since 2012 shows that it is general government that has seen the largest growth in
spending with a 54.74% increase over the period. On the other hand, public safety
has seen only an 11.29% growth while public works has experienced a decrease
of 9.23%. Relative to 2015, general government experienced a 12.83% growth in
spending while public safety saw no growth and public works had a decline of
2.28%.
c. Over the 10-year period provided on the table revenues have grown 43.98% while
expenditures have grown 32.51%. However, this is somewhat misleading in that
in 2007 Denver was in a deficit fund balance situation and did not recover from a
deficit position until 2013. Costs were cut in 2009 and 2010, but then increased
again in 2011 and 2012. Costs were down once again in 2013 but have grown by
over 18.9% since 2013. Revenue growth has been fairly steady since 2009.
It is difficult to predict the next two to three years, other than to say it can be
expected that revenues will exceed expenditures. History seems to show that
Denver has difficulty stabilizing costs, most recently this is reflected in the fact
that even when two of its largest expenditures are flat or declining overall
expenditures are up.
General Problem Information: MD&A and statistical tables

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Critical
Thinking
9-14. a. The list provided by each student should vary somewhat based on the CAFR
report used. However, some items that could be listed as leading to differences
between the net change in fund balances and net change in governmental
activities net position include:
• Capital outlays reported as expenditures on the statement of revenues,
expenditures, and changes in fund balances are not reported on the statement of
activities.
• Long-term debt proceeds reported as other financing sources on the statement of
revenues, expenditures, and changes in fund balances are not reported on the
• Depreciation not reported on the statement of revenues, expenditures, and
changes in fund balances is reported on the statement of activities.
• Some accrued expenses not reported on the statement of revenues, expenditures,
and changes in fund balances are reported on the statement of activities.
9-8
• Some revenues that are not available are not reported on the statement of
revenues, expenditures, and changes in fund balances but are reported on the
• Interfund transfers among governmental funds are reported on the statement of
revenues, expenditures, and changes in fund balances fund but are not reported
on the statement of activities.
• Operating income (loss) of internal service funds is not reported on the statement
of revenues, expenditures, and changes in fund balances but is reported on the
b. The list provided by each student should vary somewhat based on the CAFR
report used. However, some items that could be listed as leading to differences
between the fund balances on the balance sheet and the governmental activities
net position on the statement of net position include:
• Capital outlays are reported as assets on the statement of net position and are not
reported on the balance sheet.
• Long-term debt (and any related premium or discounts) is reported as a liability
on the statement of net position but is not reported on the balance sheet.
• Accumulated depreciation is reported on the statement of net position but is not
reported on the balance sheet.
• Some accrued liabilities reported on the statement of net position are not reported
on the balance sheet.
• Some revenues recognized as deferred inflows on the balance sheet are not
recognized on the statement of net position.
• Internal balances reported on the statement of net position includes only
transactions between the governmental funds and business-type funds; whereas,
interfund transactions among all funds are reported on the balance sheet.
• Assets and liabilities of internal service funds reported on the statement of net
position are not reported on the balance sheet.
c. Each report will vary but it is important that the student point out that the reason
for the difference is due to different methods used in capturing and reporting the
transactions (modified accrual versus accrual basis of accounting). The student
will also want to point out that the reason for the difference is that the reports
serve different purposes – a short-term focus (governmental funds) that provides
information related to fiscal accountability and a long-term focus (governmental
activities) that provides information related to operational accountability.
General Problem Information: Analyzing reconciliation of financial reports

9-9
Ch. 9, Solutions (Cont’d)
9-15. a. The GFOA identifies four eligibility criteria that must be met to receive the PAFR
award. The students should provide a brief evaluation of whether the Scottsdale
and the Suffolk reports achieved each of the following four criteria. Some
answers will vary by student due to differences in perception and the reports
accessed. (Note the following responses are based on a review of the 2016
reports.)
1. The PAFR must clearly advise readers of the availability of the CAFR.
• Scottsdale does not indicate such, but it does tell the reader that more
comprehensive information is available in the CAFR (last page).
• Suffolk indicates the CAFR is available on the first page of the report.
2. If the PAFR contains information from only selected funds, or if the PAFR
does not include all component units, that fact must be disclosed.
• Scottsdale does not include information from selected funds but it does
indicate that additional financial information can be found at the finance
office website.
• Suffolk indicates its fund financial information is coming from the General
Fund.
3. The financial information contained in the PAFR must be derived from the
actual GAAP data in the CAFR.
• Scottsdale does indicate that the numbers reported come from audited
financial statements.
• Suffolk indicates in the first page that its financial information is from its
audited financial statements.
4. Some form of appropriate narrative or graphic analysis must be provided to

explain items of potentially significant interest or concern.
• Both reports provide narrative—Suffolk is much more extensive than
Scottsdale.
• Both reports provide graphs—Scottsdale uses bar graphs and infographic
types of displays, while Suffolk uses more traditional pie charts.
b. The answer to this question will depend on the perspective of the student. However,
the formats of the reports are decidedly different. The Scottsdale report has not
received the PAFR award, it is much shorter than the Suffolk report, and it makes
much more extensive use of graphics and white space. For many, the Scottsdale
report is much more visually appealing. The students may differ in opinion on the
relevance and understandability of the information provided.
General Problem Information: Popular reports

9-10
Bloom’s Taxonomy: Evaluate

Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB: Critical Thinking
Solutions to Exercises and Problems
9-16. Since each of the students will have a different annual report, the solutions to 9-16 should
differ from student to student. Note that not all reports that say “CAFR” on the cover
have three sections. Some reports may only contain the middle or financial section.
General Problem Information: Examine the CAFR


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

Learning Objective: 9-1, 9-2, 9-3, 9-4, 9-5
Topic: Various Chapter Topics
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Critical
Thinking
9-11
9-18. 1. Y Waseca County is a general purpose government and by

definition it is therefore a primary government.
2. N University of South Florida is not a primary government
since it would not be considered legally separate if it is a
part of another system, in this case the State University
System.
3. Y Tri-County School District is a special purpose government
that meets the criteria for being considered a primary
government in that it has a separately elected board, is

legally separate and fiscally independent.
4. Y The State of Colorado is a general purpose government and

by definition it is therefore a primary government.
5. N Greenfield Sports Authority is a joint venture and does not
meet the definition of a primary government since it is
owned and operated by two groups, one of which is not a
government. There is no indication that the joint venture
has a separately elected governing body or that it is fiscally
independent.
General Problem Information: Primary government

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Industry
9-19. 1. RSI 6. RSI

2. I 7. MDA
3. S 8. F
4. MDA 9. S
5. S 10. F
General Problem Information: Financial reporting

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Industry
9-12
9-20. CITY OF LYNNWOOD

TRANS. FUND AMOUNTS
NO. OR ACTIVITY ACCOUNT TITLE Debits Credits
1. GF ESTIMATED REVENUES 2,000,000
APPROPRIATIONS 1,990,000
BUDGETARY FUND BALANCE 10,000
2. GF TAXES RECEIVABLE—CURRENT 1,940,000

ALLOWANCE FOR UNCOLLECTIBLE
CURRENT TAXES 9,000
REVENUES 1,931,000
GA TAXES RECEIVABLE⎯CURRENT 1,940,000

ALLOWANCE FOR UNCOLLECTIBLE
CURRENT TAXES 9,000
GENERAL REVENUES—
PROPERTY TAXES 1,931,000
3. GF OFU—INTERFUND TRANSFERS OUT 25,000

CASH 25,000
ISF CASH 25,000

EQUIPMENT 300,000
ACCUMULATED DEPRECIATION 65,000
OFS—INTERFUND TRANSFERS IN 260,000
4. PF INVESTMENTS—MARKETABLE
SECURITIES 800,000
REVENUES—CONTRIBUTIONS
FOR ENDOWMENT 800,000
9-13
Ch. 9, Solutions, Exercise 9-20 (Cont'd)
TRANS. FUND AMOUNTS

CASH 40,000
REVENUES—INVESTMENT EARNINGS 40,000
PF OFU—INTERFUND TRANSFERS OUT 40,000

CASH 40,000
SRF CASH 40,000

OFS—INTERFUND TRANSFERS IN 40,000
GA INVESTMENTS—MARKETABLE
SECURITIES 800,000
GENERAL REVENUES—
CONTRIBUTIONS FOR ENDOWMENT 800,000
CASH 40,000
PROGRAM REVENUES—CULTURE AND
RECREATION—OPERATING GRANTS
& CONTRIBUTIONS 40,000
5. EF DUE FROM OTHER FUNDS 125,000

CHARGES FOR SERVICES 125,000
CASH 124,000
DUE FROM OTHER FUNDS 124,000
GF EXPENDITURES 125,000
DUE TO OTHER FUNDS 125,000
9-14
TRANS. FUND AMOUNTS

CASH 124,000
GA EXPENSES—GENERAL GOVERNMENT 125,000

INTERNAL BALANCES 125,000
INTERNAL BALANCES 124,000

CASH 124,000
6. ISF & GA INVENTORY OF SUPPLIES 4,500

CASH 4,500
7. GF CASH 1,988,000
TAXES RECEIVABLE—CURRENT 1,925,000
REVENUES 63,000
GA CASH 1,988,000
TAXES RECEIVABLE—CURRENT 1,925,000
PROGRAM REVENUE—GENERAL
GOVERNMENT—CHARGES FOR
SERVICES 63,000
8. ISF DUE FROM OTHER FUNDS 23,800

BILLINGS TO DEPARTMENTS 23,800
EF EXPENSES—ADMINISTRATIVE 8,100
9-15
TRANS. FUND AMOUNTS

GF EXPENDITURES—GENERAL GOVERNMENT 15,700
GA INTERNAL BALANCES 8,100

PROGRAM REVENUE—GENERAL
GOVERNMENT—CHARGES FOR
SERVICES 8,100
9. CPF CASH 5,000,000

OFS—PROCEEDS OF BONDS 5,000,000
ENCUMBRANCES 4,500,000
ENCUMBRANCES OUTSTANDING 4,500,000
GA CASH 5,000,000
BONDS PAYABLE 5,000,000
10. GF ENCUMBRANCES 32,000

ENCUMBRANCES OUTSTANDING 32,000
ENCUMBRANCES OUTSTANDING 32,000

EXPENDITURES 31,900
ENCUMBRANCES 32,000
CASH 31,900
GA EQUIPMENT 31,900
CASH 31,900
9-16
Ch. 9, Solutions, Exercise 9-20 (Cont’d)
General Problem Information: Comprehensive set of transactions

Bloom’s Taxonomy: Apply
9-21.
CITY OF ELIZABETH
Reconciliation of the Balance Sheet—Governmental Funds
to the Statement of Net Position
June 30, 20xx
Total fund balances—governmental funds $157,700
Amounts reported for governmental activities in the statement

of net position are different because:
Capital assets used in governmental activities are not financial

resources and therefore are not reported by funds. 286,500
Deferred inflows of resources are recognized as revenues of

governmental activities. 361,200
Long-term liabilities, including bonds payable, are not due and

payable in the current period and therefore are not reported in
the funds. (188,200)
Accrued interest payable is not due in the current period and

therefore is not included in the funds. (1,200)
Net position of governmental activities $616,000
Calculations:
Capital assets used in governmental activities is calculated as capital assets
minus accumulated depreciation: $639,900-353,400=286,500
Long-term liabilities is calculated as the bond and long-term notes issues, the
unamortized bond premium, and compensated absences:
$174,200+700+13,300=188,200
9-17
General Problem Information: Reconciliation of financial statements

9-22.
CITY OF EDWARD
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund
Balances—Governmental Funds to the Statement of Activities
December 31
Net change in fund balances—governmental funds $322,791
Amounts reported for the governmental activities in the statement

of activities are different because:
Governmental funds report capital outlays as expenditures.

However, in the statement of activities the cost of those assets is
allocated over their estimated useful lives as depreciation expense.
This is the amount by which capital outlays exceed depreciation. 200,807
Some revenues in the statement of activities do not provide

current financial resources and are not reported as revenues in the
governmental funds. 23,119
Debt proceeds provide current financial resources to governmental

funds, but issuing debt increases long-term liabilities in the state-
ment of net position. This is the amount of proceeds. (314,083)
Some expenses reported in the statement of activities do not

use current financial resources and are not reported as
expenditures in the governmental funds. (4,550)
Change in net position of governmental activities $228,084
Calculations:
Capital outlays reported as expenditures adjusted for depreciation is calculated
as: $237,762-36,955
9-18
General Problem Information: Operating statements reconciliation

9-23. 1. d. 6. e.
2. e. 7. a.
3. c. 8. c.
4. c. 9. e.
5. a. 10. b.
General Problem Information: Adjusting net position balances

9-19
Ch. 9, Solutions (Cont'd)
9-24.
ANNETTE COUNTY
Reconciliation of the Statement of Revenues, Expenditures, and Changes
in Fund Balances—Governmental Funds to the Statement of Activities
For the Year Ended June 30, 20xx
Net change in fund balances—governmental funds $ (289,200)
Amounts reported for governmental activities in the statement

of activities are different because:
Governmental funds report capital outlays as expenditures.

However, in the statement of activities the cost of those assets
is allocated over their estimated useful lives as depreciation
expense. This is the amount by which capital outlays
$(2,750,000) exceeded depreciation $595,000. 2,155,000
A sale of capital assets resulted in a gain on sale

reported in the statement of activities, whereas the
governmental funds reported the proceeds from the sale
governmental funds.* (563,000)
Bond proceeds provide current financial resources to

governmental funds, but issuing debt increases long-term
liabilities in the statement of net position. This is the amount
of the proceeds and related premium. (2,020,000)
Some expenses reported in the statement of activities do not

require the use of current financial resources and therefore
are not reported as expenditures in the governmental funds. (24,000)
Revenues in the statement of activities that do not provide

current financial resources are not reported as revenues in
the funds. 364,600
Change in net position of governmental activities $ (376,600)
*At the time of the sale the asset sold for cash of $570,900, this would have resulted in the governmental
activities journal reporting an increase in cash and a decrease in assets of $563,000 for a net change in
positon of $7,900. Thus, net position increased by only the $7,900 gain while the fund balance increased by
the full cash amount of $570,000 resulting in an adjustment of $563,000 to reconcile the numbers.)
9-20
General Problem Information: Change in net position

9-25. Some of the modifications or corrections that should be made include:

• The word Expenses should be changed to Expenditures in the
statement title.
• An analysis should be done of the Other Governmental Funds column
to determine whether any of the three funds included in the column
meet the definition of a major fund. If so, the fund should be shown in
a separate column to the right of the General Fund.
• A Total Governmental Funds column should be provided to the right
of the Other Governmental Funds column.
• Debt proceeds is not a revenue. It should be shown in a separate
section titled Other Financing Sources (Uses). This section appears
after expenditures.
• Transfers out is not an expenditure. It should be shown in a separate
section titled Other Financing Sources (Uses). This section appears
after expenditures.
• Debt service should be shown separately from the General
Government function. Further, debt service should show the
expenditures for principal and the expenditures for interest.
Generally, information on debt service is shown after the functional
expenditures.
• Capital outlay should be shown separately from the functions of
government. Generally, information on capital outlays is shown after
the functional expenditures.
• The beginning and ending fund balances for the period should be
included after the Net Change in Fund Balances.
9-21
General Problem Information: Governmental fund financial statements

9-26. TOWN OF FREAZ

STATEMENT OF NET POSITION
AS OF JUNE 30, 2020
(000s OMITTED)
ASSETS:
CURRENT ASSETS:
CASH $ 3,639
INVESTMENTS 7,299
TAXES RECEIVABLE (NET $49 OF ALLOWANCE FOR
UNCOLLECTIBLE TAXES) 5,739
DUE FROM OTHER GOVERNMENTS 6,343
TOTAL CURRENT ASSETS 23,020
CAPITAL ASSETS:
LAND $ 8,720
OTHER CAPITAL ASSETS (NET OF DEPRECIATION)
INFRASTRUCTURE (NET $45,603) 40,165
BUILDINGS (NET $8,021) 17,659
MACHINERY AND EQUIPMENT (NET $13,785) 14,935
TOTAL CAPITAL ASSETS 81,479
TOTAL ASSETS 104,499
9-22
LIABILITIES:
CURRENT LIABILITES:
ACCOUNTS PAYABLE 7,764
ACCRUED LIABILITIES 4,765
DUE TO OTHER FUNDS (NET) 103
CURRENT PORTION OF LONG-TERM DEBT 8,600
TOTAL CURRENT LIABILITIES 21,232
LONG-TERM LIABILITIES:
BONDS PAYABLE 28,700
TOTAL LIABILITES 49,932
NET POSITION:
NET INVESTMENT IN CAPITAL ASSETS 44,179
RESTRICTED—DEBT SERVICE 2,210
UNRESTRICTED:
DESIGNATED—STREET REPAIR 900
UNDESIGNATED 7,278
TOTAL NET POSITION $ 54,567
(Note: Net Investment in Capital Assets=$45,259 beginning balance – $1,080

depreciation. Restricted—Debt Service=$2,123 beginning balance + $87 increase
in debt service. Undesignated=$6,598 beginning balance + $587 increase in
unrestricted net position + $1,080 depreciation − $900 designated − $87 increase
in debt service.)
9-23
Ch. 9, Solutions, Exercise 9-26 (Cont'd) TOWN OF FREAZ

STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2020
(000s OMITTED)
NET (EXPENSES)
REVENUES AND
CHANGES IN NET
PROGRAM REVENUES POSITION S
OPERATING CAPITAL
CHARGES FOR GRANTS AND GRANTS AND GOVERNMENTAL
FUNCTIONS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES
PRIMARY GOVERNMENT:
GENERAL GOVERNMENT $ 2,468 $ 4,411 $ 307 $ 2,250
PUBLIC SAFETY 11,577 996 (10,581)
PUBLIC WORKS 5,311 $ 1,680 (3,631)
CULTURE & RECREATION 1,817 359 (1,458)
INTEREST ON DEBT 749 (749)
TOTAL GOVERNMENTAL ______ ______ _____ ______ ______
ACTIVITIES $21,922 $ 5,766 $ 307 $ 1,680 (14,169)
GENERAL REVENUES:
PROPERTY TAXES LEVIED FOR GENERAL PURPOSES 13,665
INTEREST & PENALTIES ON DELINQUENT TAXES 746
INTEREST INCOME 345
TOTAL GENERAL REVENUES 14,756
INCREASE IN UNRESTRICTED NET POSITION 587
NET POSITION, JULY 1, 2019 53,980
NET POSITION, JUNE 30, 2020 $54,567
9-24
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
General Problem Information: Government-wide financial statements

9-27.
MODIFIED ACCRUAL/ ADJUSTMENT

ACCOUNT AFFECTED ACCRUAL ACCOUNT Debit Credit
1. DEPRECIATION EXPENSE ACCRUAL 674,300

BUILDINGS & EQUIPMENT ACCRUAL 674,300
2. SALARY EXPENSE ACCRUAL 39,123

SALARIES PAYABLE ACCRUAL 39,123
3. BUILDINGS & EQUIPMENT ACCRUAL 29,049

EXPENDITURES MODIFIED ACCRUAL 29,049
4. NOTES PAYABLE ACCRUAL 50,000

ACCRUED INTEREST
PAYABLE ACCRUAL 1,125
INTEREST EXPENSE ACCRUAL 1,125
EXPENDITURES—PRINCIPAL MODIFED ACCRUAL 50,000
EXPENDITURES—INTEREST MODIFIED ACCRUAL 2,250
5. INTERNAL BALANCES ACCRUAL 480

DUE FROM OTHER FUNDS MODIFED ACCRUAL 480
DUE TO OTHER FUNDS MODIFIED ACCRUAL 950

INTERNAL BALANCES ACCRUAL 950
9-25
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
General Problem Information: Modified accrual to accrual accounting

Topic: Converting Accounting Information from the Modified Accrual to the Accrual
Basis of Accounting
9-26
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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

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Accounting For Governmental And

Nonprofit Entities 18th Edition Reck

CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

Number Topic Type/Task Status

CHAPTER 9: FINANCIAL REPORTING OF STATE AND LOCAL

General Problem Information: Primary governments

General Problem Information: Interim reports

9-3. According to the GASB a financial reporting entity is a primary government,

General Problem Information: Financial reporting entity

Ch. 9, Answers, Question 9-3 (Cont’d)

Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry

General Problem Information: Component units

Ch. 9, Answers, Question 9-5 (Cont’d)

General Problem Information: Types of component units

General Problem Information: CAFR and general purpose reports

9-7. The nine required statements are:

Ch. 9, Answers, Question 9-7 (Cont’d)

General Problem Information: Required financial statements

General Problem Information: Reconciliations

General Problem Information: Reconciliation of financial statements

General Problem Information: Popular Reporting

General Problem Information: Financial reporting project

c. The Sports Authority is not a component unit of Dawson County. As indicated,

Ch. 9, Solutions, Case 9-12 (Cont’d)

General Problem Information: Identification of component units

Ch. 9, Solutions, Case 9-13 (Cont’d)

General Problem Information: MD&A and statistical tables

Ch. 9, Solutions, Case 9-14 (Cont’d)

General Problem Information: Analyzing reconciliation of financial reports

Ch. 9, Solutions (Cont’d)

4. Some form of appropriate narrative or graphic analysis must be provided to

General Problem Information: Popular reports

Ch. 9, Solutions, Case 9-15 (Cont’d)

Bloom’s Taxonomy: Evaluate

Solutions to Exercises and Problems

General Problem Information: Examine the CAFR

Topic: Government Financial Reports

General Problem Information: Various

Ch. 9, Solutions (Cont’d)

9-18. 1. Y Waseca County is a general purpose government and by

government in that it has a separately elected board, is

4. Y The State of Colorado is a general purpose government and

General Problem Information: Primary government

9-19. 1. RSI 6. RSI

General Problem Information: Financial reporting

Ch. 9, Solutions (Cont’d)

9-20. CITY OF LYNNWOOD

2. GF TAXES RECEIVABLE—CURRENT 1,940,000

GA TAXES RECEIVABLE⎯CURRENT 1,940,000

3. GF OFU—INTERFUND TRANSFERS OUT 25,000

ISF CASH 25,000

Ch. 9, Solutions, Exercise 9-20 (Cont'd)

TRANS. FUND AMOUNTS

PF OFU—INTERFUND TRANSFERS OUT 40,000

SRF CASH 40,000

5. EF DUE FROM OTHER FUNDS 125,000

Ch. 9, Solutions, Exercise 9-20 (Cont'd)

TRANS. FUND AMOUNTS

GA EXPENSES—GENERAL GOVERNMENT 125,000

INTERNAL BALANCES 124,000

6. ISF & GA INVENTORY OF SUPPLIES 4,500

8. ISF DUE FROM OTHER FUNDS 23,800

Ch. 9, Solutions, Exercise 9-20 (Cont'd)