Ch 7

Question 69 Essay
Question The following are key terms in Chapter 7 that relate accounting for the business-type activities of state and local governments: A. Customer advances for construction
B. Revenue bonds
C. Utility plant acquisition adjustment
D. Regulatory accounting principles
E. Original cost
F. Historical cost
G. General obligation bonds
For each of the following definitions, indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Answer 1. E, 2. D, 3. B, 4. A, 5. C

Question 70 Essay
Question "In order to determine whether user charges are commensurate with operating costs, it is desirable for internal service fund operations to be accounted for on a business basis." Do you agree? Why or why not?

Answer Agree. Internal service funds should be operated on a cost recovery basis (although, in practice, not all are). Accrual accounting (i.e., the "business basis") is required for these funds to determine that user charges are commensurate with operating costs, including depreciation on capital assets.

Question 71 Essay
Question The Stores and Supplies Fund of Walnut City has quietly followed a policy of charging all actual cost and normal overhead for materials and supplies bought from them. Annually an amount of cash equal to the net gain by that method is transferred to the Walnut Library Fund. Is this an appropriate pricing policy? Why or why not?

Answer While this practice may be expedient, it is inexcusable. There is no justification for a library, notwithstanding its valuable service, to be financed by collections under the guise of charges for supplies and materials used throughout the city. Policies should be approved by the elected officials, therefore providing justification for the practice.

Question 72 Essay
Question Explain how governmental entities that use internal service funds to account for risk financing and risk management activities should account for those activities.

Answer The internal service fund should recognize claims expense and a related liability when (1) a claim has been asserted, (2) it is probable that an asset has been impaired or a liability has been incurred, and (3) the amount of the loss is reasonably estimable, or if an estimable loss has been incurred and it is probable that a claim will be asserted. As charges are made by the internal service fund to governmental or other funds, either to cover the actual claims expense or on some actuarial basis, the other funds will debit Expenditures or Expenses as appropriate and the internal service fund will credit Revenues or Billings to Department...

000 1 100 102 2 20 200 3 30 4 40 400 5 51 6 60 62 69 7 70 700 71 72 73 74 75 76 77 78 79 80 800 81 82 83 84 85 accept accomplish accord account accout accru accrual accumul acquisit activ actual actuari addit adequ adjust administr advanc afudc agre agreed-upon allow also altern although amount and/or annual anoth answer appar appropri approv assert assess asset assum b balanc basi bear best bill blank bodi bond bought build busi business-typ c capit caption cash central certain ch chang chapter charact charg choos citi claim classifi close collect combin commensur comput condit conform consid construct continu contrast contribut control cook correct correspond cost counsel cover credit creditor current custom d date day debit debt decid definit depart depreci describ desir detail determin differ disclos discuss dispos dissolut dissolv distribut due e either elect end ensur enter enterpris entir entiti entri equal equiti essay estim even event eventu exampl exceed excess expand expedi expenditur expens explain extern f face factor fee financ financi find first fiscal follow form full fund g gaap gain garag gasb general govern government government-wid guis head histor i.e ident impair imput includ incom incorrect increas incur indic inexcus inform instal intend intent interest interfund intern inventori investorown invoic issu item journal juli june justif key kind larg law legal legisl letter level liabil librari line liquid list loan local long long-term loss made maintain maker manag mandatori manner markup match materi matter matur may meet method must name necessari need net new next non noncash noncurr none normal note notwithstand oblig obtain offici offset often one oper order origin overhead overpr paid par park part payabl payment percent period perman permit place plant polici policy-mak portion practic premium price primarili principl probabl proper provid public purchas purpos question quiet rather reader reason receiv recogn recommend record recov recoveri redempt reduc regul regulatori relat remain render repaid repay replac report requir reserv respons restrict revenu risk sale section secur self self-support semiannu separ serv servic set settlement sewag sheet show shown similar sinc singl sold sole solid sound sourc space special standard state statement storag store subsidiari substanti suffici suggest summar suppli support tax taxpay temporari term terminolog therefor thereof thing three throughout thus time total township transact transfer transfere treatment true two type unrestrict upon use user user-charg usual util valu valuabl walnut wareh wast water way wherea whether wide within would yale year yes