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Assignment (2)
Deadline: Saturday 19/04/2025 @ 23:59
Course Name: GNP Accounting
Student’s Name:
Course Code: ACCT 321
Student’s ID Number:
Semester: 2(second)
CRN:
Academic Year: 1446 H (2025)
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the
cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 4)
Q1. Describe the term “The Financial Reporting Entity” and its various types.
College of Administration and Finance Sciences
(Marks 4)
Q2. The Tawain Township Debt Service Fund accumulates resources to pay its $4 million
general obligation debt. The debt is payable in equal annual installments of principal over
10 years with 5% interest on the unpaid principal. Prepare journal entries to record the
following transactions in the Debt Service Fund.
a. The Township levies a special property tax amounting to $750,000 to pay
debt service on its long-term general obligation debt. The tax must be
accounted for in the Debt Service Fund.
b. All the property taxes levied for debt service purposes are collected.
c. The Township invests $250,000 in a six-month certificate of deposit.
d. Debt service (interest of $2,000,000 and principal of $4,000,000) becomes
due and payable.
e. The debt service liabilities are paid.
College of Administration and Finance Sciences
(Marks 4)
Q3. The City Taif uses an Internal Service Fund (ISF) to provide centralized printing
services for all City agencies. City agencies are billed on a per-page basis (number of pages
in a document times the number of documents printed). The City requires the ISF to
develop its billing rate so as to recover all costs on the accrual basis of accounting, plus the
cost of repaying a start-up loan made by the City to the ISF. Compute the rate per page to
be charged by the ISF, based on the following factors:
a. Start-up loan from City to ISF – $500,000 non-interest bearing loan, to be
repaid in equal payments over 10 years
b. Printing equipment – estimated to cost $600,000 and to have an average life
of 10 years
c. Personnel costs – Estimated salaries of $750,000, plus contribution to
Pension Trust Fund of 10% of salaries
d. Paper- Opening inventory of $26,000; expected purchases of $92,000;
expected ending inventory of $22,000
e. Occupancy costs – Estimated at $150,000 per year
f. Expected number of pages to be printed – 10 million
College of Administration and Finance Sciences
(Marks 3)
Q4. Prepare entries to record the following transactions, showing which funds are affected. If
a transaction affects more than one fund, prepare entries for all affected funds.
a. The county adopts the following budget for its General Fund on January 1, 2019.
Estimated revenues:
Property taxes
$520,000
Sales taxes
80,000
Appropriations:
Salaries
480,000
Supplies and other
60,000
Transfer to Debt Service Fund
50,000
b. The county sends property tax invoices to all property owners. To raise the needed
$520,000, the county sends tax bills for $525,000, anticipating that some will not pay.
c. Property owners pay taxes amounting to $500,000. The county writes off $5,000
in taxes as uncollectible. The remaining taxpayers declared delinquent, and the county
adds interest and penalties of $1,000 to their tax bills. The county believes that all
delinquent taxpayers will pay their bills between April 1 and June 30, 2020.
Chapter 9 • Reporting Principles and Preparation of Fund Financial Statements
and bridges—through specially created, legally separate corporations. Often, these entities are
authorized to sell debt to construct facilities, operate the facilities after they are built, and charge
fees for services to pay off the debt and cover their operating costs. Governments even create
legally separate entities to perform financing activities for the government itself, sometimes to
circumvent constitutional limits on the government’s ability to borrow. These entities (referred to
as public authorities or public benefit corporations) generally are created by statute, but may be
created through a state’s not-for-profit corporation laws. Depending on the circumstances, not
reporting the financial activities of these legally separate organizations within the financial statements of the parent government could cause the parent’s statements to be incomplete and possibly misleading.
Defining the Financial Reporting Entity
Reporting-entity standards for state and local governments are set forth in GASB Statement No.
14, “The Financial Reporting Entity,” as amended by GASB Statement No. 61. The reporting
entity consists of a primary government and its component units.
• Primary government: All state governments and general-purpose local governments—
such as counties, cities, towns, and villages—are primary governments. A special-purpose
government (such as a local school district or hospital district) is also considered a primary
government, provided it has a separately elected governing body, is legally separate (e.g., it
is created as a body corporate and politic), and is fiscally independent of other state and
local governments. To be fiscally independent, as defined by the GASB, the organization
must be authorized to take all three of these specific actions without the approval of another
government: (1) determine its budget, (2) levy taxes or set user charges, and (3) issue
bonded debt.3
• Component units: Component units are legally separate organizations for which the elected
officials of the primary government are financially accountable. In addition, component
units can be other organizations for which, because of the nature and significance of their
relationship with the primary government, exclusion would cause the entity’s financial
statements to be misleading.4
Under what circumstances is a primary government financially accountable for a legally
separate organization so as to warrant including the legally separate organization in the primary
government’s financial statements? The issues surrounding those circumstances are sometimes
complex because relationships among governmental organizations can be complex. The GASB
identifies these two broad sets of circumstances—related to governance of the potential component unit—that create financial accountability:
1. Primary government appoints a voting majority of the board. A primary government is
financially accountable for a legally separate organization if
a. It appoints a voting majority of the organization’s governing body, and
b. (1) It is able to impose its will on that organization, or
(2) There is a potential for the organization to provide specific financial benefits to, or
impose specific financial burdens on, the primary government.
3
GASB Cod. Sec. 2100.112 and 2100.115.
GASB Statement No. 61, par. 4.b.
4
313
314
Chapter 9 • Reporting Principles and Preparation of Fund Financial Statements
2. Primary government does not appoint a voting majority of the board. Even if the potential
component unit has a separately elected governing board, a governing board appointed by
a higher-level government, or a jointly appointed board, a primary government is financially accountable for a legally separate organization if
a. The organization is fiscally dependent on the primary government (i.e., the primary government has one or more of these powers over the organization—to approve and modify
its budget, to approve its tax levy or user charge rates, or to approve its bonded debt
issues), and
b. There is a potential for the organization to provide specific financial benefits to, or
impose specific financial burdens on, the primary government.5
A primary government is able to impose its will on an organization if it can significantly
influence the programs, activities, or level of services it provides. For example, a mayor can
impose his or her will on an organization if he or she has the ability to remove members of the
organization’s governing board at will, modify or approve its budgets, modify or approve the rates
or fees it charges for services, or veto or modify decisions of the governing body.
A primary government has a financial benefit or burden relationship with an organization
if, for example, any of these conditions exist: (1) the primary government is legally entitled to
or can otherwise access the organization’s resources; (2) the primary government is legally
obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial
support to, the organization; or (3) the primary government is obligated in some manner for the
organization’s debt.6
Here are some illustrations of circumstances wherein the “imposition of will” or “benefit/
burden” requirements are met:
• A state lottery or off-track betting corporation meets the “benefit/burden” criterion because
the law provides that the corporation’s net revenues must be remitted to the state.
• A city toll bridge authority meets the “imposition of will” criterion because the law provides that the city council must approve toll rates or that the mayor can remove any board
member at will.
• A county building construction authority meets the “benefit/burden” criterion because the
law provides that the county will guarantee payment of principal and interest on the debt
issued by the authority.
The following scenario describes a financial accountability situation in which the primary
government appoints a voting majority of the board: A state creates a public authority to construct and operate a toll road. The authority has the power to issue revenue bonds payable from
the tolls and other revenues. Four members of the six-member authority board are appointed by
the governor, one is appointed by the senate majority leader, and another by the speaker of the
assembly, all for fixed 5-year terms. The law creating the authority states that changes in toll rates
may not take effect until approved by a majority of both houses of the legislature and the governor. Conclusion: The authority is a component unit of the state because the state (a) appoints a
voting majority of the authority’s board and (b) can impose its will on the authority through its
ability to approve toll rate increases.
5
GASB Statement No. 61, par. 6.a.
GASB standards take a broad view of when a primary government is “obligated in some manner” for the debt of a legally
separate entity. The standards provide that the obligation may be either expressed or implied by certain indications that
make assumption of the debt probable (GASB Cod. Sec. 2100.132).
6
Chapter 9 • Reporting Principles and Preparation of Fund Financial Statements
The following scenario describes a financial accountability situation even though the primary
government does not appoint a voting majority of an organization’s governing board: A board of
education (BOE) administers the city’s public school system. The BOE is separately elected by the
citizenry and is organized as a separate legal entity. The BOE has no power to levy taxes or to issue
bonds. Instead, the city is legally obligated to finance the BOE’s operating and capital activities. The
BOE’s budget request takes the form of a lump-sum dollar amount, but it contains line items showing how it intends to spend the money. The city council can reject the BOE’s request and appropriate a lesser amount, but cannot modify the individual line items. Conclusion: The BOE is a
component unit of the city because (a) it is fiscally dependent on the city (the city can approve its
operating and capital budgets) and (b) the city is legally obligated to financially support the BOE.
Even in the absence of financial accountability, the nature and significance of the relationship between a primary government and an organization may be such that the latter should be
reported as a component unit of the primary government. That is, there may be financial or other
factors that would cause the primary government’s financial statements to be misleading if the
organization were to be omitted from the primary government’s statements. Professional judgment must be exercised in such situations. For example, for many years New York City’s financial
statements included the financial activities of a state-created agency whose governing board
consisted primarily of state officials or state-appointed officials. The agency was created in the
1970s (during the city’s fiscal crisis) for the sole purpose of refinancing a portion of the city’s
debt. The agency assumed the city’s debt, and city sales taxes were diverted by law to that agency
so the agency could pay the principal and interest on the debt. In the judgment of the city’s
officials, the agency’s financial activities had to be reported as a Debt Service Fund in the city’s
financial statements because the city’s statements otherwise would have been misleading.
Governmental Financial Reporting in Practice
When Is an Entity a Component Unit?
Here is an example of the thought process behind the decision as to whether an entity is a component
unit of a primary government. The Oneida-Herkimer Solid Waste Management Authority was created in
1988 as a public benefit corporation under New York State law to provide solid waste management services for two counties, Oneida and Herkimer. The reporting entity footnote in Oneida County’s 2009
financial statements explains that the authority is part of the Oneida County reporting entity because
a. Oneida County appoints a voting majority of the authority’s governing body. The authority has a
10-member governing board, appointed as follows: four by the Oneida County executive and
confirmed by the county legislature, three by the Oneida County legislature, and three by
Herkimer County. (Appointing seven of the ten members gives Oneida a voting majority of the
authority’s governing body.)
b. There is a potential for the authority to impose specific financial burdens on the county. According to the note, “[Oneida] County officials do not exercise oversight responsibility for the Authority’s operations.” But “the County is obligated to finance deficits, if necessary, and the County is a
joint guarantor with Herkimer County on the revenue bonds [sold by the Authority].” (The obligation to finance deficits and the guaranty of payment of the authority’s debt imposes a potential
financial burden on Oneida.)
The authority is not a component unit of Herkimer County because Herkimer does not appoint a majority of the authority’s governing board; further, a component unit can be the component unit of only one
government. Herkimer County would, however, disclose in a note to its financial statements its financial
exposure resulting from the arrangement with Oneida and the authority.
315
College of Administration and Finance Sciences
Assignment (2)
Deadline: Saturday 23/11/2024 @ 23:59
Course Name: GNP Accounting
Student’s Name: SEU ELITE
Course Code: ACCT 321
Student’s ID Number:
Semester: 1st
CRN:
Academic Year: 1443 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the
cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 4)
Q1. Distinguish between Capital Projects Funds (CPF), Debt Service Funds (DSF) Leased
Assets and Permanent Funds
In governmental accounting, various types of funds are used to manage and report specific
financial activities. Here’s a breakdown of the key distinctions among Capital Projects Funds,
Debt Service Funds, Leased Assets, and Permanent Funds:
1. Capital Projects Funds (CPF):
Capital Projects Funds are used to account for financial resources that are restricted,
committed, or assigned to expenditure for capital outlays, including acquiring or
constructing major capital facilities. These facilities include infrastructure projects such
as roads, bridges, and public buildings. CPF typically receives funding from general
obligation bonds, transfers from other funds, intergovernmental revenues, and sometimes
private donations. The fund exists only until the project it finances is completed, at which
point any remaining assets are often transferred to another fund.
2. Debt Service Funds (DSF):
Debt Service Funds are specifically designated to account for resources restricted,
committed, or assigned to expenditure for paying principal and interest on long-term
debt. DSF is essential when governments issue general obligation bonds for major
projects, as these funds help accumulate resources to meet debt obligations over time.
DSF commonly receives financial support through transfers from the General Fund,
income from investments, and specific tax revenues dedicated to debt servicing. By
separating debt payments, DSF helps ensure that financial resources are used exclusively
for debt service and not other governmental expenses.
3. Leased Assets:
In governmental accounting, leased assets are often categorized under either capital or
operating leases. When a lease meets specific criteria (e.g., transfer of ownership, lease
term covering a substantial portion of the asset’s life), it is classified as a capital lease. A
capital lease is recorded as an asset along with a corresponding liability, similar to an
acquisition financed by borrowing. Operating leases, on the other hand, are treated as
regular expenses without capitalizing the asset. Governmental accounting for leases helps
manage resources prudently by ensuring accurate asset and liability reporting over the
lease’s duration.
4. Permanent Funds:
Permanent Funds are unique in that they are intended to benefit government programs or
the public in perpetuity. Resources in these funds are legally restricted, such that only the
earnings, and not the principal, may be used. For instance, a public library may receive a
College of Administration and Finance Sciences
large endowment that restricts the use of only the earnings to purchase books, while the
principal remains untouched. This type of fund is distinct from fiduciary funds, which
benefit external parties rather than the government’s own programs.
Each fund type serves a distinct role in governmental financial management, enabling proper
resource allocation, transparency, and adherence to legal and fiduciary obligations.
(Marks 4)
Q2. The Tawain Township Debt Service Fund accumulates resources to pay its $4 million
general obligation debt. The debt is payable in equal annual installments of principal over
10 years with 5% interest on the unpaid principal. Prepare journal entries to record the
following transactions in the Debt Service Fund.
a. The Township levies a special property tax amounting to $750,000 to pay
debt service on its long-term general obligation debt. The tax must be
accounted for in the Debt Service Fund.
b. All the property taxes levied for debt service purposes are collected.
c. The Township invests $250,000 in a six-month certificate of deposit.
d. Debt service (interest of $2,000,000 and principal of $4,000,000) becomes
due and payable.
e. The debt service liabilities are paid.
Answers:
a. Property taxes receivable 750,000
Revenues—property taxes 750,000
b. Cash
750,000
Property taxes receivable 750,000
c. Investment 250,000
Cash
250,000
d. Expenditures—bond principal 4,000,000
Expenditures—interest
2,000,000
Matured bonds payable
4,000,000
Matured interest payable
2,000,000
e.
Matured bonds payable
4,000,000
Matured interest payable
2,000,000
Cash
6,000,000
College of Administration and Finance Sciences
Marks 4)
Q3. The City Taif uses an Internal Service Fund (ISF) to provide centralized printing
services for all City agencies. City agencies are billed on a per-page basis (number of pages
in a document times the number of documents printed). The City requires the ISF to
develop its billing rate so as to recover all costs on the accrual basis of accounting, plus the
cost of repaying a start-up loan made by the City to the ISF. Compute the rate per page to
be charged by the ISF, based on the following factors:
a. Start-up loan from City to ISF – $500,000 non-interest bearing loan, to be
repaid in equal payments over 10 years
b. Printing equipment – estimated to cost $600,000 and to have an average life
of 10 years
c. Personnel costs – Estimated salaries of $750,000, plus contribution to
Pension Trust Fund of 10% of salaries
d. Paper- Opening inventory of $26,000; expected purchases of $92,000;
expected ending inventory of $22,000
e. Occupancy costs – Estimated at $150,000 per year
f. Expected number of pages to be printed – 10 million
Billing components:
a. Repayment of loan ($500,000 / 10)
b. Depreciation ($600,000 / 10)
c. Personnel costs ($750,000 + 10% of $750,000)
d. Paper ($26,000 + $92,000 – $22,000)
e. Occupancy costs
Total costs
$ 50,000
60,000
825,000
96,000
150,000
1,181,000
(Marks 3)
Q4. Prepare entries to record the following transactions, showing which funds are affected. If
a transaction affects more than one fund, prepare entries for all affected funds.
College of Administration and Finance Sciences
a. The county adopts the following budget for its General Fund on January 1, 2019.
Estimated revenues:
Property taxes
$520,000
Sales taxes
80,000
Appropriations:
Salaries
480,000
Supplies and other
60,000
Transfer to Debt Service Fund
50,000
b. The county sends property tax invoices to all property owners. To raise the needed
$520,000, the county sends tax bills for $525,000, anticipating that some will not pay.
c. Property owners pay taxes amounting to $500,000. The county writes off $5,000
in taxes as uncollectible. The remaining taxpayers declared delinquent, and the county
adds interest and penalties of $1,000 to their tax bills. The county believes that all
delinquent taxpayers will pay their bills between April 1 and June 30, 2020.
Answer:
a. GF
b. GF
c. GF
GF
GF
Estimated revenues – property taxes
Estimated revenues – sales taxes
Appropriations – salaries
Appropriations – supplies and other
Appropriations – transfer to Debt Service Fund
Budgetary fund balance
520,000
80,000
Property taxes receivable
Revenues – property taxes
Allowance for uncollectible property taxes
525,000
Cash
Allowance for uncollectible property taxes
Property taxes receivable
500,000
5,000
Property taxes receivable – delinquent
Property taxes receivable
20,000
Interest and penalties receivable
1,000
480,000
60,000
50,000
10,000
520,000
5,000
505,000
20,000
Revenues – interest and penalties
GF
Revenues – property taxes
1,000
20,000
College of Administration and Finance Sciences
Deferred revenues
20,000
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