Exam 7: Proprietary Type Fundsenterprise and Internal Service Funds

The Enterprise Fund net position component called, Net Investment in Capital Assets, is equal to the sum of all capital assets net of accumulated depreciation reported on those assets.

The Potomac River Electricity Enterprise Fund (PREEF) has a limited group of customers who receive special street lighting designed to provide higher security than for its regular customers. PREEF uses special assessments to finance the services it provides to this limited group. What effect does this have on PREEF's financial reporting?

The GASB and FASB accounting requirements for reporting leases are similar because:

Internal Service Fund expenses are generally controlled by the budgetary constraints of the funds and departments who use their services.

The City of Deshields establishes an Internal Service Fund (ISF) to provide limousine services to all City agencies. The Mayor's office activity is recorded in the City's General Fund. The ISF has concluded that each of its limousines should be billed out to the City at a rate of $150 per hour. Based on this information, prepare journal entries to record the following transactions in all of the appropriate City funds. a. The City's General Fund contributes $300,000 to the ISF to allow it to purchase limousines and set up operations. b. The ISF purchases two used limousines for $190,000 in cash. c. The Mayor spends the day at the state capitol representing the City in property tax hearings. Limousine A was used for 10 hours. The ISF bills the Mayor's office for the service. d. The head of the City's Electric Utility Enterprise Fund and the City Controller attend a ribbon cutting ceremony celebrating the opening of the new electric plant. Both limousines were used for 7 hours each. The ISF bills the Mayor's office and the EF for the service. e. The Mayor's office pays for the services billed to the General Fund in transactions c. and d. f. The ISF pays $3,000 to its drivers for their services for the month.

Neither the FASB nor any of its predecessor standards-setting bodies have ever considered whether fiduciary activities should be reported in GAAP financial reports.

In Proprietary Fund accounting, transactions related to operating costs are recognized as expenditures when purchased.

Which of the following accounts would not appear in an Enterprise Fund statement of net position?

Cottenec Memorial Golf Course is reported as an Enterprise Fund (EF) of LeCorre City. In 2018, the EF leased professional restaurant equipment based on a 20-year lease agreement with French Cooks, Inc. The City has determined that the present value of the lease payments (at 5%) is $443,000. Provide entries to: a. Record the long-term equipment lease. b. Record a required initial lease payment of $150,000 that must be paid at the time the equipment is installed.

One significant difference between how the GASB and the FASB report retiree benefits, such as pensions, is that businesses report the difference between actuarial projections versus actual results immediately in comprehensive income. Actuarial differences calculated by governmental entities are deferred and amortized. What reason does the GASB give for this treatment?

At December 31, 2018, a Water Enterprise Fund has outstanding revenue bonds payable of $1 million, of which $40,000 is due to be paid on February 15, 2019, and $50,000 is due to be paid on August 15, 2019. How should it report this liability in its fund statement of net position as of December 31, 2018?

Both the FASB and the GASB, respectively, require companies and governments to record some form of a net pension or other postemployment benefit (OPEB) liability on the face of the entity's financial statements.

Which of the following is true about activities that are reported both by governments and by commercial and nonprofit entities?

An Enterprise Fund must be used if the activity it reports issues debt secured solely by a pledge of its own revenues.

In governmental accounting and reporting, all leases are classified as either short-term or long-term.

Because all capital assets may become impaired-because of changes in technology or other reasons-the FASB and GASB both require impaired assets to be written down using the same criteria.

Proprietary funds are required to present four basic financial statements-a Statement of Net Position, a Statement of Changes in Fund Net Position, a Statement of Cash Flows, and a Budgetary Comparison Statement.

Governments control their Enterprise Fund revenues and expenses in what way?

A City accounts for its hospital in an Enterprise Fund. An individual brings a malpractice suit against the hospital in 2017. City lawyers are concerned about losing the case if it goes to court, but estimate that it is probable they can settle it out of court for $50,000. In any event, the City does not expect any cash outflows on the claim for several years. How should the Enterprise Fund report this item in its statements for the year ended December 31, 2017?

When Internal Service Funds [ISFs] present net position in their financial statements, they can use up to three line items, including net investment in capital assets, restricted, and unrestricted.