Acc 307 Exam 2 Review: Sections 1,2,3

Include modified accrual vs. accrual, measurement focus, leases, long-term debt treatment, and differences between fund-level and government-wide accounting.

Governmental fund

emphasizes current financial resources

Governmental-Fund beginning pattern

Recognize an expenditure for the present value of the lease obligation.

Recognize another financing source for the portion financed through the lease.

Credit Cash for any payment made immediately at beginning

Expenditure =

cash paid at beginning + lease financing recognized as another financing source

What fund do long term liabilities go in?

Long-term liabilities belong in government-wide accounting

Debt Limit Definition

maximum amount of qualifying debt a government may legally have outstanding

Debt Margin Definition

Unused borrowing capacity remaining under that limit

Three Step Calc: 1)Debt limit, 2)Determine debt applicable to the limit,3)Debt margin

1) Assessed valuation × legal debt-limit percentage

2) Include only debt counted by the governing law or problem instructions

3)debt limit − debt applicable to the limit

What should you be careful about when determining which liabilities count toward the legal debt limit?

Do not include every liability automatically. Revenue bonds are generally supported by enterprise revenues, and leases may be treated separately. Always follow the legal definition given in the problem.

Debt Service Funds

Account for financial resources accumulated and used to pay principal and interest on general long-term debt. They do not report the long-term debt itself.

How are general long-term bonds payable reported in debt service funds vs. government-wide accounting?

Debt service fund: None recorded

Gov wide fund: reported as a liability

How are transfers received from the general fund reported in debt service funds vs. government-wide accounting?

Debt service fund: Other financing sources

Gov wide fund: Internal transfer eliminated in government-wide governmental activities

How are principal payments from the general fund reported in debt service funds vs. government-wide accounting?

Debt service fund: Expenditure

Gov wide fund: reduction of bonds payable

How are Interest payment from the general fund reported in debt service funds vs. government-wide accounting?

Debt service fund: Expenditure

Gov wide fund: Interest Expense

How are Depreciation from the general fund reported in debt service funds vs. government-wide accounting

Debt service fund:Not applicable

Gov wide fund:Recorded as capital assets

When are estimated transfers expected to equal appropriations in a debt service fund budget entry?

When the expected transfers equal the total principal and interest payments.

What happens when estimated inflows and appropriations are equal or different?

Equal: Budgetary fund balance is not needed

Different: Use Budgetary Fund Balance to balance the entry.

What is the formula for calculating serial bond interest?

Outstanding principal immediately before payment × Annual interest rate × Fraction of year.

How does retiring principal affect the next serial bond interest calculation?

Use the reduced outstanding principal to calculate the next interest payment.

How is semiannual interest calculated on serial bonds?

Use one-half of the annual interest rate (annual rate ÷ 2).

How is bond principal repayment recorded in a debt service fund vs. government-wide?

Debt service fund: Expenditure

Gov wide fund: Liability reduction

How is bond interest recorded in a debt service fund vs. government-wide?

Debt service fund:Expenditure

Gov wide fund: Expense