Governmental Accounting: Proprietary & Internal Service Fund Reporting
Rationale for Business-Type Activity Reporting
Question: Which of the following is the best rationale/justification for reporting the business-type activities of government in a separate fund?
Answer: Laws or regulations require that the activity’s costs of providing services be recovered by fees and charges rather than by general purpose taxes or similar charges.
Required Basic Statements of a Proprietary Fund
Question: Which of the following are required basic statements of a proprietary fund?
Answer: Statement of net assets and statement of revenues, expenses, and changes in fund net assets.
Flora County Sewer System Bonds: Accounting for Proceeds
Question: Flora County issued $6 million of revenue bonds to finance construction of additional physical plant facilities for the county sewer system that is accounted for in an enterprise fund. The bond agreement requires that $0.5 million of the proceeds be invested in U.S. Treasury securities to be used to service the debt if revenues in a particular year are insufficient to do so. When it sells the bonds, the county debits restricted cash and credits revenue bonds payable. What additional entry, if any, is needed?
Answer: No additional entry is needed at this time.
Linden County Landfill: Recording Closure and Post-Closure Costs
Question: Linden County operates a solid waste landfill that is accounted for in an enterprise fund. The county calculated this year’s portion of the total closure and post-closure costs associated with the landfill to be $300,000. The entry(ies) to record this cost should be:
Answer: Debit landfill expense $300,000; Credit liability for landfill costs $300,000.
Internal Service Funds: Revenue Generation Objectives
Question: Over the long run, governmental internal service funds are intended to generate revenues sufficient to cover the:
Answer: Full costs of providing services.
Internal Service Funds: Common Misconceptions in Financial Statements
Question: Which of the following is NOT true about internal service funds as reported in the fund financial statements?
Answer: Billing rates must be set to cover the full cost of providing the goods or services.
When is an Enterprise Fund Required for Activity Accounting?
Question: In which of the following circumstances must an enterprise fund be used to account for the activity?
Answer: To finance the acquisition of plant facilities, a newly created electric utility issues revenue bonds that will be repaid solely from operations of the electric utility.
General Fund Self-Insurance: Maximum Expenditure Amount
Question: Jay County has designated the General Fund as the single fund to account for its self-insurance activities. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities?
Answer: The amount of actual claims expenditures.
Internal Service Fund Self-Insurance: General Fund Charges
Question: Jona City has designated an internal service fund as the single fund to account for its self-insurance activities. Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund. What amount can be charged to the General Fund related to these self-insurance activities?
Answer: The actuarially determined amount necessary to cover claims, expenditures, and catastrophic losses.
Internal Service Fund Balances: Government-Wide Financial Statement Presentation
Question: Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements:
Answer: In the governmental activities column.
Internal Service Activities: Fund Financial Statement Presentation
Question: On the fund financial statements, internal service activities should be presented:
Answer: In the Proprietary fund statements, without any interfund eliminations.
Examples of Business-Type Activities
- City of Gaston Utility Fund
- History of rates and rate increases
- Operation of a toll road