A. Conceptually, the measurement focus determines what is measured; the basis of accounting determines when something is measured. The economic resources measurement focus measures all economic resources, including capital assets and long-term debt. The current financial resources measurement focus measures primarily financial resources and does not recognize long-term assets and liabilities. These resources are generally restricted to current assets, investments, and short-term liabilities
The accrual basis of accounting recognizes revenues when earned and expenses when incurred. The modified accrual basis of accounting is somewhere between the cash and accrual bases of accounting and recognizes revenues when measurable and available to finance expenditures of the current period. The modified accrual basis of accounting recognizes expenditures generally when the fund liability is incurred (i.e. goods and services are received).
B. Under accrual accounting revenues based on exchange transactions are recognized when earned. Under modified accrual accounting, revenue recognition is modified to require that the amount be measurable and available to finance expenditures of the current period.
C. Under accrual accounting, expenses are recognized when goods or services are used. Expenses are often matched with the revenues those expenses generate, in the case of exchange transactions. Accruals are required for interest and other expenses, regardless of when cash is to be transferred. Under modified accrual accounting, expenditures (not expenses) are recorded generally when goods or services are received. (To the instructor: This answer is based on the information given in Chapter 1; more sophistication is introduced in later chapters.)
D. Under the economic resources measurement focus and accrual accounting, fixed assets are capitalized and depreciated (except for infrastructure assets using the modified approach). Under the current financial resources measurement focus and modified accrual accounting, fixed assets are not capitalized or depreciated; rather fixed assets are charged to expenditures when received.
E. Under the economic resources measurement focus and accrual accounting, long-term debt is recorded as a liability. Under the current financial resources measurement focus and modified accrual accounting, long-term debt is not recorded as a liability. (Later chapters will indicate that the issuance of debt results in an “other financing source” in the governmental fund statements and that the repayment of debt will result in an expenditure in the governmental fund statements.)
1-9.The appropriate funds are:
a) Capital projects fund: These financial resources are to be used to finance construction of a capital asset. Since the jail is unlikely to charge for its services, it would not be part of a proprietary fund.
b) Special revenue fund: Since the tax revenue is restricted by state law for a purpose other than capital project or debt service, these amounts would be reported in a special revenue fund.
c) Enterprise fund: Although this represents a capital project, water departments are typically reported as enterprise funds.
d) Private-purpose trust fund: This is a trust fund in which the income benefits individuals. If the purpose of the fund was to benefit the government or its citizenry (broadly), then it would be appropriate to report these resources in a permanent fund.
e) Special revenue Fund: Although the library benefits the citizenry in general, the absence of a requirement that principal be maintained precludes the resources being reported in a permanent fund. Since the resources are restricted by the donor, they would be reported in a special revenue fund.
f) General Fund: The resources are neither fiduciary nor proprietary. Since the resources are not restricted or committed to a particular purpose, the General Fund would be the appropriate fund for reporting the proceeds of the sale of the equipment.
g) Several funds will be affected:- General Fund – Contributions on behalf of the teachers and Public Safety Employees will be paid by the General Fund which includes departments where these employees work.- Enterprise Fund – Water departments are typically reported in enterprise funds and Contributions on behalf of water department Employees will be paid by this fund.- Pension Trust Fund – The amounts contributed by the General and Enterprise funds will be received by the pension trust fund for investment.
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