C. What Is the Rationale for the GASB S Position As to Recognizing Sick Leave?

Hints Chapter 5

5-1 a. Did you take into account the change during the year in the long-term portion of the obligation in determining the liability to be reported on the government-wide statements? b. For what purposes must sick leave be used before a government can recognize it as a liability? c. What is the rationale for the GASB’s position as to recognizing sick leave? d. Do maternity benefits more closely resemble those benefits that should be recognized as liabilities or those that do not? Why?

Inasmuch as neither district will make a payment for at least four years, should either of the two make entries in its operating (general) fund in the first year after adopting its sabbatical policy? What are the key criteria as to whether a district can delay recognizing a liability for sabbatical leaves until the leaves are actually taken? Does the policy of either district satisfy those criteria? If the policy of either district does not satisfy those criteria, should the district report the liability as a fund liaibility? Should it report it as an liability on its government-wide statements?

5-3 a. Under the consumption basis, what account indicates the amount of supplies consumed? By analyzing the inventory account, can you derive the amount of supplies purchased? By analyzing the reserve for encumbrance account can you determine the amount of supplies ordered? Do you now have sufficient information to record the ordering of supplies, the receipt (purchase) of supplies and the use of supplies? What is the amount of supplies on hand at-year end? What accounts must be adjusted to reflect that amount? What accounts must be closed at year-end? b. Under the purchases method, what account represents the amount of supplies consumed? By analyzing the inventory account (and related information as to supplies actually on hand at year-end), can you derive the amount of supplies consumed? By analyzing the reserve for encumbrance account can you determine the amount of supplies ordered? Do you now have sufficient information to record the ordering of supplies and the receipt (purchase) of supplies? What is the amount of supplies on hand at-year end? What accounts must be adjusted to reflect that amount? What accounts must be closed at year-end? 5-4 a. Did you prepare entries to (1) record the budget (2) restore encumbrances from the previous year (3) establish a reserve for supplies ordered (4) record the receipt of supplies (5) eliminate the portion of the reserve for encumbrances representing the supplies received (6) adjust supplies inventory and the related reserve at year-end and (7) close appropriations, expenditures and encumbrances? c. How much did the city budget for supplies? How much did it order?

5-5 a. Did you offset the cash received with “proceeds from sale and leaseback”? Did you recognize the acquisition of the fixed assets as an expenditure, offset by “other financing source – capital lease”? b. Did you record the payment of both lease principal and lease interest as an expenditure? c. In Part a did the debits and credits of your entries that affected the operating statement (as opposed to the balance sheet) result in a net debit or credit? Did it thereby increase, decrease or have no impact upon the general fund deficit for 2002?

5-6 a. Do the expenditures for each option equal the cash disbursements in each particular year (except for the fifth option in which the prepaid rent is accounted for on a consumption basis)?

b. Are the present values of all options the same?

5-7 a. Does the economic cost in each case equal the amount of cash borrowed (received) times the effective annual interest rate times the fraction of the year for which the loan was outstanding? Does the interest expenditure equal the required cash payment during the period? b. What is the one exception to the general rule that neither interest nor principal on long-term debt be accrued? c. Is the economic gain equal to the amount invested times the effective yield times the fraction of the year for which the investment was held? On what basis must governments carry their investments? How would accrued interest likely affect the value at which the investments must be carried?

5-8 a. In what critical way do the payments for support services, rent, and in lieu of taxes differ from operating transfers? Should they be reflected as transfers or as revenues?

5-9 a. Did you remember to add or subtract from each revenue and expenditure the change in the related asset and liability account? Did the acquisition of equipment or the legal settlement result in net cash outflows? How can you tell? b. Under the modified basis of accrual do expenditures represent economic costs incurred or merely costs requiring the use of current financial resources? Is the same true under the full accrual basis as applied in the government-wide statements?

5-10 a. How are acquisitions of fixed assets accounted for in government funds – as expenditures or as additions to assets? b. Did you record the acquisitions of the irrigation systems and soccer fields as expenditures? Did you record the interfund loan as an increase in “advances from other funds”? c. How are acquisitions of fixed assets accounted for in government funds – as expenditures or as additions to assets? Do what extend would the sale or retirement of fixed assets be reported in a government fund (as opposed to the fixed asset account group)? d. What entry would the city most likely have made when it collected taxes during the year? Assume that these taxes had already been recognized as taxes receivable but had not yet been recognized as revenue? What entry would it have made to recognize taxes levied (and thereby receivable) but not yet collected (and not yet recognized as actual revenue)?

5-11 a. Which method requires an inventory fund balance reserve? Does Dallas report such a reserve? b. If government funds do not report long-term obligations as liabilities, then what must their reported liabilities represent? c. Does fund balance represent cash on hand? Will all reported assets be transformed into cash? Are all obligations requiring the use of cash reported as liabilities?