Afar 17

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Chapter 17
Introduction to Fund Accounting
Multiple Choice
1. Governmental units include all of the following except

a. counties.
b. school districts.
c. industrial development districts.
d. voluntary health and welfare organizations.
2. Which type of fund entities are used to account for the activities of nonbusiness organizations that
are similar to those of business enterprises?
a. Expendable fund entities
b. Proprietary fund entities
c. Budgetary fund entities
d. Restricted fund entities
3. When budgeted expenditures are enacted into law, they are referred to as
a. estimated expenditures.
b. encumbrances.
c. appropriations.
d. expenditures.
4. The term used to describe the application of accounting to expendable fund entities is the
a. accrual method.
b. cash method.
c. modified cash method.
d. modified accrual method.
5. The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to
a. Appropriations.
b. Expenditures.
c. Encumbrances.
d. both Appropriations and Encumbrances.
6. The entry to record the receipt of office equipment previously encumbered includes a debit to
a. Office Equipment.
b. Encumbrances.
c. Reserve for Encumbrances.
d. both Office Equipment and Reserve for Encumbrances.
7. In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory"
account is used under
a. the consumption method.
b. the purchase method.
c. both the consumption and purchase methods.
d. none of these.
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17-2 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition
8. The two basic statements prepared for expendable fund entities are a balance sheet and a(n)
a. income statement.
b. statement of revenue.
c. statement of expenditures and encumbrances.
d. none of these.
9. If a credit was made to the fund balance in the process of recording a budget for a governmental
unit, it can be assumed that
a. estimated expenses exceed actual revenues.
b. actual expenses exceed estimated expenses.
c. estimated revenues exceed appropriations.
d. appropriations exceed estimated revenues.
10. The "reserve for encumbrancesprior year" account represents amounts recorded by a
governmental unit for
a. anticipated expenditures in the next year.
b. expenditures for which purchase orders were made in the prior year but disbursement will be in
the current year.
c. excess expenditures in the prior year that will be offset against the current-year budgeted
amounts.
d. unanticipated expenditures of the prior year that become evident in the current year.
11. Which of the following requires the use of the encumbrance system?
a. Capital projects fund
b. Debt service fund
c. Internal service fund
d. Enterprise fund
12. The following related entries were recorded in sequence in the general fund of a municipality:
1. Encumbrances 15,000
Reserve for Encumbrances 15,000
2. Reserve for Encumbrances 15,000

Encumbrances 15,000
3. Expenditures 15,350
Vouchers Payable 15,350
The sequence of entries indicates that

a. an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was
cancelled and a liability for the item was acknowledged.
b. an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350
for which a liability was acknowledged upon receipt.
c. encumbrances were anticipated but later failed to materialize and were reversed. A liability of
$15,350 was incurred.
d. the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged.
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Chapter 17 Introduction to Fund Accounting 17-3
13. The reserve for encumbrances account is properly considered to be a

a. current liability if payable within a year; otherwise, long-term debt.
b. fixed liability.
c. floating debt.
d. reservation of the fund's equity.
14. Customers' meter deposits which cannot be spent for normal operating purposes would be classified
as restricted cash in the balance sheet of which fund?
a. Internal Service
b. Trust
c. Agency
d. Enterprise
15. What journal entry should be made at the end of the fiscal year to close out encumbrances for which
goods and services have not been received?
a. Debit reserve for encumbrance and credit encumbrances.
b. Debit reserve for encumbrances and credit fund balance.
c. Debit fund balance and credit encumbrances.
d. Debit encumbrances and credit reserve for encumbrances.
16. The GASB has the responsibility for establishing financial accounting standards for all of the
following entities except:
a. state and local government entities.
b. veterans hospitals.
c. school districts.
d. civic organizations.
17. The expendable fund entitys measurement focus is on:

a. the flow of current financial resources.
b. the flow of economic resources.
c. the flow of revenue, expenses, and net income.
d. none of the above.
18. Under GASB Statement No. 34, a government-wide financial statement should include a:
a. statement of revenues & expenses.
b. statement of activities.
c. statement of financial position.
d. notes to the financial statements.
19. In accounting for expendable fund entities, revenue is ordinarily not recognized until:
a. it can be objectively measured and it is available to finance expenditures of the current period.
b. a transaction has taken place and the earnings process is complete.
c. it has been received in cash.
d. none of the above.
20. The Expenditures account of a governmental unit is debited when:

a. the budget is recorded.
b. supplies are ordered.
c. supplies encumbered are received.
d. the supplies invoice is paid.
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Problems
17-1 During 2011, the City of Paola was involved in the following transactions:
1. A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of

$1,550,000 was approved by the city council.
2. Statements of property tax assessments totaling $1,100,000 were mailed to property owners.
Experience indicates that 2% of assessed taxes will be uncollectible.
3. Equipment costing $85,000 was purchased, and old equipment was sold for $15,000 at the end
of its estimated useful life.
4. The city manager signed a contract to purchase a machine costing $25,000.
5. The city received a statement from the state indicating that the city's portion of the state sales
tax is $50,000.
6. The machine ordered in (4) above is delivered and accepted. The invoice in the amount of
$26,000 was approved for payment.
Required:
Prepare the journal entries needed to account for the preceding transactions.
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17-2 On December 31, 2011, the following account balances, among others, were included in the
preclosing trial balance of the General Fund of the City of Ottawa.
Estimated Revenue $2,960,000

Expenditures 1,950,000
Encumbrances 530,000
Expenditures2010 300,000
Reserve for Encumbrances (1) 830,000
Appropriations 2,850,000
Revenue 3,220,000
Reserve for Supplies Inventory (2) 600,000
Supplies Inventory 600,000
Unreserved Fund Balance 300,000
(1) The balance in this account was $270,000 on January 1, 2011. Purchase orders outstanding on
December 2011 total $530,000.
(2) Supplies on hand on December 31, 2011, amount to $380,000.
Required:
1. What was the balance in the Unreserved Fund Balance account on December 31, 2010?
What was the total Fund Balance on December 31, 2010?
2. Prepare the necessary adjusting and closing entries for the year ended December 31, 2011.
Ottawa uses the purchase method to account for supplies.
17-3 The trial balance for the General Fund of the City of Girard as of December 31, 2010, is presented
below:
CITY OF GIRARD
The General Fund
Adjusted Trial Balance
December 31, 2010
Debit Credit
Cash $216,000
Property Tax Receivable 31,000
Estimated Uncollectible Taxes $ 80,000
Due from Trust Fund 41,000
$288,000 $288,000
Transactions for the year ended December 31, 2011 are summarized as follows:
1. The City Council adopted a budget for the year with estimated revenue of $720,000 and
appropriations of $710,000.
2. Property taxes in the amount of $495,000 were levied for the current year. It is estimated that
$20,000 of the taxes levied will prove to be uncollectible.
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3. Proceeds from the sale of equipment in the amount of $32,000 were received by the General
Fund. The equipment was purchased four years ago with resources of the General Fund at a cost
of $200,000. On the date it was purchased, it was estimated that the equipment had a useful life
of six years.
4. Licenses and fees in the amount of $90,000 were collected.
5. The total amount of encumbrances against fund resources for the year was $595,000.
6. Vouchers in the amount of $445,000 were authorized for payment. This was $11,000 less than
the amount originally encumbered for these purchases.
7. An invoice in the amount of $19,000 was received for goods ordered in 2010. The invoice was
approved for payment.
8. Property taxes in the amount of $425,000 were collected.
9. Vouchers in the amount of $385,000 were paid.
10. Forty-one thousand dollars was transferred to the General Fund from the Trust Fund.
11. The City Council authorized the write-off of $15,000 in uncollected property taxes.
Required:
1. Prepare entries, in general journal form, to record the transactions for the year ended
December 31, 2011.
2. Prepare the necessary closing entries for the year ending December 31, 2011.
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17-4 The following information regarding the fiscal year ended June 30, 2011, was drawn from the
accounts and records of the Chase County general fund:
Revenues and other asset inflows:

Property taxes $6,000,000
Licenses and permits 750,000
State grants 150,000
Collection of interfund advance to other fund 80,000
Proceeds from sale of equipment 40,000
Expenditures and other asset outflows:

General government $2,250,000
Public safety 1,130,000
Judicial system 600,000
Health 900,000
Equipment purchases 370,000
Payment to debt service fund to cover future debt
service on general government bonds 570,000
Total fund balance, July 1, 2010 $1,200,000
Required:
Prepare a statement of revenues, expenditures, and changes in fund balance for the Chase County
general fund for the year ended June 30, 2011.
17-5 The unadjusted trial balance for the general fund of the City of Iola at June 30, 2011, is as follows:
Debits
Cash $170,000
Due from agency fund 25,000
Estimated revenues 800,000
Expenditures 610,000
Property taxes receivable 110,000
Credits
Allowance for uncollectible taxes 8,000
Appropriations 790,000
Unreserved fund balance 30,000
Reserve for encumbrances 60,000
Revenues 840,000
Vouchers payable 107,000
Supplies on hand at June 30, 2011, totaled $8,000. The $120,000 encumbrance relates to equipment
ordered but not received by fiscal year-end.
Required:
Prepare a balance sheet for the general fund of the City of Iola at June 30, 2011.
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17-6 At the beginning of 2011, the City of Wichita reported an Unreserved Fund Balance of $890,000 and
a supplies inventory balance of $280,000. During the year, Wichita purchased $360,000 in supplies
and used $350,000 worth. The city will report a reserve for supplies inventory.
Required:
a. Prepare the journal entries needed to account for the supplies under the consumption
method.
b. Prepare the necessary journal entries under the purchases method.
c. What would the December 31, 2011, balance in the Unreserved Fund Balance be under the
consumption method, assuming that the only transactions of the fund are those involving the
supplies?
17-7 The following account balances, among others, were included in the preclosing trial balance of the
General Fund of the City of Baxter on December 31, 2011.
Appropriations $2,350,000
Cash 180,000
Due from Other Funds 170,000
Due to Other Funds 70,000
Estimated Revenue 2,480,000
Expenditures 2010 200,000
Reserve for Encumbrances 2010 210,000
Revenue 2,400,000
Taxes Receivable 400,000
Transfers from Other Funds 250,000
Transfers to Other Funds 350,000
Required:
a. Prepare the necessary closing entries on December 31, 2011.
b. Calculate the amount of both the unreserved fund balance and the total fund balance in the
balance sheet (1) on December 31, 2010, and (2) on December 31, 2011.
Short Answer
1. Fund entities may be classified as expendable fund entities, fiduciary fund entities, and proprietary
fund entities. Distinguish among expendable, fiduciary, and proprietary fund entities.
2. Expendable fund entities prepare closing entries at the end of each period just as business
enterprises do. Describe the necessary closing entries for expendable funds.
Short Answer Questions from the Textbook
1. What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?
2. Define a fund as the term is applied in accounting for the activities of governmental units and other
nonbusiness organizations.
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3. What is the significance of the unreserved fundbalance of an expendable fund entity?
4. What are the major classifications of increases and decreases in expendable fund resources?
5. What are the revenue-recognition criteria for expendable fund entities? How do these criteria differ
from revenue-recognition criteria for profit-oriented enterprises?
6. Expenditures may be classified by function, activity, object, or organizational unit. Give an ex-
ample of each classification for a municipality. Which classification is the most appropriate for
external financial reporting?
7. Distinguish between an appropriation, an en-cumbrance, an expenditure, and a disbursement.
8. Distinguish between an expense and an expenditure.
9. Explain and justify the difference between the treatment of estimated uncollectible taxes in fund
accounting and the treatment of estimated bad debts in commercial accounting.
10. Explain the purposes of encumbrance accounting. Might encumbrance accounting be used by
commercial enterprises?
11. Is the year-end balance in the Reserve for En-cumbrances account a liability? Explain.
12. What columns would you suggest for a subsidiary ledger account in order that it might be a
subsidiary not only to the appropriations control account but also the encumbrances and the
expenditures control accounts?
13. Why is depreciation on fixed assets not recorded in the records of expendable fund entities?
14. How does the adoption of a budget for a general fund entity differ from the adoption of a budget by
a commercial unit?
15. Describe the principal financial statements used to report on the activities and status of expendable
fund entities.
16. Why may it be difficult or impossible for a governmental unit to determine the total cost of
performing a particular activity or function?
Business Ethics Question from the Textbook
At State College, where football has long reigned asking and fans are near fanatical in their attendance, the
frenzy for football tickets has recently reached an all-time high. With requests for home game tickets at an
unprecedented level, prices on everything from parking passes to hotel rooms to home rentals have soared
beyond belief. Parking passes were going for $500 on eBay, and hotel rates have doubledand in some
cases nearly tripledreaching as high as $650 per night at some hotels.
1. What are the moral or ethical issues in charging what people will pay for rooms and tickets to at-
tend a State College football game?
2. Why not let the economic forces of supply and demand determine prices in our capitalistic
system?
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ANSWER KEY
Multiple Choice
1. d 8. d 15. c
2. b 9. c 16. d
3. c 10. b 17. a
4. d 11. a 18. b
5. a 12. b 19. a
6. c 13. d 20. c
7. b 14. d
Problems
17-1 1. Estimated Revenue 1,500,000

2. Property Tax Receivable 1,100,000

Estimated Uncollectible Prop. Taxes 22,000
Revenue 1,078,000
Cash 85,000
Cash 15,000
Revenue 15,000
5. Due from State 50,000

Revenue 50,000
6. Reserve for Encumbrances 25,000

Encumbrances 25,000
Expenditures 26,000
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17-2 1. Unreserved fund balance per trial balance $ 300,000

Add: Appropriations 2,850,000
Less: Estimated Revenues (2,960,000)
Unreserved fund balance as of December 31, 2010 $ 190,000
Unreserved fund balance as of December 31, 2010 $ 190,000

Reserve for encumbrances 12/31/10 270,000
Reserve for supplies inventory 600,000
Total fund balance 12/31/10 $1,060,000
2. Adjusting and Closing Entries

Revenue 3,220,000
Reserve for Supplies Inventory 220,000

Supplies Inventory 220,000

17-3 1. Journal Entries

1. Estimated Revenue 720,000
2. Property Tax Receivable 495,000

Estimated Uncollectible Taxes 20,000
Revenue 475,000
3. Cash 32,000
Revenue 32,000
4. Cash 90,000
Revenue 90,000
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7. Expenditures 2010 19,000

8. Cash 425,000
9. Vouchers Payable 385,000

Cash 385,000
10. Cash 41,000

Due from Trust Fund 41,000
11. Estimated Uncollectible Taxes 15,000

2. Closing Entries
1. Revenue 597,000
Estimated Revenue 720,000
2. Reserve for Encumbrances 2010 20,000

3. Appropriations 710,000
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17-4
Chase County
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended June 30, 2011
Revenues:
Property taxes $6,000,000
Licenses and permits 750,000
State grants 150,000
Total revenues $6,900,000
Expenditures:
General government 2,250,000
Public safety 1,130,000
Judicial system 600,000
Health 900,000
Equipment purchases 370,000
Total expenditures 5,250,000
Excess of revenues over expenditures 1,650,000

Other financing sources (uses):
Operating transfers out-debt service fund (570,000)
Special items:
Proceeds from sale of equipment 40,000
Net change in fund balance 1,120,000
Fund Balance-beginning 1,200,000
Fund Balance-ending $2,320,000
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17-5
City of Iola
General Fund
Balance Sheet
June 30, 2011
Assets:
Cash $170,000
Property taxes receivable (net of
estimated uncollectible taxes of $8,000) 102,000
Due from other funds 25,000
Supplies 8,000
Total assets $ 305,000
Liabilities and Fund Balance:

Vouchers payable 107,000
Fund balance unreserved 130,000
Reserve for encumbrances 60,000
Reserve for inventory 8,000
Total fund balance 198,000
Total liabilities and fund balance $305,000
Computation of Unreserved Fund Balance:

Pre-closing balance $ 30,000
Add:
Revenues 840,000
Deduct:
Estimated revenues 800,000
Post-closing balance $130,000
17-6
A. Expenditures 360,000
Cash 360,000
Inventory 8,000
Expenditures 8,000

B. Expenditures 360,000
Cash 360,000
Inventory 8,000
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C. 1/1 Balance $890,000

Use of Supplies (350,000)
Setting up of Reserve (8,000)
12/31 Unreserved Fund Balance $532,000
17-7
A. Closing Entries
1. Unreserved Fund Balance 80,000
Revenue 2,400,000
2. Reserve for Encumbrances 2010 210,000

3. Appropriations 2,350,000
4. Transfers from Other Funds 250,000

Transfers to Other Funds 350,000
B. Budget entry on January 1, 2011
Estimated Revenues 2,480,000

Unreserved fund balance per 12/31/11 preclosing trial balance $ 280,000

Less credit to unreserved fund balance on 1/1/11 from budget entry 130,000
Unreserved fund balance on 12/31/10 150,000
Total fund balance per balance sheet 12/31/10 $ 360,000
Unreserved fund balance per 12/31/11 pre-closing trial balance $280,000

Closing entries ($10,000 + $90,000 - $80,000 - $100,000) (80,000)
Unreserved fund balance 12/31/11 200,000
Total fund balance per balance sheet 12/31/11 $450,000
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Short Answer
1. Expendable fund entities consist of net financial resources that are dedicated to a specified use.
Separate expendable fund entities are established based on the purpose for which financial resources
may/must be used. Fiduciary fund entities are used to follow the activities in which the government
acts as an agent for resources that belong to others such as employee pension plans. Fiduciary funds
include both trust and agency funds.
Proprietary fund entities are used to account for the activities of nonbusiness organizations that are
similar to those of business enterprises, such as a municipal water utility.
2. Closing entries for expendable funds include the following:

a. Revenues are closed against estimated revenues with the difference recorded in unreserved fund
balance.
b. Appropriations are closed against expenditures and encumbrances. Any difference is recorded in
the unreserved fund balance.
c. Expenditures made for prior years encumbrances are closed against the reserve for
encumbrances for that specific year.
d. Transfers to and from other funds are closed against unreseved fund balance.
Short Answer Questions from the Textbook Solutions
1. The performance of services by nonbusiness organizations is based on social need rather than on the
profit motive and there is no conscious or deliberate effort by such organizations to derive a profit from
their operations.
Nonbusiness organizations are not operated for the financial benefit of a specific individual or
group of individuals and those who contribute resources to nonbusiness organizations do not
necessarily benefit proportionately or at all from the services provided by such organizations.
There is no proprietary interest in nonbusiness organizations and the equity interest in the net
assets of such organizations cannot be sold or exchanged.
2. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and
other financial resources together with all related liabilities and residual equities or balances,
and changes therein, which are segregated for the purpose of carrying on specific activities or
attaining certain objectives in accordance with special regulations, restrictions, or limitations.
3. At any particular point in time the unreserved fund balance of an expendable fund entity
represents the balance of financial resources that are available for expenditure for the specified
purposes or objectives for which the fund was created.
4. Major classifications of increases in expendable fund resources are revenues, debt issue proceeds and
transfers from other funds. Decreases in expendable fund resources are classified as expenditures or as
transfers to other funds.
5. In accounting for expendable funds entities revenue is recognized when (1) it can be objectively
measured and (2) it is available to finance expenditures of the current period. In contrast, in accounting
for profit-oriented enterprises revenue is ordinarily not recognized until (1) it can be objectively
measured and (2) the earnings process is complete or substantially complete.
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6. Municipality:
Functions Public Safety

Activity Vice Control
Organization Unit Police Department
Object Travel
Functional and activity classifications are recommended for external financial reporting.
7. An appropriation is an authorization enacted by a legislative body or granted by a governing board to

make expenditures for a specified purpose.
An encumbrance is an obligation in the form of a purchase order or other commitment that reduces
appropriation authority and is formally recorded in the accounting records.
An expenditure is a decrease in the net financial resources of a fund entity incurred to carry out
the activities or objectives of the fund.
A disbursement represents the payment of cash for an expenditure. Such payments may precede the
expenditure (an advance), coincide with the expenditure (a direct payment), or follow the expenditure
(the payment of a liability).
8. An expense is associated with accounting for profit oriented enterprises or proprietary funds and may be
defined as an expired cost consumed in the production of revenue. An expenditure is associated with
accounting for expendable funds entities and is a decrease in the net financial resources of a fund entity
incurred to carry out the activities or objectives of the fund.
9. In accounting for commercial activities, estimated uncollectible receivables are treated as an

expense in the determination of net income. In accounting for expendable fund entities,
estimated uncollectible taxes are treated as a direct reduction of revenue in the determination of
the inflow of financial resources. The estimate of uncollectible taxes is treated as a direct
reduction of revenue rather than as an expenditure since the failure to collect taxes is not an
outflow of financial resources but rather is a reduction in the inflow of financial resources.
Since there is no appropriation for the amount of estimated uncollectible taxes, it is properly
accounted for as a reduction of revenue rather than as an expenditure.
10. Since the amount of an appropriation cannot be legally exceeded, the placing of purchase orders and the
signing of contracts are critical events in controlling the expenditures of expendable fund entities. The
financial resources of a fund are said to be encumbered when a transaction is entered into that requires
performance on the part of another party before the nonprofit entity becomes liable to perform (expend
financial resources) its part of the transaction. Encumbrance accounting formally records the reduction
of appropriation authority resulting from purchase orders and similar commitments and thus serves to
provide an accounting safeguard against the expenditure of financial resources in excess of
appropriations.
There would be no reason to prevent a commercial enterprise from using encumbrance

accounting so long as the balance in reserve for encumbrances was offset by the balance in the
encumbrances account for reporting purposes. However, the compelling need for encumbrance
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accounting arising from the penalties provided by law for government administrators who
expend funds in excess of those appropriated is not a factor in the operation and administration
of commercial enterprises.
11. The balance in the Reserve for Encumbrances account is not a liability. Rather it represents the
estimated amount of net financial resources of the fund entity that will be needed in the subsequent year
to liquidate obligations entered into under the authority of the current years appropriation. As such it
represents a restriction on the availability of fund resources for future appropriation rather than a
liability and is properly reported in the financial statements as a portion (reserved) of the total fund
balance.
12. There should be columns for the following balances: Appropriations, Encumbrances,
Expenditures, Total Encumbrances and Expenditures, and Unencumbered Balance.
13. Assets acquired with the resources of an expendable fund entity do not represent expendable
financial resources but rather reflect the purposes for which the financial resources have been
used. Thus, they are recorded and reported as expenditures of, rather than as assets of, the
expendable fund entity. Depreciation is not accounted for in the records of an expendable fund
entity for the same reasons that fixed assets are excluded from the records of such entities.
Expenditures, not expenses, are measured in fund accounting.
Acquisitions of fixed assets require the use of financial resources and are accounted for as
expenditures. Depreciation of such assets is not a use of the financial resources of an
expendable fund entity and thus is not properly recorded in the accounts of such entities.
Inclusion of depreciation expense in the operating statement of an expendable fund entity
would confuse two fundamentally different measurements - expenditures and expenses.
14. The adoption of a budget for a general fund is a legislative process that is highly formalized and which
results in the formal recording of the budgeted amounts (appropriations) within the framework of the
double entry accounting system. The adoption of a budget by a commercial unit is also a planning and
control device, but the adoption process and the subsequent application of the budget is seldom as
formalized or as rigid as it is in governmental accounting.
15. There are two principal financial statements recommended for expendable fund entities: (1) a
Comparative Balance Sheet and (2) a Comparative Statement of Revenue, Expenditures and
Other Changes in Fund Balance. These two statements may be accompanied by schedules that
present detailed financial data which support and amplify the information summarized in the
formal financial statements. Supporting schedules may also be used to present budgetary data or
to demonstrate compliance with legal provisions.
16. In order to determine the total cost of performing a particular function or activity, the total
expenditures for such functions or activities would have to be adjusted by reducing the amount
of capital expenditures included therein and by adding depreciation expenses relating to the
dissipation of services embodied in capital assets utilized to support the function or activity.
Since capital acquisitions are not distinguished from other expenditures in the records of
expendable fund entities and since depreciation is not calculated within the framework of the
records of expendable fund entities there may be no reasonable basis for determining the
amount or classification of these adjustments.
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Business Ethics Question from the Textbook Solution

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students'
awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or
conflicting viewpoints.
Issues to be considered: If pricing is a function of cost, then businesses charging excessive prices can be
viewed as following excessive, even obscene pricing strategies. Also, there are others visiting the city who
are not attending the football game and who might adversely affected (for example, individuals with medical
emergencies, ill family members, etc.). On the other hand, the goal of business is to make a profit and take
advantage of market opportunities. As long as people are aware of the practices, many might argue that the
pricing strategy is appropriate.

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1. Governmental units include all of the following except

2. Reserve for Encumbrances 15,000

The sequence of entries indicates that

Chapter 17 Introduction to Fund Accounting 17-3

13. The reserve for encumbrances account is properly considered to be a

17. The expendable fund entitys measurement focus is on:

20. The Expenditures account of a governmental unit is debited when:

1. A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of

4. The city manager signed a contract to purchase a machine costing $25,000.

Chapter 17 Introduction to Fund Accounting 17-5

Estimated Revenue $2,960,000

(2) Supplies on hand on December 31, 2011, amount to $380,000.

4. Licenses and fees in the amount of $90,000 were collected.

8. Property taxes in the amount of $425,000 were collected.

9. Vouchers in the amount of $385,000 were paid.

Chapter 17 Introduction to Fund Accounting 17-7

Revenues and other asset inflows:

Expenditures and other asset outflows:

Short Answer Questions from the Textbook

1. What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?

Chapter 17 Introduction to Fund Accounting 17-9

3. What is the significance of the unreserved fundbalance of an expendable fund entity?

7. Distinguish between an appropriation, an en-cumbrance, an expenditure, and a disbursement.

8. Distinguish between an expense and an expenditure.

Business Ethics Question from the Textbook

17-1 1. Estimated Revenue 1,500,000

2. Property Tax Receivable 1,100,000

5. Due from State 50,000

6. Reserve for Encumbrances 25,000

Chapter 17 Introduction to Fund Accounting 17-11

17-2 1. Unreserved fund balance per trial balance $ 300,000

Unreserved fund balance as of December 31, 2010 $ 190,000

2. Adjusting and Closing Entries

Reserve for Supplies Inventory 220,000

Unreserved Fund Balance 30,000

17-3 1. Journal Entries

2. Property Tax Receivable 495,000

7. Expenditures 2010 19,000

9. Vouchers Payable 385,000

10. Cash 41,000

11. Estimated Uncollectible Taxes 15,000

2. Reserve for Encumbrances 2010 20,000

Chapter 17 Introduction to Fund Accounting 17-13

Excess of revenues over expenditures 1,650,000

Liabilities and Fund Balance:

Computation of Unreserved Fund Balance:

Unreserved Fund Balance 8,000

Chapter 17 Introduction to Fund Accounting 17-15

C. 1/1 Balance $890,000

2. Reserve for Encumbrances 2010 210,000

4. Transfers from Other Funds 250,000

B. Budget entry on January 1, 2011

Estimated Revenues 2,480,000

Unreserved fund balance per 12/31/11 preclosing trial balance $ 280,000

Unreserved fund balance per 12/31/11 pre-closing trial balance $280,000

2. Closing entries for expendable funds include the following:

Short Answer Questions from the Textbook Solutions

Chapter 17 Introduction to Fund Accounting 17-17

Functions Public Safety

7. An appropriation is an authorization enacted by a legislative body or granted by a governing board to

9. In accounting for commercial activities, estimated uncollectible receivables are treated as an

There would be no reason to prevent a commercial enterprise from using encumbrance