C2

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School

College of Southern Nevada *

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201

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Accounting

Date

Jan 9, 2024

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C2 – Excel City – Fund Balance Description/Classification Problem/Solution Task One 1. $500,000 grant resources remain for a federal government grant for emergency housing assistance for victims of Hurricane Harvey. – Restricted 2. The general fund has $15,000 in inventory. – Nonspendable 3. Excel’s city manager set aside $30,000 for future development of a fishing pier. – Assigned 4. The capital project fund ended the year with a negative fund balance. – Unassigned 5. Excel’s city council set aside $5,000,000 in a rainy-day emergency fund. The funds can only be used with the approval of two-thirds vote of the city council. – Committed 6. Excel’s city council passed an ordinance requiring 50% of beach parking permit fees to be set aside for beach cleanup. The amount was $124,000. – Committed 7. Excel’s general fund statement of revenues, expenditures, and changes in fund balance reported a net change in fund balance of $127,500. – Unassigned 8. Excel’s Cemetery Fund has a $1,000,000 permanent endowment that cannot be spent. – Nonspendable 9. Excel’s Library Special Revenue Fund has a $4,500 fund balance with no constraints or restrictions. – Assigned 10. Excel’s director of finance has set aside $400,000 in the debt service fund for future bond principal retirement. – Assigned 1

C2 – Excel City – Fund Balance Description/Classification Problem/Solution Rationale : 1. The restricted fund balance is used when the resources are designated for a specific purpose by an external party, such as federal grant monies. 2. The nonspendable fund balance is used for amounts that are not in a form that can be spent, such as inventories. 3. The assigned fund balance is used when amounts are intended to be used for a specific purpose that is neither restricted by an external party nor committed by formal action of the government’s highest level of decision-making authority. It is generally taken that amounts in special revenue, capital project, debt service, and permanent funds that are not designated as restricted or committed will be assigned fund balance amounts. 4. Only the general fund can have a positive unassigned fund balance. Any other fund with expenditures in excess of amounts restricted, committed, or assigned will report the excess as a negative unassigned fund balance. 5. The committed fund balance is used for amounts designated for a specific purpose by formal action of the government’s highest level of decision-making authority and can be changed only by formal action of the same group. 6. The committed fund balance is used for amounts designated for a specific purpose by formal action of the government’s highest level of decision-making authority and can be changed only by formal action of the same group. 7. Only the general fund can have a positive unassigned fund balance. 8. The restricted fund balance is used when the resources are designated for a specific purpose by an external party, such as an external donor. 9. The assigned fund balance is used when amounts are intended to be used for a specific purpose that is neither restricted by an external party nor committed by formal action of the government’s highest level of decision-making authority. It is generally taken that amounts in special revenue, capital project, debt service, and permanent funds that are not designated as restricted or committed will be assigned fund balance amounts. 2

C2 – Excel City – Fund Balance Description/Classification Problem/Solution 10. The assigned fund balance is used when amounts are intended to be used for a specific purpose that is neither restricted by an external party nor committed by formal action of the government’s highest level of decision-making authority. It is generally taken that amounts in special revenue, capital project, debt service, and permanent funds that are not designated as restricted or committed will be assigned fund balance amounts. 3

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C2 – Excel City – Fund Balance Description/Classification Problem/Solution Task Two In preparation of its government-wide statement of net position, Excel City has closed all of its temporary accounts into Net Position – Unrestricted and has made the adjustments necessary to reconcile the modified accrual basis of accounting in the governmental funds to accrual in the government-wide financial statements. Excel’s accounting staff has reviewed transactions and events to identify adjustments to net position accounts in preparation of its statement of net position. Indicate whether the item requires an adjustment to increase, decrease, or has no effect on each of the three net position accounts: net investment in capital assets restricted, and unrestricted. 1. Depreciation was recorded. - Net Investment in Capital Assets – Decrease - Restricted – No effect - Unrestricted – Increase 2. Bonds for airport improvements were paid off. - Net Investment in Capital Assets – Increase - Restricted – No effect - Unrestricted – Decrease 3. Construction expenditures were paid for a new police substation. - Net Investment in Capital Assets – Increase - Restricted – No effect - Unrestricted – Decrease 4. Federal grant monies received in the prior year (20x0) were expended in 20x1. - Net Investment in Capital Assets – No effect - Restricted – Decrease - Unrestricted – Increase 5. New police vehicles were purchased with 80 percent financing with long-term notes. - Net Investment in Capital Assets – Increase - Restricted – No effect - Unrestricted – Decrease 4

C2 – Excel City – Fund Balance Description/Classification Problem/Solution 6. State grant monies restricted for a homeless shelter were received in 20x1 and remain unexpended at year-end. - Net Investment in Capital Assets – No effect - Restricted – Increase - Unrestricted – Decrease 7. A $1 million endowment restricted for city park improvements was received. - Net Investment in Capital Assets – No effect - Restricted – Increase - Unrestricted – Decrease 8. Fully depreciated city vehicles were sold in an auction. - Net Investment in Capital Assets – No effect - Restricted – No effect - Unrestricted – No effect 9. Interest was paid on bonds. - Net Investment in Capital Assets – No effect - Restricted – No effect - Unrestricted – No effect 10. A six-month lease was entered into during 20x1. - Net Investment in Capital Assets – No effect - Restricted – No effect - Unrestricted – No effect 5

C2 – Excel City – Fund Balance Description/Classification Problem/Solution Rationale : 1. The initial recording decreased unrestricted net position, since net investment in capital assets is calculated as total gross capital assets net of accumulated depreciation and less any outstanding debt to acquire or construct the capital assets, the adjustment is a decrease in net investment in capital assets and an increase in unrestricted net position. 2. The initial recording would have been a decrease in assets and a decrease in liabilities in the wastewater enterprise fund. Since net investment in capital assets is calculated as total gross capital assets net of accumulated depreciation and less any outstanding debt to acquire or constructed the capital assets, a reclassification is required for the amount of bond principle paid as an increase in net investment in capital assets and a corresponding decrease in unrestricted net position. 3. Net investment in capital assets is calculated as total gross capital assets net of accumulated depreciation and less any outstanding debt to acquire or construct the capital assets. The capital expenditure was reclassified as capital assets in the entries to reconcile the modified accrual basis in accounting to the accrual basis. A reclassification of the capitalized expenditure amount is a decrease in unrestricted net position and an increase in net investment in capital assets. 4. The federal grant monies are part of restricted net position, and expenditures of those funds reduce restricted net position. The closing entry reduced unrestricted net position by the amount of the grant monies expended. An adjustment is required to reduce restricted net position and to increase unrestricted net position by the amount of grant monies expended. 5. Net investment in capital assets is calculated as total gross capital assets net of accumulated depreciation and less any outstanding debt to acquire or construct the capital assets. The net effect of the purchase of police vehicles is an increase in net investment in capital asset by the amount of the vehicles’ cost in excess of the related debt. 6. The state grant is restricted by an external party to a specific program and is an increase to restricted net position. 6

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C2 – Excel City – Fund Balance Description/Classification Problem/Solution 7. The endowment is restricted by an external donor for a specific purpose and is an increase in restricted net position. 8. The proceeds from the sale of the fully depreciated vehicles were apparently not restricted for any specific purpose and therefore were initially recorded as an increase to unrestricted net position. No adjustment is required. 9. Interest expenditures decrease unrestricted net position. No adjustment is required because all temporary accounts, including interest expense, were closed to unrestricted net position. 10. Expenditures related to the short-term lease decreases net position – unrestricted. 7