How should governments report their capital projects and debt service activities in their government-wide statements?

Ch 6. Questions for Review and Discussion

6. How should governments report their capital projects and debt service activities in their government-wide statements?

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TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry

CASE 13–30 Make or Buy; Utilization of a Constrained Resource [LO1, LO3, LO5]

TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:

WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00

AND SO ON

ALL 5 REQUIREMENTS ANSWERED.

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Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music

P13-12 (Warranties and Premiums) Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Garison uses two sales promotion techniques— warranties and premiums— to attract customers.

Musical instruments and sound equipment are sold with a one- year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $ 20 for a CD player. Garison pays $ 32 for each CD player and estimates that 60% of the coupons given to customers will be redeemed.

Garison’s total sales for 2010 were $ 7,200,000—$ 5,700,000 from musical instruments and sound reproduction equipment and $ 1,500,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $ 164,000 during 2010. A total of 6,500 CD players used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2010.

The accrual method is used by Garison to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2010, were as shown below.

Inventory of Premium CD Players $ 37,600
Estimated Premium Claims Outstanding 44,800
Estimated Liability from Warranties 136,000

Instructions
Garison Music Emporium is preparing its financial statements for the year ended December 31, 2010. Determine the amounts that will be shown on the 2010 financial statements for the following:
(1) Warranty Expense
(2) Estimated Liability from Warranties
(3) Premium Expense
(4) Inventory of Premium CD Players
(5) Estimated Premium Claims Outstanding


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The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012

2-8. The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012:

Expenses:
General government $10,300,000
Public safety 22,900,000
Public works 11,290,000
Health and sanitation 6,210,000
Culture and recreation 4,198,000
Interest on long-term debt, governmental type 621,000
Water and sewer system 11,550,000
Parking system 419,000
Revenues:
Charges for services, general government 1,110,000
Charges for services, public safety 210,000
Operation grant, public safety 698,000
Charges for services, health and sanitation 2,555,000
Operating grant, health and sanitation 1,210,000
Charges for services, culture and recreation 2,198,000
Charges for services, water and sewer 12,578,000
Charges for services, parking system 398,000
Property taxes 27,112,000
Sales taxes 20,698,000
Investment earnings, business-type 319,000
Special item – gain on sale of unused land,
Governmental type 1,250,000
Transfer from governmental activities to
Business-type activities 688,000
Net assets, July 1, 2011, governmental activities 11,222,000
Net assets, July 1, 2011, business-type activities 22,333,000

From the previous information, prepare, in good form, a Statement of Activities for the city of Northern Pines for the year ended June 30, 2012. Northern Pines has no component units.


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Highline Hospital provides a wide range of health services in its community

7-44 Cash Budgeting for a Hospital

Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:

Intra-aortic balloon pump $1,400,000
Computed tomographic scanner 850,000
X-ray equipment 550,000
Laboratory equipment 1,200,000
Total $4,000,000

The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows. Billings, made in the month of service, for 20X7 are shown below, with actual amounts for January through June and estimated amounts for July through December:

Month Actual Amount
January $5,300,000
February 5,300,000
March 5,400,000
April 5,400,000
May 6,000,000
June 6,000,000
July (estimated) 5,800,000
August (estimated) 6,000,000
September (estimated) 6,600,000
October (estimated) 6,800,000
November (estimated) 7,000,000
December (estimated) 6,600,000

Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are
Third-Party Billings Direct-Patient Billings
Month of service 20% 10%
Month following service 50 40
Second month following service 20 40
Uncollectible 10 10

Singer expects the same billing and collection patterns that have been experienced during the first six months of 20X7 to continue during the last six months of the year. The following schedule presents the purchases that have been made during the past three months and the planned purchases for the last six months of 20X7.

Month Amount
April $1,300,000
May 1,450,000
June 1,450,000
July 1,500,000
August 1,800,000
September 2,200,000
October 2,350,000
November 2,700,000
December 2,100,000

All purchases are made on account, and accounts payable are remitted in the month following the purchase.
• Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.
• Highline’s monthly depreciation charges are $150,000.
• Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.
• Endowment fund income is expected to continue to total $210,000 per month.
• Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.
• Highline Hospital employs a calendar-year reporting period.

1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.
2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.
3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.

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At what value would a government report bonds payable on its government-wide statements?

At what value would a government report bonds payable on its government-wide statements? Why might this value differ from the bonds' face value? Why might it differ from their market value?

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A government's interest expenditure as reported in its debt service fund differs significantly from its interest expense as reported in its government-wide statements

A government's interest expenditure as reported in its debt service fund differs significantly from its interest expense as reported in its government-wide statements. What is the most likely explanation for the difference?

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