Reporting Internal Service Fund Financial Information at the Governmentwide Level. During the current fiscal year, the City of Manchester created a Printing and Sign Fund (an internal service fund) to provide custom printing and signage for city departments, predominantly those financed by the General Fund. As this is the city’s first internal service fund, finance officials are uncertain how to account for the activities of the Printing and Sign Fund at the government-wide level. After much discussion, they have approached you, the audit manager, with the following questions:
1. In governmental activities at the government-wide level, should expenses for printing and signage within the various functions be the amount billed to departments or the Printing and Sign Fund’s cost to provide the printing and signage service? Please explain.
2. What about the Printing and Sign Fund’s operating revenues from billings to departments? Should these revenues be reported as program revenues, specifically, as charges for services of the functions receiving the services? Why or why not?
3. The Printing and Sign Fund obtains about 10 percent of its revenues from the City Electric, Sewage, and ‘Water Fund, an enterprise fund. Should the financial information related to these transactions be reported in the Business-type Activities column of the government-wide financial statements, rather than the Governmental Activities column? Please explain in detail.
Required
a. Evaluate these questions and provide the city’s finance director with a written to each question.
b. How would your response to question 3 differ if the Printing and Sign Fund provided 60 percent of its total services to the enterprise fund?