Question

The balance sheet and statement of revenues, expenses, and changes in fund net position of a medium-sized city’s ‘‘Support Services’’ internal service fund are as follows:

.:.
The financial statements provide a limited amount of additional information about the Support Services Fund:
• The Support Services Fund ''includes the activities of the various support service departments.''
• The Support Services Fund provides services exclusively to departments accounted for in the general fund.
• The transfer-in was from the general fund.
The city's general fund reported the following (in millions):
Revenues $196
Expenditures 227
Excess (deficiency) of revenues over Expenditures (31)
Transfers-in 43
Transfers-out (9)
Net transfers-in 34
Net change in net position 3
Net position, beginning of year 25
Net position, end of year $ 28
1. The financial statements do not provide additional information about what constitutes ''support services.'' What are some likely activities that ''support services'' could include?
2. What is the significance of the internal service fund's balance sheet deficit in ''unrestricted net position''? What concern might this raise as to the proper application of accounting principles?
3. What is the significance of the internal service fund's operating deficit as it relates to the general fund's excess of revenues over expenditures?
4. If you were the city's independent auditor, what changes in the billing practices of the internal service fund might you propose that the city consider?
5. In the city's government-wide statements, how would the revenues and expenses of the internal service fund be reported? Which of the revenues and expenses or which expenditures of the internal service fund and the general fund would be eliminated?
6. Suppose that the city accounted for the support services in its general fund, instead of in an internal service fund.
a. Approximately how much more or less would the general fund's net change in fund balance have been?
b. Which of the internal service fund's expenses would not be reported as general fund expenditures?
c. Which of the internal service fund's assets and liabilities would not be reported as general fund assets or liabilities?



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  • CreatedAugust 13, 2014
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