Accounting for Governmental and Nonprofit Entities 15th Edition by Earl Wilson,Jacqueline Reck,Susan Kattelus

Exercise 1

Examine the CAFR.Utilizing the comprehensive annual financial report (CAFR) obtained for Exercise 1-1, follow the instructions below.
a.General Long-term Liabilities.
(1) Disclosure of Long-term Debt.Does the report contain evidence that the government has general long-term liabilities What evidence is there Does the report specify that no such debt is outstanding, or does it include a list of outstanding tax-supported debt issues; capital lease obligations; claims, judgments, and compensated absence payments to be made in future years; and unfunded pension obligations
Refer to the enterprise funds statement of net assets as well as note disclosures for long-term liabilities.Are any enterprise debt issues backed by the full faith and credit of the general government If so, how are the primary liability and the contingent liability disclosed
(2) Changes in Long-term Liabilities.How are changes in long-term liabilities during the year disclosed Is there a disclosure schedule for long-term liabilities similar to Illustration 6-1 Does the information in that schedule agree with the statements presented for capital projects funds and debt service funds and the government-wide financial statements
Are interest payments and principal payments due in future years disclosed If so, does the report relate these future payments with resources to be made available under existing debt service laws and covenants
(3) Debt Limitations.Does the report contain information as to legal debt limit and legal debt margin If so, is the information contained in the report explained in enough detail so that an intelligent reader (you) can understand how the limit is set, what debt is subject to it, and how much debt the government might legally issue in the year following the date of the report
(4) Overlapping Debt.Does the report disclose direct debt and overlapping debt of the reporting entity What disclosures of debt of the primary government are made in distinction to debt of component units Is debt of component units reported as "direct" debt of the reporting entity or as "overlapping debt"
b.Debt Service Funds.
(1) Debt Service Function.How is the debt service function for tax-supported debt and special assessment debt handled-by the General Fund, by a special revenue fund, or by one or more debt service funds If there is more than one debt service fund, what kinds of bond issues or other debt instruments are serviced by each fund Is debt service for bonds to be retired from enterprise revenues reported by enterprise funds
Does the report state the basis of accounting used for debt service funds If so, is the financial statement presentation consistent with the stated basis If the basis of accounting is not stated, analyze the statements to determine which basis is used-full accrual, modified accrual, or cash basis.Is the basis used consistent with the standards discussed in this chapter
(2) Investment Activity.Compare the net assets reserved for debt service, if any, in the Governmental Activities column of the government-wide statement of net assets and the fund balance of each debt service fund at balance sheet date with the amount of interest and the amount of debt principal the fund will be required to pay early in the following year (you may find debt service requirements in the notes to the financial statements or in supplementary schedules following the individual fund statements in the Financial Section of the CAFR).If debt service funds have accumulated assets in excess of amounts needed within a few days after the end of the fiscal year, are the excess assets invested Does the CAFR contain a schedule or list of investments of debt service funds Does the report disclose increases or decreases in the fair value of investments realized during the year Does the report disclose net earnings on investments during the year What percentage of revenue of each debt service fund is derived from earnings on investments What percentage of the revenue of each debt service fund is derived from taxes levied directly for the debt service fund What percentage is derived from transfers from other funds List any other sources of debt service revenue and other financing sources, and indicate the relative importance of each source.
Are estimated revenues for term bond debt service budgeted on an actuarial basis If so, are revenues received as required by the actuarial computations
(3) Management.Considering the debt maturity dates as well as the amount of debt and apparent quality of debt service fund investments, does the debt service activity appear to be properly managed Does the report disclose whether investments are managed by a corporate fiduciary, another outside investment manager, or governmental employees If outside investment managers are employed, is the basis of their fees disclosed Are the fees accounted for as additions to the cost of investments or as expenditures
Is one or more paying agents, or fiscal agents, employed If so, does the report disclose whether the agents keep track of the ownership of registered bonds, write checks to bondholders for interest payments and matured bonds or, in the case of coupon bonds, pay matured coupons and matured bonds presented through banking channels If agents are employed, do the balance sheet or the notes to the financial statements disclose the amount of cash in their possession If so, does this amount appear reasonable in relation to interest payable and matured bonds payable Do the statements, schedules, or narratives disclose for how long a period of time debt service funds carry a liability for unpresented checks for interest on registered bonds, for matured but unpresented interest coupons, and for matured but unpresented bonds
(4) Capital Lease Rental Payments.If general capital assets are being acquired under capital lease agreements, are periodic lease rental payments accounted for as expenditures of a debt service fund (or by another governmental fund) If so, does the report disclose that the provisions of SFAS No.13 are being followed (see the "Use of Debt Service Funds to Record Capital Lease Payments" section of this chapter) to determine the portion of each capital lease payment considered as interest and the portion considered as payment on the principal.