A government's Statement of Revenues,Expenditures,and Changes in Fund Balances reflected expenditures for debt service in the amount of $12,000,000,including $7,000,000 for interest. It also reflected proceeds of bonds in the amount of $4,000,000. No interest accruals were involved. When moving from the changes in fund balances reported for the governmental funds to the change in Net Position for governmental activities,the net change would be:

Question

Quizplus · Accepted Answer

When moving from the changes in fund balances reported for the governmental funds to the change in Net Position for governmental activities, we need to add capital assets, including infrastructure and long-term debt, and subtract long-term liabilities, including long-term debt. In this case, the bond proceeds of $4,000,000 need to be added to the fund balance change. No change is needed for infrastructure because there is no indication in the statement that any new assets were acquired. The debt service expenditure of $12,000,000 needs to be split into its principal and interest components. Since no interest accruals were involved, we can assume that the entire principal has been paid off, which means that $5,000,000 ($12,000,000 - $7,000,000) of the expenditure reduces long-term debt. Therefore, the net change in Net Position is $4,000,000 + $5,000,000 = $9,000,000. This represents an increase in Net Position, which is reflected in the answer choice D.

A Government's Statement of Revenues,Expenditures,and Changes in Fund Balances Reflected