[Anonymous]

I’m reading the question and answer explanation and basically none of this makes any sense. Will doing more MCQ help, or should I go to a library and read up on government accounting?

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New Town’s review of payroll records indicates that employees providing governmental services have accrued $250,000 of vacation pay and employees of the proprietary funds have accrued $100,000 of vacation pay. It is anticipated that 5% of the accrued vacation pay will be claimed by employees within the first 60 days of 20X1. How would the vacation pay liability be recognized on the financial statements issued at December 31, 20X0?

A. Governmental fund liability: $12,500; Proprietary fund liability: $100,000; Governmental activities liability: $250,000; Business-like activities liability: $100,000

B. Governmental fund liability: $12,500; Proprietary fund liability: $5,000; Governmental activities liability: $250,000; Business-like activities liability: $100,000

C. Governmental fund liability: $12,500; Proprietary fund liability: $100,000; Governmental activities liability: $12,500; Business-like activities liability: $100,000

D. Governmental fund liability: $250,000; Proprietary fund liability: $100,000; Governmental activities liability: $250,000; Business-like activities liability: $5,000

Answer A. As employees earn the right to claim vacation pay, a compensated absence, the liability is accrued and reported in full in the proprietary fund and government-wide financial statements (governmental activities and business-like activities). The portion reported in the government-wide financial statements as governmental activities is a general long-term liability. The governmental funds, using the modified accrual method, report only the portion of the liability expected to be claimed by employees in the first 60 days of the new fiscal year.

[tuanxn]

Hey Determined,

I think it would be best to make a chart for how fund financial (modified accrual basis) and government-wide (accrual basis) financial statements are reported.

Relating specifically to this problem…

For fund financial statements:

Government funds only reports current liabilities (5% of $250,000 = $12,500)

Proprietary funds report liabilities on a long-term basis (much like government-wide statements), so the liability is $100,000

For government-wide statements:

Both the government and business like activities are reported on an accrual, long-term basis.

I think the important distinction to remember is that government-wide statements have a long-term focus, while the fund financial statements have a current focus (with the exception of proprietary funds).

[Anonymous]

I see, in that case

-governmental services $250,000 of vacation pay goes to government activities

-5% of that which is 12,500 will be claimed within the first 60 days so that goes to government fund liability

-$100,000 proprietary fund accrue vacation pay goes to proprietary fund liability

Which leaves Business-like activities liability which is $100,000. So do you just put the same amount for proprietary fund ability also for business-like activities?

[jaxon1024]

Proprietary fund is business like activity. On the government wide financials the five government funds and the internal service fund are listed under government activities and the enterprise fund (proprietary) is business type activity. That's why the 100,000 is listed both in the fund and government wide financials.

Reg 85 (11-21-14)
Aud 93 (1-17-15)
Bec 89 (2-27-15)
Far 92 (5-7-15)

Becker Self Study and Wiley Test Bank

[Anonymous]

I see. Yikes, I got about 3 weeks to make sure this sticks in my head along with everything else. Government accounting is such a strange beast.

[Author]

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