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In preparing Chase City's reconciliation of the Statement of Revenues, Expenditures, and Changes in fund balances...

In preparing Chase City's reconciliation of the Statement of Revenues, Expenditures, and Changes in fund balances to the Government-Wide Statement of Activities, which of the following items should be subtracted from the changes in fund balances?

A. Capital Assets Purchases.

B. Payment of long-term debt principal.

C. Internal Service Fund increase in Net Position.

D. Book value of capital assets sold during the year.

I know the answer is D. Book value of capital assets sold during the year, because the explanation says : At the Governmental-Fund level, the entire proceeds from the sale of capital assets is a financial resource of the fund - it is spendable. Only the gain or loss on the sale of capital assets is reported in the Government-Wide Financial Statements. Therefore, the book value of capital assets should be subtracted.

I don't understand what they mean by this, can please simplify and explain step by step so I can understand?

Solutions

Expert Solution

Answer:-

D)Book value of capital assets sold during the year.

■Explanation :-

●●●The elimination of the book value of a previously acquired asset has no impact on fund financial statements but serves to reduce the changes in net position of the government-wide financial statements as the asset is written off (net of proceeds and accumulated depreciation). The book value of capital assets is, therefore, essentially subtracted from change in fund balance to reconcile to the change in government-wide net position. Actual reconciling items might focus more on the computation of a gain or loss and proceeds from the disposal rather than individual components such as the asset book value.

●Capital outlay is the "E" in "GOES" and is added back, not subtracted.

●Principal payment on debt is part of the "E" in "GOES" and is added back, not subtracted.

●Internal Service fund activity is the "S" in "GOES" and is added back.

ekkarill92 answered 2 years ago
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