Question

When charges to external users are a principal revenue source of an activity, the use of an Enterprise Fund is required by generally accepted accounting principles in each of the following situations except

	A.	When pricing policies of the activity establish fees and charges are designed for cost recovery.
	B.	When an activity is financed with debt that is secured solely by the pledge of revenues.
	C.	When user fees are charged for the majority of the activity’s operations.
	D.	When laws and regulations require that the activity's costs be recovered with fees and charges.

An Enterprise Fund is donating equipment to a general government department. The equipment has a net book value of $25,000 (original cost was $60,000). The acquisition value of the equipment at the transaction date was $28,000. The entry that should be recorded for the Enterprise Fund would include

	A.	A debit to nonoperating expense of $28,000.
	B.	A debit to transfer out of $28,000.
	C.	A debit to nonoperating expense of $25,000.
	D.	A debit to capital contribution of $25,000.

Answer 1

Answer 1

When charges to external users are a principal revenue source of an activity, the use of an Enterprise Fund is required by generally accepted accounting principles in each of the following situations except:

C. When user fees are charged for the majority of the activity’s operations.

Explanation :

Enterprise Funds: These funds account for any activity for which a fee is charged to external users for goods or services. Enterprise funds are required to be used to account for any activity whose principal revenue sources meet any of the following criteria:

• debt backed solely by revenues from fees and charges (thus, not debt that is backed by the full faith and credit of the school district);
• legal requirement to recover costs through fees and charges; or
• policy decision of the governing board of management to recover the costs of providing services through fees or charges.

Answer 2

The entry that should be recorded for the Enterprise Fund would include

D. A debit to capital contribution of $25,000.