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OUTLINE
Questions:
17-1 Federal financial management responsibilities Identify New
17-2 Federal GAAP hierarchy Compare New
17-3 Conceptual framework Describe 11-3
17-4 Accounts used in federal accounting Explain 11-4
17-5 Net position and net assets Compare 11-5
17-6 FASAB compared to GASB Contrast 11-6
17-7 Federal funds Identify, compare New
17-8 Stewardship assets Define, compare New
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Chapter 17 - Accounting and Reporting for the Federal Government
Cases:
17-1 Agency PAR and audit report Calculate, explain New
17-2 FASAB Internet New
17-3 U.S. Government-wide financial statement audit Internet, evaluate 11-3 revised
Exercises/Problems:
17-1 Various Multiple Choice 11-1 revised
17-2 Fund balance with U.S. Treasury Compute 11-2
17-3 Agency financial statements, continuation of 17-2. JE 11-3
17-4 Statement of net cost JEs, FS 11-4
17-5 Statement of budgetary resources Prepare FS 11-5, revised
17-6 Transactions and statement of financing JEs, FS 11-6
17-7 Financial statement analysis Analysis New
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Chapter 17 - Accounting and Reporting for the Federal Government
Answers to Questions
17-1. Although the three principals of the Joint Financial Management Improvement Program
(JFMIP) have the authority for establishing sound financial management policy and
oversight, the principals have delegated the responsibility to the Office of Management
and Budget’s Office of Federal Financial Management, the Office of Personnel
Management, and the Chief Financial Officers Council. The delegation occurred in 2004,
once the principals of the JFMIP were satisfied with the operations of the FASAB.
JFMIP no longer meets as a stand-alone organization. (The three principals of the JFMIP
are the Comptroller General, the Secretary of the Treasury, and the Director of Office of
Management and Budget.)
17.2. The GAAP hierarchies for the federal government and state and local governments are
quite similar. One major difference is that federal authoritative guidance comes from
FASAB while state and local government authoritative guidance is issued by GASB.
There are also some differences in the type of outside guidance accepted as authoritative
by the two standard-setting bodies. Both hierarchies have been codified by the respective
standard-setting bodies, the FASAB and the GASB.
There are four categories of principles with the highest level (category a) being the
statements and interpretations issued by the respective standard-setting bodies. Category
a principles can also be found in the FASB or AICPA pronouncements if made applicable
to state and local governments by the GASB. The category b principles include the
Technical Bulletins issued by the respective standard-setting bodies. AICPA Industry and
Accounting Guides are also considered category b principles if made applicable to federal
entities by the FASAB or state and local governments by the GASB. The GASB can also
make AICPA Statements of Position applicable. Category c principles are different for the
two hierarchies. Technical Releases of the Accounting and Auditing Policy
Committee of the FASAB are considered category c for federal entities;
whereas, AICPA Practice Bulletins made applicable by GASB are considered
category c for state and local governments. Category d guidance is the
same, consisting of implementation guides issued by the respective standard-
setting bodies, as well as widely accepted practices.
17.3. The conceptual framework for the federal government is at about the same stage as that
for state and local governments, even though the GASB was established six years earlier.
The FASAB has issued six concepts statements, and the GASB five. Statement of
Federal Financial Accounting Concepts (SFFAC) No. 1 identifies the users of federal
financial information and their information needs, and establishes the objectives of
financial reporting for the federal government, much like GASB Concepts Statement No.
1. SFFAC No. 2 provides criteria for determining the reporting entity and provides
guidance on the nature of the financial statements to be prepared and their form and
content. The GASBS 14 (a reporting standard rather than a concepts statement) provides
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comparable criteria to SFFAC No. 2 for defining the reporting entity. SFFAC No. 3
describes the Management Discussion & Analysis as does GASBS No. 34. SFFAC No. 4
for the federal government describes five intended audiences and qualitative
characteristics for the consolidated financial report of the U. S. Government, as does the
GASB’s Concepts Statement No. 1 for state and local governments. SFFAC No. 5
describes the elements of financial statements, similar to GASB’s Concepts Statement 4
titled “Elements of Financial Statements.” Recently issued SFFAC No. 6 is similar to the
GASB’s Concepts Statement 3 on communication methods in general purpose external
financial reporting.
17.4. The account name Estimated Revenues used by state and local governments is a
budgetary account representing the government’s estimate of the amount of revenue
expected to be realized during the year. Federal agencies use the account Other
Appropriations Realized in their budgetary track to capture the amount Congress has
appropriated to an agency for the upcoming year. Other Appropriations Realized is for
basic operating appropriations, rather than appropriations earmarked for specific
purposes. Other Appropriations Realized is closer in meaning to Appropriations of state
and local governments than it is to Estimated Revenues.
A federal agency uses the account Fund Balance with U.S. Treasury in its proprietary
track as an asset that represents the balance available to the agency at the Department of
Treasury. This account would be most similar to cash and cash equivalents at the state
and local government level. Fund Balance with U.S. Treasury will be reduced
throughout the year by the dollar value of checks drawn. See Illustration 17-12 for a
comparison of these terms. Because they are budgetary accounts, Estimated Revenues
and Other Appropriations Realized have more in common with each other than either one
does with Fund Balance with the U.S. Treasury.
17.5. Agree, in part. The net position account on the balance sheet of a federal agency
represents the difference between assets and liabilities, as net position does for a state or
local government. However, net position is classified into two categories: unexpended
appropriations and cumulative results of operations, which are different than the
classifications of net position for a state or local government. Unexpended
appropriations is the amount of the entity’s appropriations represented by undelivered
orders and unobligated balances. Cumulative results of operations is measured since the
inception of the activity as the net difference between expenses/losses and financing
sources, which includes appropriations, revenues, and gains.
17-6. Agree, in part. It is true that the FASAB sets standards for external financial reporting for
federal agencies; however, its mission is considerably broader than GASB’s mission in
that it also sets standards for internal management accounting and performance
measurement. For example, FASAB’s objectives for external financial reporting are
designed to assist users in evaluating budgetary integrity, operating performance,
stewardship, and adequacy of systems and controls. The audiences for federal financial
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Chapter 17 - Accounting and Reporting for the Federal Government
reports include Congress, federal executives, program managers, as well as citizens and
their intermediaries. Although the GASB does provide guidance in presenting
information on service efforts and accomplishments, its mission and activities to date
have been primarily focused on external financial reporting and governmental GAAP.
17.7. The two groups of funds used by federal government entities are federal funds and trust
funds. There are three federal fund types—General Fund, special funds, and revolving
funds. The General Fund is similar in intent to the General Fund of state and local
governments. It receives all revenue and other receipts not earmarked (or identified) for
a specific purpose. General appropriations are made from the General Fund. Special
funds are established for a specific non-business-type purpose. These funds are most
similar to a special revenue fund used by state and local governments. Revolving funds
are established for business-type activities making them similar to the proprietary funds
of state and local governments.
The second fund group is trust funds. There are two types of trust funds—trust funds and
deposit funds. Trust funds are established when a law or statute indicates that funds must
be used for a specific purpose. Frequently, the purpose benefits those external to the
federal government, similar to trust funds of state and local governments. However, this
is not always the case. In some instances the trust funds of the federal government
actually benefit the government, making the funds similar to special revenue funds at the
state and local government level. The second type of trust fund is a deposit fund.
Deposit funds hold receipts on behalf of others, making them similar to agency funds at
the state and local government level.
17.8. Stewardship assets are of two types—heritage assets and stewardship land. Heritage
assets have historical or natural significance; cultural, artistic, or educational significance;
or are architecturally significant. Stewardship land is land that is not used by the federal
government for operating purposes.
General property, plant and equipment (PP&E) of the federal government is used for
operating purposes and as such is accounted for in the same manner as PP&E of state and
local governments, not-for-profit entities, and for-profit entities. The costs of the assets
are capitalized and if the asset is depreciable, depreciation expense is recorded
periodically. Stewardship assets, however, are not recorded. Rather they are noted on the
financial statements with disclosures in the notes to the financial statements. The note
disclosure should provide information on major categories of heritage assets, multi-use
heritage assets, and stewardship land. Additionally, changes in stewardship assets should
be provided, including physical units added and withdrawn during the year; methods of
acquisition and withdrawal; and condition information
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17.9. The budgetary accounts required by the U.S. Government Standard General Ledger are:
Other Appropriations Realized—the account that represents the agency’s available
resources for the year. This account normally has a debit balance.
Budgetary accounts that explain where funds are in the spending cycle—
Unapportioned Authority, Apportionments, Allotments, Commitments, Undelivered
Orders, and Expended Authority. These budgetary accounts normally have a credit
balance and when summed will add to the Other Appropriations Realized.
Budget authority flows down through the accounts in the sequence given in Illustration
17-11. This sequence is the same as the order provided in the second bullet point that
lists the accounts explaining where funds are in the spending cycle.
17.10. A PAR is the consolidated performance and accountability report prepared annually by
most federal agencies. It contains several components including:
An agency head message—analogous to a transmittal letter.
A management’s discussion and analysis.
Performance report—provides information on the agency’s success in achieving the
goals in its strategic plan and performance budget.
Financial statements—there are seven reports, two (statement of social insurance and
statement of net changes in social insurance amounts) of which are only prepared by a
limited number of agencies. The other five statements are the balance sheet,
statement of net costs, statement of changes in net position, statement of budgetary
resources, and statement of custodial activity.
Other accompanying information—includes summary statements and information
from the Inspector General concerning any serious management and performance
challenges.
Solutions to Cases
17-1. The information provided in the solution is based on NASA’s 2010 financial statements.
Numbers presented are in millions of dollars.
NASA operated with a negative change in net assets in both 2010 (-$2,080) and 2009
(-$3,251). Although the total change was not as negative in 2010 as in 2009, the
agency’s net position dropped from $19,536 in 2009 to $14,015 in 2010, a decline of
28.3 percent.
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Chapter 17 - Accounting and Reporting for the Federal Government
b. NASA’s audit was conducted by Ernst & Young. Given the large number of agencies
and organizations of the federal government that require audits, it is common for the
government to contract with public accounting firms for audits of federal agencies.
Since NASA is a federal entity, generally accepted government audit standards issued
by the Comptroller General, Government Accountability Office are used to conduct
audits of NASA.
c. Ernst & Young identified ineffective internal controls related to the accounting for
property, plant and equipment (PP&E) and operating materials and supplies in 2009.
Given the large investment in PP&E, ineffective internal controls would have a
significant impact on the quality of the financial information presented. Although
NASA has corrected many problems, the effect has carried into 2010. Due to the
2009 inadequacies in internal controls the auditor was not able to obtain sufficient
competent evidential support for amounts on the 2010 statement of net costs and
changes in net position. In particular, several beginning balances could not be relied
upon due to the problems identified in 2009. Thus, the negative changes in net assets
identified in part a may actually be larger or smaller than reported.
Based on the 2010 audit, there should not be ongoing problems with the NASA audit.
Ernst & Young implies that NASA has addressed the internal control problems and
the only reason the 2010 audit was qualified was due to lack of reliance on beginning
balance amounts. This assumes no new problems develop or are identified during
subsequent audits.
a. According to the FASAB Web site the mission of the FASAB is “to develop
accounting standards after considering the financial and budgetary information needs
of congressional oversight groups, executive agencies, and the needs of other users of
federal financial information.”
b. There are nine members of the FASAB. Three of the members represent the FASAB
sponsors (principals), coming from the Government Accountability Office (GAO),
Department of Treasury, and Office of Management and Budget (OMB). Each
sponsor selects its own representative. The other six members are to be nonfederal
individuals from the general financial community, accounting and auditing
community, or academia. Nonfederal members are appointed by the sponsors. The
chair of the FASAB is a nonfederal member appointed by the sponsors.
d. Given the funding source and the method of selecting members, it could be argued
that the FASAB is not independent in appearance. The sponsors are affected by the
decisions of the FASAB and as members of the FASAB, the sponsors are in a position
to influence the standards issued. To pass a standard two-thirds of the board
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members must approve. Technically, the composition of the board makes it possible
for the nonfederal members to override the decisions of the sponsors; however, all
nonfederal members would need to be in agreement. Finally, two of the sponsors
(principals), the Comptroller General and the Director of the Office on Management
and Budget, have veto power over any FASAB statement if they act within the 90 day
review period for final statements.
e. The answer to this assignment will change, given that the project agenda is on-going.
At the time the textbook went to print active projects included:
f. The FASAB standards are not proprietary. Anyone can access the standards at the
FASAB Web site www.fasab.gov. This is unlike the FASB Codification, which is
accessed through subscription, or the GASB Codification which can be purchased in
hardcopy or electronic form.
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Chapter 17 - Accounting and Reporting for the Federal Government
a. The Comptroller General of the GAO was not able to render an opinion; therefore, he
reported a disclaimer of opinion because he was unable to determine the reliability of
significant portions of the consolidated financial statements due to
“certain material weaknesses in internal control over financial reporting and other
limitations on the scope of our work…” (pg. 28)
b. Three major deficiencies were identified in the audit report. They were “(1) serious
financial management problems at the Department of Defense (DOD) that have
prevented DOD’s financial statements from being auditable, (2) the federal
government’s inability to adequately account for and reconcile intragovernmental
activity and balances between federal agencies, and (3) the federal government’s
ineffective process for preparing the consolidated financial statements” (pg. 29).
The audit report identifies five material weaknesses. They indicate that the federal
government was unable to:
Satisfactorily determine that property, plant, and equipment and inventories and
related property, primarily held by DOD, were properly reported.
Reasonably estimate or adequately support amounts reported for certain liabilities.
Support significant portions of the reported total net cost of operations, most
notably related to DOD, and adequately reconcile disbursement activity at certain
federal entities.
Adequately account for and reconcile intragovernmental activity and balances
between federal entities.
Ensure that the federal government’s accrual-based consolidated financial
statements were (1) consistent with the underlying audited entities’ financial
statements, (2) properly balanced, and (3) in conformity with GAAP.
Identify and either resolve or explain material differences between (1) certain
components of the budget deficit reported in Treasury’s records that are used to
prepare the Reconciliation of Net Operating Cost and the Unified Budget Deficit,
the Statement of Changes in Cash Balance from Unified Budget and Other
Activities, and the Fiscal Projections for the U.S. Government, and (2) related
amounts reported in federal entities’ financial statements and underlying financial
information and records. (pg. 225)
c. Twenty federal agencies out of 24 required to report under the CFO Act received
unqualified opinions in FY 2010, as did eight of 11 additional significant reporting
agencies. The list of agencies is included in the annual financial report of the U.S.
government. The management’s discussion and analysis reports on this topic in a
section titled “Financial Statement Audit Results.”
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17-1. 1. b. 6. b.
2. a. 7. a.
3. c. 8. d.
4. d. 9. b.
5. a. 10. c.
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17-2.
a. COMPUTATION OF MISSING AMOUNTS: Debits Credits
PROPRIETARY ACCOUNTS
ACCOUNTS PAYABLE $ 2,300,000
ACCUMULATED DEPRECIATION 2,600,000
APPROPRIATIONS USED 4,500,000
OPERATING MATERIALS AND SUPPLIES $ 2,700,000
CUMULATIVE RESULTS OF OPERATIONS 10/1/13 7,700,000
OPERATING/PROGRAM EXPENSES 4,150,000
DEPRECIATION AND AMORTIZATION 1,150,000
PLANT AND EQUIPMENT 8,900,000
UNEXPENDED APPROPRIATIONS2014 2,100,000
TOTAL AMOUNTS GIVEN 16,900,000 19,200,000
FUND BALANCE WITH TREASURY2014 2,300,000 __________
TOTALSPROPRIETARY ACCOUNTS $19,200,000 $19,200,000
BUDGETARY ACCOUNTS
EXPENDED AUTHORITY2014 $ 4,500,000
APPORTIONMENTS2014 600,000
Note:
Unexpended Appropriations ($2,100,000) + Expended Authority ($4,500,000) =
$6,600,000 (original appropriation)
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b.
APPROPRIATIONS USED DURING FY 2014 $4,500,000
TOTAL EXPENSES DURING FY 2014 (Note A) 5,300,000
NET DECREASE IN CUMULATIVE RESULTS OF OPERATIONS $ 800,000
17-3. a.
Debits Credits
BUDGETARY
EXPENDED AUTHORITY2014 4,500,000
APPORTIONMENTS2014 600,000
OTHER APPROPRIATIONS REALIZED2014 5,100,000
PROPRIETARY
CUMULATIVE RESULTS OF OPERATIONS 5,300,000
OPERATING/PROGRAM EXPENSES 4,150,000
DEPRECIATION AND AMORTIZATION 1,150,000
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b. FEDERAL AGENCY
BALANCE SHEET
AS OF SEPTEMBER 30, 2014
ASSETS
INTRAGOVERNMENTAL:
FUND BALANCE WITH TREASURY2014 $ 2,300,000
GOVERNMENTAL:
OPERATING MATERIALS AND SUPPLIES 2,700,000
PLANT AND EQUIPMENT (NET OF ACCUMULATED
DEPRECIATION OF $2,600,000) 6,300,000
TOTAL ASSETS $11,300,000
LIABILITIES
ACCOUNTS PAYABLE $ 2,300,000
NET POSITION
UNEXPENDED APPROPRIATIONS 2,100,000
CUMULATIVE RESULTS OF OPERATIONS 6,900,000
TOTAL NET POSITION 9,000,000
TOTAL LIABILITIES AND NET POSITION $11,300,000
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Chapter 17 - Accounting and Reporting for the Federal Government
17-4.
RURAL ASSISTANCE AGENCY
STATEMENT OF NET COST
FOR THE YEAR ENDED SEPTEMBER 30, 2014
FOOD BANK
COSTS $ 9,632,800
LESS: EARNED REVENUE 2,611,900
NET COST 7,020,900
HOUSING SERVICES
COSTS 7,438,500
LESS: EARNED REVENUE 1,237,400
NET COST 6,201,100
CREDIT COUNSELING
COSTS 2,391,000
LESS: EARNED REVENUE 87,000
NET COST 2,304,000
TOTAL
COSTS 19,462,300
LESS: EARNED REVENUE 3,936,300
NET COST OF OPERATIONS $15,526,000
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BUDGETARY RESOURCES:
BUDGET AUTHORITY (Note A):
APPROPRIATIONS RECEIVED (Note A) $4,894,855
TOTAL BUDGETARY RESOURCES $4,894,855
STATUS OF BUDGETARY RESOURCES:
OBLIGATIONS INCURRED (Note B) $4,144,855
UNOBLIGATED BALANCES (Note C) 750,000
TOTAL STATUS OF BUDGETARY RESOURCES $4,894,855
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Chapter 17 - Accounting and Reporting for the Federal Government
2. BUDGETARY
UNAPPORTIONED AUTHORITY2014 7,000,000
APPORTIONMENTS2014 7,000,000
3. BUDGETARY
APPORTIONMENTS2014 1,000,000
ALLOTMENTS2014 1,000,000
4. BUDGETARY
ALLOTMENTS2014 970,000
UNDELIVERED ORDERS2014 970,000
5. BUDGETARY
UNDELIVERED ORDERS2014 170,000
EXPENDED AUTHORITY2014 170,000
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Chapter 17 - Accounting and Reporting for the Federal Government
6. BUDGETARY
UNDELIVERED ORDERS2014 395,000
EXPENDED AUTHORITY2014 395,000
PROPRIETARY
FURNITURE AND EQUIPMENT 180,000
OPERATING MATERIALS AND SUPPLIES 175,000
OPERATING/PROGRAM EXPENSES 40,000
ACCOUNTS PAYABLE 395,000
7. BUDGETARY
UNDELIVERED ORDERS2014 183,000
EXPENDED AUTHORITY2014 183,000
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8. PROPRIETARY
ACCOUNTS PAYABLE 189,000
ACCRUED FUNDED PAYROLL AND
BENEFITS 183,000
DISBURSEMENTS IN TRANSIT2014 372,000
9. BUDGETARY
UNDELIVERED ORDERS2014 40,000
EXPENDED AUTHORITY2014 40,000
PROPRIETARY
OPERATING/PROGRAM EXPENSES 40,000
ACCRUED FUNDED PAYROLL
AND BENEFITS 30,000
ACCOUNTS PAYABLE 10,000
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Chapter 17 - Accounting and Reporting for the Federal Government
10. BUDGETARY
EXPENDED AUTHORITY2014 788,000
OTHER APPROP. REALIZED2014 788,000
PROPRIETARY
CUMULATIVE RESULTS OF OPERATIONS 495,500
OPERATING/PROGRAM EXPENSES 493,000
DEPRECIATION AND AMORTIZATION 2,500
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Chapter 17 - Accounting and Reporting for the Federal Government
ASSETS
INTRAGOVERNMENTAL:
FUND BALANCE WITH TREASURY2014 $6,458,000
GOVERNMENTAL:
OPERATING MATERIALS AND SUPPLIES 115,000
FURNITURE AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF $2,500 177,500
TOTAL ASSETS $6,750,500
LIABILITIES
ACCOUNTS PAYABLE $ 216,000
ACCRUED FUNDED PAYROLL AND BENEFITS 30,000
TOTAL LIABILITIES
COVERED BY BUDGETARY RESOURCES 246,000
NET POSITION
UNEXPENDED APPROPRIATIONS 6,212,000
CUMULATIVE RESULTS OF OPERATIONS 292,500
TOTAL NET POSITION 6,504,500
TOTAL LIABILITIES AND NET POSITION $6,750,500
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Chapter 17 - Accounting and Reporting for the Federal Government
CUMULATIVE
RESULTS OF UNEXPENDED
OPERATIONS APPROPRIATIONS
BEGINNING BALANCES $ 0 $ 0
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Chapter 17 - Accounting and Reporting for the Federal Government
BUDGETARY RESOURCES:
BUDGET AUTHORITY (Note A) $7,000,000
STATUS OF BUDGETARY RESOURCES:
OBLIGATIONS INCURRED (Note B) $ 970,000
UNOBLIGATED BALANCES AVAILABLE (Note C) 6,030,000
TOTAL STATUS OF BUDGETARY RESOURCES $7,000,000
CHANGE IN OBLIGATED BALANCE:
OBLIGATIONS INCURRED 970,000
OUTLAYS (Note D) (572,000)
OBLIGATED BALANCE, END OF PERIOD (Note E) $ 428,000
Note A: Total budgetary resources are the total appropriations for the year, or
$7,000,000.
Note B: Obligations incurred equals expended budgetary authority of $788,000
(see Entry 10A) plus the remaining balance of Undelivered
Orders2013 of $182,000 ($970,000 - $788,000), or $970,000. In this
case, since the Flood Control Commission obligates prior to all
expenditures of budgetary authority, the amount incurred also is simply
the amount obligated by the credit to Undelivered Orders2014 (see
Entry 4).
Note C: Total budgetary resources of $7,000,000 less amount obligated of
$970,000 (see Note B) equals $6,030,000.
Note D: Outlays also equals the decrease in Fund Balances with the U.S.
Treasury during the periodthe equivalent of cash disbursed.
Note E: Obligated balances at year-end include Undelivered Orders ($182,000)
and Accounts Payable and other accrued liabilities ($246,000), or
$428,000 in total.
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Chapter 17 - Accounting and Reporting for the Federal Government
17-7.
a. FINANCIAL CAPABILITY
(1) INDIVIDUAL INCOME TAXES/TOTAL REVENUES: 78.2%
($1,732.90/$2,216.50)
b. FINANCIAL PERFORMANCE
(1) INTERPERIOD EQUITY ($2,216.50/$4,296.00): 0.52
c. FINANCIAL POSITION
(1) NON-EARMARKED FUNDS/TOTAL REVENUES: -6.37
(-$14,119.70/$2,216.50)
(2) QUICK RATIO ($428.6/$72.9) or ($428.6/$237.2)*: 5.88 or 1.81
(3) CAPITAL ASSET CONDITION ($811.60/$1,538.40)**: 0.53
d. All but two measures indicate that the federal government is in poor financial
condition. The quick ratio is well over one using either calculation, indicating
sufficient cash to pay current liabilities, assuming current liabilities are
correctly identified. Additionally, the capital asset condition ratio of 0.53
indicates that there is sufficient life remaining in capital assets.
The federal government relies heavily on individual income taxes. Debt load
is extremely high by any benchmark used. Illustration 10-7 indicates that for
local governments a load greater that 35% is extremely high. Interperiod
equity is poor given that only 52% of net costs are covered by current period
revenues. Finally, the negative net position indicates that there are no
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