A City issues $1,000,000 in bonds. General Fund Entry: DR Cash $1M; CR Other Financing Sources-Bond Proceeds $1M. What is the effect of the conversion to Government-Wide statements on the Change in Net Position?

Answer options:

Increase Change in Net Position by $1,000,000.

Decrease Change in Net Position by $1,000,000.

No effect on Change in Net Position.

Increase Change in Net Position by the interest amount.

How to approach this question

Fund: Proceeds are 'Good' (Inflow). Govt-Wide: Borrowing is Neutral (Asset = Liability). Reconciliation: Remove the 'Good' inflow from the operating statement.

Full Answer

B.Decrease Change in Net Position by $1,000,000.✓ Correct

Bond proceeds are reported as Other Financing Sources (increasing fund balance) in Governmental Funds. In Government-Wide statements, they are a liability (Bonds Payable). The reconciliation subtracts the bond proceeds from the Change in Fund Balance to arrive at Change in Net Position.

Common mistakes

Thinking the liability recording increases expenses.

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A City issues $1,000,000 in bonds. <br/>General Fund Entry: DR Cash $1M; CR Other Financing Sources-Bond Proceeds $1M.<br/><br/>What is the effect of the conversion to Government-Wide statements on the Change in Net Position?

How to approach this question

Full Answer

Common mistakes

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