ExpertHard1 markMultiple Choice
CPA · Question 48 · Area III: State & Local Governments
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?
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?
Answer options:
A.
Increase Change in Net Position by $1,000,000.
B.
Decrease Change in Net Position by $1,000,000.
C.
No effect on Change in Net Position.
D.
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
B
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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