Which of the following adjustments is required to convert the Statement of Revenues, Expenditures, and Changes in Fund Balances of governmental funds to the Government-Wide Statement of Activities?

Answer options:

Add capital asset purchases; Subtract depreciation expense.

Subtract capital asset purchases; Add depreciation expense.

Eliminate capital expenditures and record depreciation expense.

Add principal payments on debt; Subtract capital expenditures.

How to approach this question

Think: Modified Accrual (Funds) -> Full Accrual (Gov-Wide). Funds expense capital outlays immediately. Gov-Wide capitalizes them and depreciates. Adjustment: Remove the Capital Outlay Expenditure (Increase change in net position), Record Depreciation Expense (Decrease change in net position).

Full Answer

C.Eliminate capital expenditures and record depreciation expense.✓ Correct

To convert from Governmental Funds to Government-Wide:<br/>1. Capital Outlays are expenditures in funds. Add them back (eliminate expenditure).<br/>2. Depreciation is not in funds. Subtract it (record expense).<br/>Option C describes this net effect correctly.

Common mistakes

Confusing the direction of the adjustment.

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