ExpertHard1 markMultiple Choice
CPA · Question 50 · Area 4: State and Local Governments
When reconciling the Net Change in Fund Balance (Governmental Funds) to the Change in Net Position (Government-Wide), which of the following adjustments is required for capital outlays of $100,000 purchased with cash?
When reconciling the Net Change in Fund Balance (Governmental Funds) to the Change in Net Position (Government-Wide), which of the following adjustments is required for capital outlays of $100,000 purchased with cash?
Answer options:
A.
Add $100,000.
B.
Subtract $100,000.
C.
No adjustment.
D.
Add $100,000 and subtract depreciation.
How to approach this question
Reconciliation Logic: Fund Net Change -> Gov-Wide Change. Funds deducted Cap Outlay. Gov-Wide didn't. So ADD it back. (Then subtract depreciation separately).
Full Answer
A.Add $100,000.✓ Correct
A
Capital outlays are expenditures in Governmental Funds (reducing Fund Balance) but are assets in Government-Wide statements (no effect on Net Position). Therefore, to reconcile, the capital outlay expenditure must be added back to the change in fund balance.
Common mistakes
Subtracting instead of adding; confusing with depreciation adjustment (which is subtracted).
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