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Government and Not-For-Profit Accounting Portfolio #2

Your portfolio project will provide specific answers to questions that follow. Apply what you have learned in this course to your answers to these questions.

P. 2-7: Is fund accounting less appropriate for businesses than for not-for-profits? (80 Points)

Scenario 1:
A newly formed not-for-profit advocacy organization, the Center for Participatory Democracy, requests your advice on setting up its financial accounting and reporting system. Meeting with the director, you learn the following:

  • Member dues can be expected to account for approximately 80 percent of the organization’s revenues.
  • The organization plans to seek grants from private foundations to carry out research projects pertaining to various political causes.
  • The center has already received a gift of $100,000. The donor specified that the funds are to be placed in investment-grade securities and that only the income is to be used to support center activities.
  • The center leases office space but owns its furniture, fixtures, and office equipment. The center has taken out a five-year term loan of $100,000. Although the loan is not due until its term expires, the organization intends to set aside $17,740 each year with the prospect that, properly invested, and these payments will provide the necessary $100,000.

Instructions:

  1. Do you believe that the center should establish its accounting system on a fund basis? If so, why?
  2. Assume you answered ‘‘yes’’ to question 1. What specific fund types do you think the center should set up? Explain.
  3. Alternatively, suppose the center was a privately owned, profit-oriented consulting firm that provided political advice to its clients. The firm would charge its clients a fixed fee each month in return for which they would receive periodic newsletters and the opportunity to meet with the firms’ partners. In addition, the firm expects to enter into contracts to carry out specific research projects for its clients. Would you now recommend that the firm establish its accounting system on a fund basis (assuming, of course, that it would prepare its external financial reports in accordance with generally accepted accounting principles applicable to businesses)? Explain.

P. 5-5: Can a government sell assets to itself to generate revenue? (80 points)

Scenario 2:
A city is having fiscal problems in 2015. It expects to report a deficit in its general fund, the only fund that is statutorily required to be balanced. To eliminate the anticipated defecate the city opts to ‘‘sell’’ its city hall—to itself—for $5 million. The city establishes a ‘‘capital asset financing agency.’’ The agency is a separate legal entity but will have to be reported as a component unit. As such it will be accounted for in a fund other than the general fund. The city structures the transaction as follows:

  • The financing agency pays the city $5 million in 2015 in exchange for ‘‘ownership’’ of city hall. The city hall has been carried as general capital asset.
  • The agency acquires the necessary cash by issuing 20-year, 6 percent notes. The notes will be repaid in twenty annual installments of $435,920. The notes are guaranteed by the city at large. Hence, they are ultimately a liability payable from the general fund.
  • The agency leases the city hall back to the city at large. Lease payments are to be paid out of general fund resources.

Instructions:

  1. Prepare journal entries in the general fund to record the sale and concurrent lease-back of the city hall. The lease-back satisfies the criteria of a capital lease transaction.
  2. Prepare journal entries in the general fund to record the first lease payment, which was made in 2015.
  3. Will the transaction, in fact, reduce the 2015 anticipated fund deficit? Briefly justify the accounting principles that underlie this type of accounting.

EX. 10-7: Nonexpendable fiduciary funds should be accounted for on a full accrual basis. (70 points)

Scenario 3:
The Nebraska Institute of Science (NIS) pools all of its endowment funds so that it can obtain the benefits of a large and diverse investment portfolio. The institute recently acquired a commercial office building as an investment property. The cost was $12 million and its economic life was expected to be 15 years. Upon acquiring the building, NIS signed a 15-year lease with a tenant. The annual rent was $1.3 million, with the tenant responsible for all maintenance and other operating costs.

Instructions:

  1. Suppose that the NIS did not charge depreciation and distributed to expendable funds the entire ‘‘income’’ earned on the office building.
    1. What would be the total amount distributed over the 15-year life of the building?
    2. Assuming that NIS’s estimate of economic life was correct, what would likely be the market value of the building when the lease expired? Would NIS have had available any cash for the acquisition of other assets that would compensate for the decline in value of the building?
  2. Suppose NIS charged depreciation and distributed to expendable funds the entire ‘‘income’’ earned on the office building.
    1. What would be the total amount distributed over the 15-year life of the building?
    2. Assuming that NIS’s estimate of economic life was correct, what would likely be the market value of the building when the lease expired?
    3. Would NIS have had available any cash for the acquisition of other assets that would compensate for the decline in value of the building?
  3. Suppose NIS charged depreciation and distributed to expendable funds the entire ‘‘income’’ earned on the office building.
    1. What would be the total amount distributed over the 15-year life of the building?
    2. Assuming that NIS’s estimate of economic life was correct, what would likely be the market value of the building when the lease expired? Would NIS have had available any cash for the acquisition of other assets to compensate for the decline in value of the building?

Requirements:

  • Include a cover page denoting the paper title, your name, the course number and name, your instructor’s name, and the date you are making the submission.
  • Format your paper according to CSU-Global APA and Writing Requirements. Use APA citations where appropriate, and include an APA- formatted reference page at the end.
  • Submit your final case study to the Week 8 Assignment page.

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ACT410: Portfolio Project Rubric Criteria Meets Expectation Content, Research, and Analysis 25-30 Points Requirements The Portfolio Project includes all of the required components, as specified in the assignment. 65-80 Points Demonstrates strong or adequate knowledge of fund accounting and how to record journal entries for governments and not-forprofits; correctly represents knowledge from the readings and sources. 65-80 Points Content: Demonstrates strong or Scenario 2 adequate knowledge of fund accounting, budgetary accounting and reporting, and financial statements for governments and not-forprofits; correctly represents knowledge from the readings and sources. 57-70 Points Content: Demonstrates strong or Scenario 3 adequate knowledge of fund accounting and financial statements for governments and not-forprofits; correctly represents knowledge from the readings and sources. 25-30 Points Analysis Provides strong or adequate thought, insight and analysis of concepts and applications. Mechanics and Writing 17-20 Points Organization Project is clearly organized, well written, and in proper essay format including an introduction, body, and conclusion. Conforms to project requirements. Content: Scenario 1 Approaches Expectation Below Expectation Limited Evidence 19-24 Points The Portfolio Project includes most of the required components, as specified in the assignment. 13-18 Points The Portfolio Project includes some of the required components, as specified in the assignment. 49-64 Points Some significant but not major errors or omissions in demonstration of knowledge. 33-48 Points Major errors or omissions in demonstration of knowledge. 7-12 Points The Portfolio Project includes few of the required components, as specified in the assignment. 17-32 Points Fails to demonstrate knowledge of the materials. 49-64 Points Some significant but not major errors or omissions in demonstration of knowledge. 33-48 Points Major errors or omissions in demonstration of knowledge. 17-32 Points Fails to demonstrate knowledge of the materials. 43-56 Points Some significant but not major errors or omissions in demonstration of knowledge. 29-42 Points Major errors or omissions in demonstration of knowledge. 15-28 Points Fails to demonstrate knowledge of the materials. 19-24 Points Some significant but not major errors or omissions in thought, insight and analysis. 13-18 Points Major errors or omissions in thought, insight and analysis. 7-12 Points Fails to demonstrate thought, insight and analysis. 13-16 Points Small number of significant but not major flaws in organization and writing; is in proper essay format. In a minor way does not conform to project requirements. 9-12 Points Major problems in organization and writing; does not completely follow proper essay format. In a significant way does not conform to project requirements. 5-8 Points Project is not well organized or well written and is not in proper essay format. Does not conform to project requirements. ACT410: Portfolio Project Rubric Grammar and Style Demonstrates proper use of APA style 17-20 Points Strong sentence and paragraph structure; few or no minor errors in grammar and spelling; appropriate writing style; clear and concise with no unsupported comments. 13-16 Points Small number of significant but not major errors in grammar and spelling; generally appropriate writing. 17-20 Points Project contains proper APA formatting, according to the CSU-Global Guide to Writing and APA Requirements, with no more than one significant error. 13-16 Points Few errors in APA formatting, according to the CSU-Global Guide to Writing and APA Requirements, with no more than two to three significant errors. Total points possible = 350 9-12 Points Inconsistent to inadequate sentence and paragraph development; work needed on grammar and spelling; does not meet program expectations. 9-12 Points Significant errors in APA formatting, according to the CSUGlobal Guide to Writing and APA Requirements, with four to five significant errors. 5-8 Points Poor quality; unacceptable in terms of grammar and/or spelling; inappropriate writing style that interferes with clarity. 5-8 Points Numerous errors in APA formatting, according to the CSUGlobal Guide to Writing and APA Requirements, with more than five significant errors.
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Explanation & Answer

Attached.

Running head: ACCOUNTING CASE STUDY

ACCOUNTING CASE STUDY
Student’s Name
Course
Instructor’s Name
Date of Submission

1

ACCOUNTING CASE STUDY

2

Second project
Fund Book-keeping is Less Fitting for Companies
Fund book-keeping is a book-keeping scheme that is displaying answerability rather than
profitability, so this is generally used by non for profit organization and governments. In an
accounting system, a fund book-keeping is a self-complementary regular account that is recycled
for postulate drive in harmony with acts, guidelines and restrictions. The fund accounting has
applied to portfolio accounting, investment accounting, and security accounting, but it cannot
apply to profitability accounting (Whittington & Delaney, 2011). Fund accounting is a different
system of accounting that is related to government and nonprofit fund accounting. Fund accounting
is more appropriate for not-for-profit organization and government agencies.
In addition, government agencies and nonprofit organization have required specific
requirement to show their financial statements and reports, so they use fund accounting to represent
the money spending rather than profit earned. In addition, profit oriented businesses have required
to show their profit with source of income and expenses in financial reporting requirements, so
they cannot need of fund accounting (Dittenhofer & Stepnick, 2014). Subsequently, o based on
this debate, it is anticipated that fund book-keeping is less applicable for companies than for notfor-profits establishments and governmental organizations.
Scenario 1
Center Should Establish Its Accounting System on a Fund Basis
The Center for Participating Democracy is the part of the newly formed not-for-profit
support association, so that center ought to create its accounting structure on a fund basis. Fund
basic accounting suspend is only used by the government agencies and nonprofit organization and
it cannot utilize in the profit oriented businesses. In this occasion, Participatory Democracy Center

ACCOUNTING CASE STUDY

3

is portion of not-for-profit encouragement association, as a result fund basic book-keeping ought
to be established in its book-keeping scheme (Carmichael & Graham, 2012). In this case, not-forprofit advocacy organization earned detailed is not provided and only expenses or money spending
detailed provided, so that the center ought to establish its accounting scheme on a fund bookkeeping basis.
Should The Center Set Up Specific Fund Types?
If the center has to establish an accounting structure on the basis of fund accounti...


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