Created By: A Solution
Solution Manual for Government And Not For Profit Accounting C
m m m m m m m m m
oncepts And Practices 9th Edition Michael H. Granof|Latest Update
m m m m m m m m
d Version 2024. A+
m m m
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,Created By: A Solution
Chapter 1 m
The Government and Not-For-Profit Environment
m m m m
QuestionsmformReviewmandmDiscussion
m
1. Themcriticalmdistinctionmbetweenmfor-profitmbusinessesmandmnot-for-
profitsmincludingmgovernmentsmismthatmbusinessesmhavemprofitmasmtheirmmainmmotivemwhereasmthem
othersmhavemservice.mAmprimarympurposemofmfinancialmreportingmismtomreportmonmanmentity‘smaccom
plishmentsm—
m howmwellmitmachievedmitsmobjectives.mAccordingly,mthemfinancialmstatementsmofmbusinessesmmeasu
remprofitability,mtheirmkeymobjective.mFinancialmreportsmofmgovernmentsmandmothermnot-for-
profitsmshouldmnotmfocusmonmprofitability,msincemitmismnotmamrelevantmobjective.mIdeally,mtherefore,mt
heymshouldmfocusmonmothermperformancemobjectives,msuchmasmhowmwellmthemorganizationsmmetmthei
rmservicemgoals.mInmreality,mhowever,mthemgoalmofmreportingmonmhowmwellmtheymhavemachievedmsuch
m goalsmhasmprovenmdifficultmtomattainmandmthemfinancialmreportsmhavemfocusedmmainlymonmfinanciall
y-mrelatedmdata.
2. Governmentsmandmnot-for-
profitsmarem―governed‖mbymthembudget,mwhereasmbusinessesmaremgovernedmbymthemmarketplace.mT
hembudgetmismthemkeympoliticalmandmfiscalmdocumentmofmgovernmentsmandmnot-for-
profits.mItmdeterminesmhowmanmentitymobtainsmitsmresourcesmandmhowmitmallocatesmthem.mItmencapsul
atesmmostmkeymdecisionsmofmconsequencemmadembymthemorganization.mInmamgovernmentmthembudget
m ismnotmmerelymammanagerialmdocument;mitmismthemlaw.
3.
Owingmtomthemsignificancemofmthembudget,mconstituentsmwantmassurancemthatmthementitymach
ievesmitsmrevenuemestimatesmandmcompliesmwithmitsmspendingmmandates.mTheymexpectmthemfinancial
m statementsmtomreportmonmhowmthembudgetmwasmadministered.
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4.
Interperiodmequitymismthemconceptmthatmtaxpayersmofmtodaympaymformthemservicesmthatmtheymr
eceivemandmnotmshiftmthempaymentmburdenmtomtaxpayersmofmthemfuture.mFinancialmreportingmmustmin
dicatemthemextentmtomwhichminterperiodmequitymhasmbeenmachieved.mTherefore,mitmmustmdeterminema
ndmreportmuponmthemeconomicmcostsmofmthemservicesmperformedm(notmmerelymthemcashmcosts)mandmo
fmthemtaxpayers‘mcontributionmtowardmcoveringmthosemcosts.
5. Themmatchingmconceptmmaymbemlessmrelevantmformgovernmentsmandmnot-for-
profitsmthanmformbusinessesmbecausemtheremmaymbemnomconnectionmbetweenmrevenuesmgeneratedman
dmthemquantity,mqualitymormcostmofmservicesmperformed.mAnmincreaseminmthemdemandmfor,mormcostmof
,mservicesmprovidedmbymamhomelessmsheltermwouldmnotmnecessarilymresultminmanmincreaseminmthemam
ountmofmdonationsmthatmitmreceives.mOfmcourse,mgovernmentsmandmnot-mfor-
profitsmaremconcernedmwithmmeasuringminterperiodmequitymandmformthatmpurposemthemmatchingmcon
ceptmmaymbemverymrelevant.
6.
Governmentsmmustmmaintainmanmaccountingmsystemmthatmassuresmthatmrestrictedmresourcesm
aremnotminadvertentlymexpendedmforminappropriatempurposes.mMoreover,mstatementmusersmmaymnee
dmseparateminformationmonmthemrestrictedmresourcesmbymcategorymofmrestrictionmandmthemunrestricte
dmresources.mInmpractice,mthesemrequirementsmhavemledmgovernmentsmtomadoptmamsystemmofm―fund
‖maccountingmandmreporting.
7.
Evenmgovernmentsmwithinmthemsamemcategorymmaymengageminmdifferentmtypesmofmactivities.
m Formexample,msomemcitiesmoperatemamschoolmsystemmwhereasmothersmdomnot.mThosemthatmaremnotmw
ithinmthemsamemcategorymmaymhavemrelativelymlittleminmcommon.mFormexample,mamstatemgovernment
m sharesmfewmcharacteristicsmwithmamcity.
8.
Ifmamgovernmentmhasmthempowermtomtax,mthenmitmhasmcommandmover,mandmaccessmto,mresourc
es.mTherefore,mitsmfiscalmwell-
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beingmcannotmbemassessedmmerelymbymmeasuringmthemmmassetsmmmthatmmmitmmm―owns.‖mmFormmmexample
,mmmthemmfiscalmmconditionmmofmmammcitymmshouldmincorporatemthemwealthmofmthemresidentsmandmbusines
sesmwithinmthemcity,mtheirmearningmcapacity,mandmthemcity‘smwillingnessmtomexploitmitsmtaxmbase.
9. Manymgovernmentsmbudgetmonmamcashmormnear-
cashmbasis.mHowever,mthemcashmbasismofmaccountingmdoesmnotmprovidemadequateminformationmwithm
whichmtomassessminterperiodmequity.mFinancialmstatementsmthatmsatisfymthemobjectivemofmreportingmo
nminterperiodmequitymmaymnotmsatisfymthatmofmreportingmonmbudgetarymcompliance.mMoreover,mstat
ementsmthatmreportmonmeitherminterperiodmequitymormbudgetarymcompliancemaremunlikelymtomprovide
m sufficientminformationmwithmwhichmtomassessmservicemeffortsmandmaccomplishments.
10.
Measuresmofmservicemeffortsmandmaccomplishmentsmaremmoremsignificantminmgovernmentsma
ndmnot-for-
profitsmbecausemtheirmobjectivesmaremtomprovidemservice.mBymcontrast,mthemobjectivemofmbusinessesm
ismtomearnmamprofit.mTherefore,mbusinessesmcanmreportmonmtheirmaccomplishmentsmbymreportingmonmt
heirmprofitability.mGovernmentsmandmnot-for-
profitsmmustmreportmonmothermmeasuresmofmaccomplishment.
11.
ThemFASBminfluencesmgenerallymacceptedmaccountingmprinciplesmofmgovernmentsminmtwom
keymways.mFirst,mFASBmpronouncementsmaremincludedminmthemGASBm―hierarchy‖mofmGAAP.mFA
SBmpronouncementsmthatmthemGASBmhasmspecificallymmademapplicablemtomgovernmentsmareminclud
edminmthemhighestmcategory;mthosemthatmthemGASBmhasmnotmspecificallymadoptedmaremincludedminmth
emlowestmcategory.mSecond,mthembusiness-
typemactivitiesmofmgovernmentsmaremrequiredm(withmamfewmexceptions)mtomfollowmthembusinessmacco
untingmprinciplesmasmsetmforthmbymthemFASB.
2-2
m 12.
Itmismmoremdifficultmtomdistinguishmbetweenminternalmandmexternalmusersminmgovernmentsmth
https://www.stuvia.com/user/asolution
Solution Manual for Government And Not For Profit Accounting C
m m m m m m m m m
oncepts And Practices 9th Edition Michael H. Granof|Latest Update
m m m m m m m m
d Version 2024. A+
m m m
https://www.stuvia.com/user/asolution
,Created By: A Solution
Chapter 1 m
The Government and Not-For-Profit Environment
m m m m
QuestionsmformReviewmandmDiscussion
m
1. Themcriticalmdistinctionmbetweenmfor-profitmbusinessesmandmnot-for-
profitsmincludingmgovernmentsmismthatmbusinessesmhavemprofitmasmtheirmmainmmotivemwhereasmthem
othersmhavemservice.mAmprimarympurposemofmfinancialmreportingmismtomreportmonmanmentity‘smaccom
plishmentsm—
m howmwellmitmachievedmitsmobjectives.mAccordingly,mthemfinancialmstatementsmofmbusinessesmmeasu
remprofitability,mtheirmkeymobjective.mFinancialmreportsmofmgovernmentsmandmothermnot-for-
profitsmshouldmnotmfocusmonmprofitability,msincemitmismnotmamrelevantmobjective.mIdeally,mtherefore,mt
heymshouldmfocusmonmothermperformancemobjectives,msuchmasmhowmwellmthemorganizationsmmetmthei
rmservicemgoals.mInmreality,mhowever,mthemgoalmofmreportingmonmhowmwellmtheymhavemachievedmsuch
m goalsmhasmprovenmdifficultmtomattainmandmthemfinancialmreportsmhavemfocusedmmainlymonmfinanciall
y-mrelatedmdata.
2. Governmentsmandmnot-for-
profitsmarem―governed‖mbymthembudget,mwhereasmbusinessesmaremgovernedmbymthemmarketplace.mT
hembudgetmismthemkeympoliticalmandmfiscalmdocumentmofmgovernmentsmandmnot-for-
profits.mItmdeterminesmhowmanmentitymobtainsmitsmresourcesmandmhowmitmallocatesmthem.mItmencapsul
atesmmostmkeymdecisionsmofmconsequencemmadembymthemorganization.mInmamgovernmentmthembudget
m ismnotmmerelymammanagerialmdocument;mitmismthemlaw.
3.
Owingmtomthemsignificancemofmthembudget,mconstituentsmwantmassurancemthatmthementitymach
ievesmitsmrevenuemestimatesmandmcompliesmwithmitsmspendingmmandates.mTheymexpectmthemfinancial
m statementsmtomreportmonmhowmthembudgetmwasmadministered.
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,Created By: A Solution
4.
Interperiodmequitymismthemconceptmthatmtaxpayersmofmtodaympaymformthemservicesmthatmtheymr
eceivemandmnotmshiftmthempaymentmburdenmtomtaxpayersmofmthemfuture.mFinancialmreportingmmustmin
dicatemthemextentmtomwhichminterperiodmequitymhasmbeenmachieved.mTherefore,mitmmustmdeterminema
ndmreportmuponmthemeconomicmcostsmofmthemservicesmperformedm(notmmerelymthemcashmcosts)mandmo
fmthemtaxpayers‘mcontributionmtowardmcoveringmthosemcosts.
5. Themmatchingmconceptmmaymbemlessmrelevantmformgovernmentsmandmnot-for-
profitsmthanmformbusinessesmbecausemtheremmaymbemnomconnectionmbetweenmrevenuesmgeneratedman
dmthemquantity,mqualitymormcostmofmservicesmperformed.mAnmincreaseminmthemdemandmfor,mormcostmof
,mservicesmprovidedmbymamhomelessmsheltermwouldmnotmnecessarilymresultminmanmincreaseminmthemam
ountmofmdonationsmthatmitmreceives.mOfmcourse,mgovernmentsmandmnot-mfor-
profitsmaremconcernedmwithmmeasuringminterperiodmequitymandmformthatmpurposemthemmatchingmcon
ceptmmaymbemverymrelevant.
6.
Governmentsmmustmmaintainmanmaccountingmsystemmthatmassuresmthatmrestrictedmresourcesm
aremnotminadvertentlymexpendedmforminappropriatempurposes.mMoreover,mstatementmusersmmaymnee
dmseparateminformationmonmthemrestrictedmresourcesmbymcategorymofmrestrictionmandmthemunrestricte
dmresources.mInmpractice,mthesemrequirementsmhavemledmgovernmentsmtomadoptmamsystemmofm―fund
‖maccountingmandmreporting.
7.
Evenmgovernmentsmwithinmthemsamemcategorymmaymengageminmdifferentmtypesmofmactivities.
m Formexample,msomemcitiesmoperatemamschoolmsystemmwhereasmothersmdomnot.mThosemthatmaremnotmw
ithinmthemsamemcategorymmaymhavemrelativelymlittleminmcommon.mFormexample,mamstatemgovernment
m sharesmfewmcharacteristicsmwithmamcity.
8.
Ifmamgovernmentmhasmthempowermtomtax,mthenmitmhasmcommandmover,mandmaccessmto,mresourc
es.mTherefore,mitsmfiscalmwell-
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, Created By: A Solution
beingmcannotmbemassessedmmerelymbymmeasuringmthemmmassetsmmmthatmmmitmmm―owns.‖mmFormmmexample
,mmmthemmfiscalmmconditionmmofmmammcitymmshouldmincorporatemthemwealthmofmthemresidentsmandmbusines
sesmwithinmthemcity,mtheirmearningmcapacity,mandmthemcity‘smwillingnessmtomexploitmitsmtaxmbase.
9. Manymgovernmentsmbudgetmonmamcashmormnear-
cashmbasis.mHowever,mthemcashmbasismofmaccountingmdoesmnotmprovidemadequateminformationmwithm
whichmtomassessminterperiodmequity.mFinancialmstatementsmthatmsatisfymthemobjectivemofmreportingmo
nminterperiodmequitymmaymnotmsatisfymthatmofmreportingmonmbudgetarymcompliance.mMoreover,mstat
ementsmthatmreportmonmeitherminterperiodmequitymormbudgetarymcompliancemaremunlikelymtomprovide
m sufficientminformationmwithmwhichmtomassessmservicemeffortsmandmaccomplishments.
10.
Measuresmofmservicemeffortsmandmaccomplishmentsmaremmoremsignificantminmgovernmentsma
ndmnot-for-
profitsmbecausemtheirmobjectivesmaremtomprovidemservice.mBymcontrast,mthemobjectivemofmbusinessesm
ismtomearnmamprofit.mTherefore,mbusinessesmcanmreportmonmtheirmaccomplishmentsmbymreportingmonmt
heirmprofitability.mGovernmentsmandmnot-for-
profitsmmustmreportmonmothermmeasuresmofmaccomplishment.
11.
ThemFASBminfluencesmgenerallymacceptedmaccountingmprinciplesmofmgovernmentsminmtwom
keymways.mFirst,mFASBmpronouncementsmaremincludedminmthemGASBm―hierarchy‖mofmGAAP.mFA
SBmpronouncementsmthatmthemGASBmhasmspecificallymmademapplicablemtomgovernmentsmareminclud
edminmthemhighestmcategory;mthosemthatmthemGASBmhasmnotmspecificallymadoptedmaremincludedminmth
emlowestmcategory.mSecond,mthembusiness-
typemactivitiesmofmgovernmentsmaremrequiredm(withmamfewmexceptions)mtomfollowmthembusinessmacco
untingmprinciplesmasmsetmforthmbymthemFASB.
2-2
m 12.
Itmismmoremdifficultmtomdistinguishmbetweenminternalmandmexternalmusersminmgovernmentsmth
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