Question

Major Funds. (L02-4) Forest City has recently implemented GAAP reporting and is attempting to determine which of the following special revenue funds should be classified as "major funds" and, therefore, be reported in separate columns on the balance sheet and statement of revenues, expenditures, and changes in fund balances for the governmental funds. As the city's external Page 67auditor, you have been asked to provide a rationale for either including or excluding each of the following funds as a major fund. Prepare a memo to the city manager that gives your recommendation and explanation. Selected information is provided below. FOREST CITY As of fiscal year-end Gas Tax Revenue Fund $160,748 72,551 138,336 Total assets Total liabilities Total revenues Total expenditures Housing and Urban Development Grant Fund $175,111 85,433 169,964 130,583 Forest City All Library Governmental Fund Funds $101,549 $1,563,867 867,533 120,589 1,537,399 119,812 1,496,223 All Governmental and Enterprise Funds $3,497,398 1,487,225 2,987,487 124,225 2,684,531 nglish (United States) D Focus

Answer 1

According to GAAP principles , the fund should meet the two conditons to be categorised as a major fund

a) The total assets, liabilities , revenue or expenditure of the fund should be 10% or more than the total government funds assets , liabilties , revenue or expenditure

b) The total assets ,liabilties , revenues or expenditure of the fund should be 5 % or more than the total government + total enterprise funds assets , liabilites, revenues or expenditures

Out of these threw funds , only Housing and Devlopment fund meet both the criteria , so it will be included in the defination of the major fund ,

the gas tax revenue meet the first conditon but doesn't meet the second conditon , so it will no be included

the forest city library fund doesn't meet any condition , so it won't be included as major fund

The calculation are attached with the screenshot

I K L 1 st Condition 2 nd Condition (Total/Total of gov (Total / Total of 2 nd Condition (Total / 1 st Condition 1 st Condition (Total/ fund) Total of gov + (Total/ Total of gov + Enterprise Housing and urban Total of gov fund) Enterprise Fund) Forest City Library gov fund) Gas Tax Revenue Fund Fund) devlopment fund Fund 2 Total Assets 160748 10.28% 4.60% 175111.00 11.20% 5.01% 101549 6.49% 3 Total Liabilities 72551 8.36% 4.88% 85433.00 9.85% 5.74% ol 0.00% 4 Total Revenue 138336 9.00% 4.63% 169964.00 11.06% 5.69% 120589 7.84% 5 Total Expenditure 124225 8.30% 4.63% 130583.00 8.73% 4.86% 1198121 8.01% 6 7 8 1 st conditon ( 10 % rule) - The assets, liabilities, revenue or Expenditure should exceed 10% of total govermental funds assets, liabilities, revenue or Expenditure 9 2nd Condition (5% rule)- The assets, liabilites, revenue or expenditure should exceed 5 % of total govermental + enterprise funds assets, liabilites, revenue or expenditure 10 If these two conditions meet then it is a MAJOR FUND 11 2 nd Condition (Total /Total of gov + Enterprise Fund) All Gov + All GOV Funds Enterprise Fund 2.90% 1563867 34,97,398 0.00% 867533 1487225 4.04% 1537399 2987487 4.46% 1496223 2684531