CPAnet Forum: two different answers are confusing me...

Active Topics

Memberlist

Help

FAR STUDY GROUP
CPAnet Forum : FAR STUDY GROUP

Topic: two different answers are confusing me... (

Topic Closed)

Author

Message

<< Prev Topic | Next Topic >>

Jams
Major Contributor

Joined: 26 Apr 2007
Location: United States
Online Status: Offline
Posts: 547

Posted: 05 Feb 2009 at 15:58 \| IP Logged

please help me with this,
Frome City signed a 20-year office property lease for its general staff. Frome could terminate the lease at any time after giving one year's notice, but termination is considered a remote possibility. The lease meets the criteria for a capital lease. What is the effect of the lease on the asset amount in Frome's capital assets and the liability amount in Frome's governmental activities column of the government-wide statement of net assets?
Asset    Liability
    Amount    Amount

Choice "a" is correct. Increase, Increase.
The lease liability for a 20 year office property recorded as a capital lease should be reported in the government-wide statement of net assets as an increase in assets and liabilities in the governmental activities column. Capital assets and noncurrent liabilities are not recorded in the governmental funds.
Choices "b", "c", and "d" are incorrect, per rule above.

another similar Q with a diff answer,
Polk County's solid waste landfill operation is accounted for in a governmental fund. Polk used available cash to purchase equipment that is included in the estimated current cost of closure and post-closure care of this operation. How would this purchase affect the asset amount in Polk's governmental capital assets and the liability amount in Polk's government-wide financial statements?
    Asset    Liability
    Amount    Amount
No effect      Decrease
Choice "c" is correct. Equipment, facilities, and services included in the estimated current cost of closure and postclosure care should not be reported as capital assets but should be reported as a reduction of the accrued liability in the general long-term liabilities displayed in the government-wide financial statements when they are acquired.

Edited by Jams on 05 Feb 2009 at 16:01

__________________
jams

BEC-76
AUD-80
REG-84
FAR-81 !!!

utesa
Major Contributor

Joined: 28 Aug 2008
Location: United States
Online Status: Offline
Posts: 411

Posted: 06 Feb 2009 at 12:57 \| IP Logged

Jams this is the way I look at it.

First one is a capital lease which increase the asset account at the Financial-wide level AND the PV of lease payments will increase the liability. (Increase in both). Only at the Wide level, the gov. funds will not book any of this as asset or liability.

Second one the asset purchased is include in an “estimated” – budgetary account. All they have to do is reduce the liability they created when booking this asset purchase-budget and leave the asset alone, no-effect. I think that is why the said "they used cash available"

I just finished F8 two days ago and that was one of my "marked" question. Anyone has a diff opinion?

Thanks,

ksnoopy
Newbie
Newbie

Joined: 03 Nov 2008
Online Status: Offline
Posts: 15

Posted: 07 Feb 2009 at 16:16 \| IP Logged

I agree with the first question answer. It is a capital lease and therefore should be accounted for as an increase in capital assets and an increase in liability.

The second question refers to the special rules on landfills. Becker covers this topic briefly. This involves setting up a liability for the estimated costs to cap the landfill once it is full and taking care of it once you cap the landfill. You may want to look up the special rules on this topic. It's brief but should explain this in a bit more detail.

__________________
Aud 84
Reg 74,92
BEC 71,83
FAR 59,88

Jams
Major Contributor

Joined: 26 Apr 2007
Location: United States
Online Status: Offline
Posts: 547

Posted: 07 Feb 2009 at 17:28 \| IP Logged

thank you guys, its a little clear now.

__________________
jams

BEC-76
AUD-80
REG-84
FAR-81 !!!

Sorry, you can NOT post a reply.
This topic is closed.

Printable version

You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum