GOV-Financial reporting entity

Question 1

What is the difference between blended and discrete presentation?

Answer 1

Blending of financial results is allowed as the public school system and the city are not separate legal entities. The city is responsible for the finances of the school system (the school board has no authority to levy taxes or issue bonds).

Discrete presentation is for affiliated entities whose resources are entirely for the benefit of the primary government. The school system does not operate for the sole benefit of the town.

blended - the component unit provides services ONLY for the primary gov’t and the primary gov’t PAYS all the debts of the component unit. discrete - a school gets tax money but the school can use that money however they want - See more at: http://www.another71.com/cpa-exam-forum/topic/help-can-someone-explain-to-me-the-difference-between-discrete-and-blended#sthash.WescXuaq.dpuf

Question 2

What is the basic criterion used to determine the reporting entity for a governmental unit?

Answer 2

Financial accountability

Question 3

What is discrete presentation?

Answer 3

, financial information for separate organizations for which the primary government’s elected officials are financially accountable must be included in the primary government’s financial statements even though the organization is a separate legal entity. These separate organizations are called component units. Discrete presentation should be used for this presentation of financial information unless the financial activities of the two entities are so intertwined as to make them substantially the same entity. Since this does not appear to be the case in this question, discrete presentation of the information is required.

Question 4

Marta City’s school district is a legally separate entity, but two of its seven board members are also city council members and the district is financially dependent upon the city. The school district’s financial activity should be reported in the city’s financial statements by:

Answer 4

Because the school district is financially dependent on the city, it is considered a component unit, not a separate primary government. Component unit financial information is generally included in the financial statements of the primary government but presented separately from the financial data of the primary government. Because only two of the seven school board seats are occupied by council members, the governing body of the school board is not “substantially the same” as the city council. Thus, the blending method is not required. Discrete presentation should be used unless the financial activities of the two entities are so intertwined as to make them substantially the same entity.

Question 5

The basis for defining the governmental financial reporting entity is:

Answer 5

public accountability.

Question 6

What is blended presentation

Answer 6

The Authority is a component unit of the city. The Authority’s governing body is appointed by the city and the lease constitutes the imposition of a financial burden on the city. A component unit should be included in the reporting entity or primary government’s financial statements using the blending method if the component unit’s governing body is the same as the primary government; if the component unit provides services entirely or almost entirely to the primary government; or if the component unit’s debt is expected to be repaid with resources provided by the primary government even if provided through a lease arrangement. The Authority will be reported using the blending method because the Authority provides services entirely to the city and its debt will be repaid with city resources over time. Only one of the three criteria needs to be met for the blending method to be used. In this case, two of the three criteria were met.

Question 7

What is the 3 criteria for blended presentation

Answer 7

(1. ) PG and CU governing bodies are substantially the same
(2. ) CU serves or benefits solely PG
(3. ) PG is expected to repay total liab of CU

Question 8

An organization is normally considered a governmental organization if:

Answer 8

the organization is exempt from federal taxation and a controlling majority of the members of its governing board are appointed by state government officials.

Question 9

What are the 3 characteristics of primary government?

Answer 9

I.It has a separately elected governing body.
II.It is legally separate.
III.It is fiscally independent of other state and local governments.