1. Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 9 Accounting for Special Purpose Entities, Including Public Colleges and Universities Copyright © 2015 McGraw-Hill Education. All rights reserved.

2. 1-2 Chapter 9 – Learning Objectives Identify the required financial statements of varying types of special-purpose entities Prepare combined fund-basis/government-wide financial statements for a special purpose entity engaged in a single governmental activity Apply the accrual basis of accounting in the recording of typical transactions of a public college or university Prepare the financial statements of a public college or university

3. 1-3 Special Purpose Entities General Purpose Governments include: States, counties, cities, towns, and villages. Special Purpose Entities include: Fire protection districts, park districts, public colleges and public authorities. A Special Purpose Entity may be a component unit of a General Purpose government.

4. 1-4 Special Purpose Entity Reporting If the entity is engaged in governmental and business type activities Use general GASB 34 reporting model (chapters 3-8) and report both fund basis and government-wide financial statements If the entity is engaged in multiple governmental activities Use general GASB 34 model, just omit enterprise funds statements which are not applicable. Again, report both fund basis and government-wide financial statements

5. 1-5 Special Purpose Entity Reporting If the entity is engaged in single governmental activity The entity can prepare governmental fund, government-wide statements, and reconciliation effects all on one combined statement If the entity is engaged only in business-type activities The entity can prepare enterprise fund financial statements (no need for government-wide) If the entity is engaged only in fiduciary type activities The entity can prepare fiduciary fund financial statements (no need for government-wide)

6. 1-6 General Fund Capital Projects Fund Total Governmental Funds Adjustments to Government-wide Statement of Net Position Assets Cash $ 1,500,000 $ 4,800,500 $ 6,300,500 Investments 500,000 Taxes Receivable - Gross 200,000 Interest Receivable 5,000 Prepaid Items 12,000 Capital Assets - 35,000,000 Accumulated Depreciation - (7,500,000) Total Assets $ 2,217,000 $ 4,800,500 $ 7,017,500 $ 27,500,000 $ 34,517,500 Liabilities and Fund Balances Liabilities Accounts Payable 840,000 62,500 902,500 Accrued Liabilities 250,000 Deferred Property Taxes 65,000 (65,000) - Contracts payable - Retained % 700,000 Long-term Notes Payable - 15,000,000 Total Liabilities 1,155,000 762,500 1,917,500 14,935,000 16,852,500 Fund Balances Nonspendable 12,000 Assigned - Capital projects 58,000 4,038,000 4,096,000 Unassigned 992,000 Total Fund Balances 1,062,000 4,038,000 5,100,000 Net Position Net Investment in capital assets 11,800,000 Unrestricted 5,865,000 $ 17,665,000 Example – Combined Balance Sheet, Statement of Net Position Adjustments to convert to accrual

7. 1-7 PUBLIC Colleges and Universities Public Colleges and Universities are owned by a government – typically a state government. Public College financial reporting is covered by GASB. Private Colleges are not owned by a government and their reporting falls under FASB guidance -- covered in chapter 11. Although there are more private than public colleges in the US, roughly 3/4 of the students attend public institutions.

8. 1-8 Public Colleges and Universities – GASB 35 GASB 35 requires statements similar to those of special purpose governments under GASB 34. The effect is to require colleges to use the accrual basis and record long-term assets, including infrastructure, along with depreciation.

9. 1-9 Public College Financial Reports Most public colleges, will report as governmental units with “business activities only”. Therefore they will prepare enterprise fund statements Exception: some community colleges that have power to levy property taxes, and may prepare both fund level and government-wide statements

10. 1-10 Public College Statement of Net Position Assets and Liabilities Are classified as current and noncurrent. Net Position Is Classified as 1) Net Investment in capital assets 2) Restricted -- Nonexpendable and Expendable 3) Unrestricted

11. 1-11 Unrestricted Net Position Deficits Note: A deficit balance in unrestricted net position is common because: Colleges are not accustomed to setting aside funds for depreciation. States seldom fund compensated absences in advance.

12. 1-12 Public College Statement of Revenues, Expenses and Changes in Net Position Format: Operating Revenues include: Student Tuition net of scholarship allowances Federal and State Grants Auxiliary Less: Operating Expenses including depreciation Plus or minus: Nonoperating Revenues and Expenses Includes state appropriations, gifts, investment income, interest on capital debt Plus or minus: Capital appropriations, gift, endowment additions Equals: Increase in net position Plus: Beginning net position Equals: Ending net position

13. 1-13 Public College Statement of Cash Flows GASB Format Cash flows from Operating activities must be presented using the direct method Four Parts (described on next slide) Reconciliation of Operating income to cash flows from operations May also have noncash financing and investing section

14. 1-14 Public College Statement of Cash Flows GASB Format Classification of Cash Flows – GASB Format Operating items: Excludes interest and dividend revenues and expenses Noncapital Financing: Includes state appropriations and gifts including endowments Capital Financing: Purchase of long-term assets and related gifts, appropriations and debt repayment including interest Investing: Includes interest revenues, endowment and other investments kept separate

15. 1-15 Tuition discounts and financial aid If tuition or fees are waived for scholarships where no service is expected of the student, the scholarship should be reported as a contra revenue. If tuition or fees are waived for work-study or graduate assistantships where the student is expected to work, the scholarship should be reported as an expense.