Governmental and Not for Profit Accounting Chapter 1 Exercises

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John Yocum ACCT4421 v1.1 (section 1) Module 1 E 1-1 1 a 2 c 3 d 4 c 5 b 6 c 7 d 8 a 9 b 10 c P 1-1 a. Wages Interest Add Equip 6,000,000 500,000 900,000 7,400,000 b. Wages Interest 6,000,000 500,000 6,500,000 c. Bonds Wages Interest 6,000,000 500,000 10,000,000 16,500,000 E 1-2 b b d b b c c b a b

d. The cash basis of accounting requires the company to expense the entire $10 million of equipment in year ten. The taxpayers of the tenth year incur the entire expense rather than depreciating $1 million per year. P 1-2 1. The fact that the church reported only $0.2 million in assets indicates that the bank would not have near enough collateral in case the loan is not paid. 2. The loan officer would also want to know about the liquidity of the assets. The more readily convertible to cash, the better for the bank. 3. The Bank might also be concerned that the church is not operating at a net profit. If they are not able to raise money then it is not promising that the loan will be paid off. 4. The choice of accounting principles is critical to the results shown in the financial statements. The loan officer needs to know whether the entity is operating on a cash or accrual basis in order to truly understand the financials.

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