Question 1
Upon graduating from the Accounting Program at Baruch College, you are hired by the
administrative office of the township of Placid Lake, NY. The township has a new mayor who
enjoys stating they are “not good with numbers.” The new mayor, however, appreciates the
importance of understanding the town’s financial position – among others, they have made a lot
of expensive promises while campaigning and would like to understand how they can honor them.
The mayor has been given four statements – the government-wide statement of net assets, the
government-wide statement of activities, the balance sheet for the General Fund, and the statement
of revenues, expenditures, and changes in the fund balances of the General Fund. They request
your help with the following:
1. The mayor has noticed that sometimes the expenses on one statement equal the
expenditures on another. What is the difference between expenses and expenditures in
the provided statements and why do they (only) sometimes equal each other?
2. The mayor also has noticed that assets minus liabilities equals net assets on one
statement, but assets minus liabilities equals the fund balance on another. How can this
be? Shouldn’t they be the same? What is the difference between the two? Please
explain.
3. The total fund balance seems to have increased in the past year, but total net assets
decreased. How could this happen?
4. The mayor decides they don’t want to look at all four statements and want to know
which one they should look at to figure out how much they can spend on their campaign
promises. What is your recommendation and why?
Note: The mayor has never taken an accounting course and does not understand journal entries,
so please do not include any in your memo.
Question 2
You are attending an exhibit of an up-and-coming artist. Upon hearing you have recently graduated
from the Accounting Program at Baruch College, the host approaches you with a question on art
donations. In particular, the host relates that the artist is considering donating some of their work
but has heard from friends that sometimes art donated to private not-for-profits is not reported as
an asset. The artist, thus, is concerned that if they donate to their favorite private not-for profit,
their donation would be meaningless. As an alternative, the artist is considering donating artwork
to the local government for display in the town library.
The host retains you for a consulting assignment. Specifically, they request a business memo
addressing the following questions:
1. How do private not-for-profits account for donated artwork?
2. How do governmental organizations account for donated artwork (please distinguish
between the treatment in the government-wide financial statements versus the
governmental fund statements)?
3. Based on your research, should the artist donate to their favorite not-for-profit or to the
local government (in either case, the artist will require that the donated artwork be kept by
the recipient rather than sold)?
The host clarifies neither they, nor the artist have any training in accounting, so the memo should
not include “stuff like journal entries.”
