A state government operates a lottery system, with a portion of the proceeds legally mandated to support public education. The lottery is managed and accounted for as an Enterprise Fund, but the funds for education are transferred to a Special Revenue Fund. How should the transfer of these funds from the Enterprise Fund to the Special Revenue Fund be reported on the government-wide financial statements?
- AAs an internal balance, eliminated during consolidation.
- BAs a revenue in the governmental activities column and an expense in the business-type activities column.
- CAs an Interfund Transfer only in the governmental activities column.
- DAs an Interfund Transfer in the governmental activities column and business-type activities column.
Show answer & explanationAnswer & explanation
Correct answer: D. As an Interfund Transfer in the governmental activities column and business-type activities column.
On government-wide financial statements, interfund transfers between governmental activities and business-type activities (like an Enterprise Fund) are reported as transfers in the Statement of Activities. They are not eliminated, as they represent transactions between different reporting components.
Why the other options are wrong
- A. Internal balances are for interfund loans or receivables/payables that are eliminated, not transfers between different types of activities.
- B. Transfers are not revenues or expenses at the government-wide level; they are nonreciprocal interfund activities.
- C. The transfer impacts both the governmental activities (receiving end) and business-type activities (giving end) columns.
Interfund Transfers (Government-Wide)
Transfers of financial resources between different funds within the same government. On government-wide statements, transfers between governmental activities and business-type activities are reported as transfers in the Statement of Activities.
- Reported as transfers in the Statement of Activities (government-wide).
- Not eliminated if between governmental and business-type activities.
- Distinguished from interfund loans, which create internal balances.
Memory trick: Government-Wide Transfers: Between types, they show up; within types, they vanish.