A governmental fund's Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $40 million, including capital outlay expenditures of $12 million. Capital assets for that government cost $80 million, including land in the amount of $10 million. Depreciable assets are amortized over 10 years, on average. The reconciliation from governmental fund changes in fund balances to governmental activities change in Net Position would reflect a (an) : A) $4 million increase. B) $5 million decrease. C) $5 million increase. D) $4 million decrease.

C) $5 million increase.

Explanation:

The computation of the change in fund balances to governmental activities is shown below:

= Capital outlay expenditures - actual expenditure

where,

capital outlay expenditure is $12 million

And, the actual expenditure would be assumed as a depreciation expense which is calculated below

= (Total capital cost - land value) : (useful life)

= ($80 million - $10 million) : (10 years)

= ($70 million) : (10 years)

= $7 million

As land is not depreciated so we excluded it from the capital assets

Now put these values to the above formula

So, the value would equal to

= $12 million - $7 million

= $5 million increase