**PREPARED BY:**

**UNITED STATES STANDARD GENERAL LEDGER DIVISION**

**ACCOUNTING SYSTEMS AND STANDARDS DIRECTORATE**

**GOVERNMENTWIDE ACCOUNTING**

**FINANCIAL MANAGEMENT SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

**TABLE OF CONTENTS**

Overview.....................................................................................2

##### Conceptual Framework.....................................................................5

##### Account Tables..............................................................................6

##### Scenarios

> Scenario 1: Post-Credit Reform, Property With
> Recourse.................\.......10
>
> Scenario 2: Post-Credit Reform, Property Without
> Recourse....................25
>
> Scenario 3: Pre-Credit Reform, Property With
> Recourse.........................37
>
> Scenario 4: Pre-Credit Reform, Property Without
> Recourse.....................50

##### Appendix I: Yearend Adjustments to Valuation of Foreclosed Property...........62

##### Appendix II: References........................\...........................................73

# 

# OVERVIEW

This guide is designed for those who:

-   Formulate and execute Federal credit program budgets including
    accounting for assets, liabilities, net position, income, expenses,
    and budgetary resources

-   Prepare agency financial statements;

-   Audit agency financial statements;

-   Design and maintain computer systems for financial and accounting
    programs; and

-   Instruct others in basic accounting and reporting for foreclosed
    property in Federal credit programs.

The guide is illustrative, rather than authoritative, and is categorized
as "other accounting literature" in the hierarchy of accounting
principles for Federal entities.[^1] It supersedes the original and
subsequent foreclosed property scenarios. Users may download the guide
from the FMS Web site at **www.fms.treas.gov/ussgl/creditreform**.

In order to understand and gain the most from the guide, users must have
a working knowledge of the following:

-   Budgetary and proprietary accounting and related reporting;

-   United States Government Standard General Ledger (USSGL) accounts
    for basic annual operating appropriations and revolving funds.

-   Federal credit program accounting and reporting;

-   The Credit Reform Act and requirements established by the Act; and

-   Fund structures.

The guide is divided into four scenarios:

> 1\. Foreclosed property taken with recourse, Post-Credit Reform.
>
> 2\. Foreclosed property taken without recourse, Post-Credit Reform.
>
> 3\. Foreclosed property taken with recourse, Pre-Credit Reform.
>
> 4\. Foreclosed property taken without recourse, Pre-Credit Reform.

"With recourse" means that, if the net cashflows related to the
foreclosed property are insufficient to pay the defaulted debt in full,
the Federal credit agency may take further action against the borrower
to collect the remainder. Conversely, if net cashflows are in excess of
the debt, the agency must refund the excess to the borrower.

"Without recourse" means that if the net cashflows related to the
foreclosed property are insufficient to pay the defaulted debt in full,
the Federal credit agency must write off the remaining debt. If the net
cashflows are greater than necessary to repay the debt, the agency
retains the excess. The loan contract with the borrower should indicate
the terms of the loan.

The provided scenarios are not intended to be comprehensive. They cover
common transactions and reports, focusing on property transactions
unique to Federal credit program accounting. For example, the guide does
not discuss undelivered orders with advances, because these orders are
relatively rare and are not unique to credit program accounting.

The foreclosed property Credit Reform scenarios use net realizable
value, rather than present value, as the basis for accounting. If
agencies operate programs under Pre-Credit Reform based on present
value, the foreclosed property accounting would be the same as that in
the foreclosed property Post-Credit Reform scenarios.[^2]

The scenarios illustrate beginning, pre-closing, and post-closing trial
balances. Where appropriate, the resulting yearend agency reports listed
below are shown:

-   Balance Sheet;

-   Statement of Net Cost;

-   Statement of Changes in Net Position;

-   Statement of Budgetary Resources;

-   Statement of Financing;

-   Yearend Closing Statement;

-   Program and Financing Statement;

-   Credit Program Footnote (including Schedule of Changes in the
    Allowance for Subsidy).[^3]

The illustrated transactions within each scenario are:

-   Formulation, apportionment, and allotment of the budget;

-   Acquisition of foreclosed property;

-   Repairs and maintenance on foreclosed property;

-   Rental of foreclosed property prior to sale;

-   Incurrence of expenses related to rental of foreclosed property
    prior to sale;

-   Sale of foreclosed property;

-   Collecting shortfalls from, recording shortfalls to, or paying
    excess cash to "with-recourse" borrowers;

-   Closing entries.

In addition, two appendices are attached. Appendix 1 discusses fiscal
yearend adjustments to the valuation of the property not sold by the
yearend. Appendix 2 provides a listing of key references related to
credit program accounting.

Direct questions regarding this guide to the USSGL Division at
**www.fms.treas.gov/ussgl**, using the USSGL Issue Form, or to:

> Director, USSGL Division
>
> Accounting Systems and Standards Directorate

##### Governmentwide Accounting

> Financial Management Service
>
> 3700 East-West Highway
>
> Hyattsville, MD 20872

The Web site also includes a list of USSGL representatives and their
telephone numbers.

# CONCEPTUAL FRAMEWORK

The transactions in this guide are based on property acquired and sold
in the same year and are for a fictitious Federal agency with a single
direct-loan-program cohort and no-risk categories. The entries
essentially are the same for direct loan or loan guarantee programs, and
disclosure is made where there are differences. For Pre-Credit Reform,
it is assumed that the agency is operating from its collections rather
than from appropriations. Therefore, no entries to show appropriations
used are necessary, and net position consists only of cumulative results
of operations. (Accounting for appropriations used is illustrated for
the program fund in separate guides for direct loans and loan guarantees
under Credit Reform.)

The guide uses USSGL account numbers and, generally, USSGL account
titles. The guide expands account titles, where used, for illustrative
purposes only, for the specific information being captured. For example,
in order to capture information to separate loans receivable related to
direct loan programs and those related to loan guarantee programs, which
must be segregated in the financial statements, "\[Direct\]" is placed
after the USSGL account title 1350, Loans Receivable \[Direct\]. For
defaulted loans receivable, USSGL account title 1350 includes
"\[Defaulted Guaranteed\]" after the account title: 1350 Loans
Receivable \[Defaulted Guaranteed\].

Entries are in general journal form, using USSGL accounts, and are
summarized in trial balances for each year. Note that the financing fund
is used only in the transactions for Post-Credit Reform scenarios, and
the liquidating fund is used only in the transactions for Pre-Credit
Reform scenarios.

USSGL accounts that, by themselves, do not directly provide the
reporting that is illustrated, are supplemented with additional detail.
The entries made and the method chosen to illustrate the detail provide
only one-way of accounting. Agencies may have other ways of structuring
their ledgers and making journal entries to accomplish the same result.

**ACCOUNT TABLES**

The following account tables identify the accounts used in the guide to
record transactions and prepare reports. Since the transactions are not
comprehensive, the tables do not contain all accounts that agencies may
use in day-to-day activities. The accounts used are presented and
categorized by budgetary, proprietary, and memorandum accounts, as they
relate to the changes in the loan guarantee level.[^4] Note that
USSGL-accounts used in the scenarios that are enhanced to capture the
information are illustrative rather than authoritative.

The budgetary accounts apply to both financing funds (Post-Credit
Reform) and liquidating funds (Pre-Credit Reform). The memorandum
accounts relate only to financing funds. Many of the proprietary
accounts apply to both financing and liquidating fund transactions, but
some are applicable to only one of the two. Proprietary accounts that
relate only to the financing fund are indicated with a "(F)" following
the title, and accounts that relate only to the liquidating fund are
indicated with a "(L)" following the title. If the account applies to
both funds, it is not indicated with either.

The memorandum accounts are included primarily for use in preparing the
required Post-Credit Reform schedule. The schedule illustrates the
changes in the beginning and ending values for the allowance.[^5] The
USSGL staff will propose adding these accounts to the USSGL. Pending
approval by the USSGL Board, the accounts will be incorporated into the
guide.

Lastly, one account structure required by the parameters of the agency
used in the scenario is not illustrated. The case agency is given a
"Category B" apportionment, in which it must avoid over-obligating the
amount of the apportionment separately for each category. For proper
administrative funds control, the agency would need a set of these
status accounts for each category.

+-----------------------------------------------------------------------+
| **BUDGETARY ACCOUNTS**                                                |
|                                                                       |
| **RESOURCES**                                                         |
|                                                                       |
| [Anticipated]{.underline}                                             |
|                                                                       |
| ##### 4060 Anticipated Collections From Non-Federal Sources           |
|                                                                       |
| [Realized]{.underline}                                                |
|                                                                       |
| 4201 Total Actual Resources - Collected                               |
|                                                                       |
| 4264 Actual Collections of Rent                                       |
|                                                                       |
| 4265 Actual Collections From Sale of Foreclosed Property              |
|                                                                       |
| **STATUS OF RESOURCES**                                               |
|                                                                       |
| [Unobligated]{.underline}                                             |
|                                                                       |
| 4450 Unapportioned Authority                                          |
|                                                                       |
| 4510 Apportionments                                                   |
|                                                                       |
| 4590 Apportionments Unavailable - Anticipated Resources               |
|                                                                       |
| ##### 4610 Allotments - Realized Resources                            |
|                                                                       |
| [Obligated]{.underline}                                               |
|                                                                       |
| 4901 Delivered Orders - Obligations, Unpaid                           |
|                                                                       |
| 4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed    |
| Property\]                                                            |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **PROPRIETARY ACCOUNTS**                                              |
|                                                                       |
| **ASSETS**                                                            |
|                                                                       |
| ##### 1010 Fund Balance With Treasury                                 |
|                                                                       |
| 1310 Accounts Receivable \[from Borrowers Upon Sale of Foreclosed     |
| Property\][^6]                                                        |
|                                                                       |
| 1340 Interest Receivable \[Direct Loans\][^7]                         |
|                                                                       |
| 1349 Allowance for Loss on Interest Receivable \[Direct Loan\] (L)    |
|                                                                       |
| 1350 Loans Receivable \[Direct\]                                      |
|                                                                       |
| 1359 Allowance for Loss on Loans Receivable \[Direct\] (L)            |
|                                                                       |
| 1399 Allowance for Subsidy \[Direct Loans Receivable\] (F)            |
|                                                                       |
| 1551 Foreclosed Property \[Direct Loans\]                             |
|                                                                       |
| 1559 Foreclosed Property - Allowance \[Direct Loans\] (L)             |
|                                                                       |
| *It is necessary to separately report Credit Reform loans receivable, |
| interest receivable, foreclosed property, and the related allowance   |
| for subsidy related to direct loans and to loan guarantees. Agencies  |
| may do this through use of fund symbols or through other attributes   |
| associated with USSGL accounts. This guide will use the basic USSGL   |
| accounts involved, and add information to the titles to indicate the  |
| distinction.*                                                         |
|                                                                       |
| **LIABILITIES**                                                       |
|                                                                       |
| 2110 Accounts Payable \[to Borrowers Upon Sale of Foreclosed          |
| Property\][^8]                                                        |
|                                                                       |
| **NET POSITION**                                                      |
|                                                                       |
| 3310 Cumulative Results of Operations[^9]                             |
|                                                                       |
| 3310 Cumulative Results of Operations (L)                             |
|                                                                       |
| **EXPENSES**                                                          |
|                                                                       |
| 6100 Operating Expenses/Program Costs \[Property Rental\] (L)         |
|                                                                       |
| 6790 Other Expenses Not Requiring Budgetary Resources \[Change in     |
| Value of                                                              |
|                                                                       |
| Foreclosed Property\] (L)                                             |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **PROPRIETARY ACCOUNTS**                                              |
|                                                                       |
| (Concluded)                                                           |
|                                                                       |
| ## GAINS AND LOSSES                                                   |
|                                                                       |
| 7110 Gains on Disposition of Assets - Other (L)                       |
|                                                                       |
| 7210 Losses on Disposition of Assets - Other (L)                      |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **MEMORANDUM ACCOUNTS**                                               |
|                                                                       |
| **Beginning and Contra Balances** [Normal Balance]{.underline}        |
|                                                                       |
| 9XAA Allowance for Subsidy - Beginning Balance Dr. (negative)/Cr.     |
| (positive)                                                            |
|                                                                       |
| 9XAB Allowance for Subsidy - Contra Dr. (positive)/Cr. (negative)     |
|                                                                       |
| ## Adjustments                                                        |
|                                                                       |
| 9XAC Allowance for Subsidy - Adj - Foreclosed Property Gain/Loss Dr.  |
| (loss)/ Cr. (gain)                                                    |
|                                                                       |
| Pre-closing equation: 9XAA = the net of the remaining accounts.       |
|                                                                       |
| Post-closing equation: 9XAA = 9XAB.                                   |
+-----------------------------------------------------------------------+

SCENARIO 1: FORECLOSED PROPERTY TAKEN WITH RECOURSE--POST-CREDIT REFORM

The agency has been operating for a number of years. Transactions in the
guide occur in fiscal year "X." For simplicity, the agency will have
only one cohort. Normally, the agency would need to capture and
summarize Post-Credit Reform cash flow transactions by cohort.

This scenario presents transactions, interim and year-end trial
balances, and year-end reports relating to fiscal year X. If no entries
appear in a category of accounts (budgetary, proprietary, memorandum)
for a transaction, no entries are required in the category.

# BEGINNING TRIAL BALANCES

The agency had the following financing fund account balances at the
beginning of fiscal year X:

[DR CR]{.underline}

**Budgetary**

4201 Total Actual Resources - Collected[^10] \$150

4450 Unapportioned Authority \$150

**Proprietary**

1010 Fund Balance With Treasury \$150

1340 Interest Receivable \[Direct Loans\] \$650

1350 Loans Receivable \[Direct\] \$300

1399 Allowance for Subsidy \[Direct Loans Receivable\] \$425

######### 1551 Foreclosed Property \[Direct Loans\] \$25

2510 Principal Payable to the Bureau of the Public Debt
[\$700]{.underline}

> \$1,125 \$1,125

**Memorandum**

9XAA Allowance for Subsidy - Beginning Balance \$425

9XAB Allowance for Subsidy - Contra \$425

#  TRANSACTIONS

**1-1. The agency estimated that \$100 of direct loans and \$500 of
interest receivable would default, and that the collateral property
involved would be foreclosed. The agency further estimated that it would
receive collections of \$95 from sales and \$20 from rental of the
foreclosed property. No transactions related to the existing foreclosed
property at the beginning of the year were expected. OMB apportioned the
maximum amount, and the agency followed standard procedure in providing
for blanket allotment of anticipated collections as they are realized.
The agency allotted the full allowable apportionment at the beginning of
the year.**

**To request an apportionment from OMB** *(TC A140).*

*Budgetary entry*

4060 Anticipated Collections From Non-Federal Sources 115

4450 Unapportioned Authority 115

**To record the OMB apportionment** *(TC A116 and A118).*

*Budgetary entry*

4450 Unapportioned Authority 265

4510 Apportionments 150

4590 Apportionments Unavailable - Anticipated Resources 115

**To record allotment of the realized resources** *(TC A120).* [^11]

*Budgetary entry*

4510 Apportionments 150

4610 Allotments - Realized Resources 150

2.  **\$100 of direct loans and \$500 of interest receivable defaulted.
    The fair**

**market value of the property received was estimated to be \$450.**

**It came with a lien of \$40, which was paid.**[^12] **The loan terms
provided that the foreclosed property was taken with recourse.**

## To record payment of lien and adjust loan receivable based on collateral property

## *(TC B116 and C162).*

## *Budgetary entry*

4610 Allotments - Realized Resources 40

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 40

## 

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 450

1340 Interest Receivable \[Direct Loans\] [^13] 410

1010 Fund Balance With Treasury 40

**1-3. The agency paid \$60 to repair the new foreclosed property.**

**To record disbursement** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 60

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 60

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\][^14] 60

1010 Fund Balance With Treasury 60

**1-4. The agency rented the new property to a third party and collected
\$20 for the rent.**

**To realize the resource** *(TC C109).*

## *Budgetary entry*

4264 Actual Collections of Rent 20

4060 Anticipated Collections From Non-Federal Sources 20

## *Proprietary entry*

1010 Fund Balance With Treasury 20

1551 Foreclosed Property \[Direct Loans\] [^15] 20

**To allot the realized resource** *(TC A122).*

*Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 20

4610 Allotments - Realized Resources 20

**1-5. The agency paid expenses of \$30 related to rental of the new
property.**

**To record disbursement** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 30

4902 Delivered Orders -- Obligations, Paid \[Payments for Foreclosed
Property\] 30

*Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 30

1010 Fund Balance With Treasury 30

**1-6. The agency sold the new property, which at this point is on the
books at a gross value of \$520, for \$475, net of expenses of sale.**

**To record the loss on loan receivable from borrower on a sale with
recourse** *(TC C318).*

## *Budgetary entry* 

4265 Actual Collections From Sale of Foreclosed Property[^16] 475

4060 Anticipated Collections From Non-Federal Sources[^17] 475

*Proprietary entry*

1010 Fund Balance With Treasury 475

1310 Accounts Receivable \[from Borrowers Upon Sale of Foreclosed
Property\] [^18] 235

1340 Interest Receivable \[Direct Loans\] 90

1350 Loans Receivable \[Direct\] 100

1551 Foreclosed Property \[Direct Loans\] 520

**To allot the realized resources to the extent apportioned**[^19] *(TC
A122).*

*Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 95

4610 Allotments - Realized Resources 95

**- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-**

*Transactions 1-6a and 1-6b illustrate how an agency would handle the
accounting if it had received more cash than necessary to satisfy the
debt, rather than less, as was the case with transaction 1-6.
Transactions 1-6a and 1-6b are mutually exclusive of transaction 1-6,
and are not included with the trial balances total that follow. There
are no special reporting issues involved.*

**1-6a. The agency sold the new property, which at this point is on the
books at a gross value of \$520, for \$775, net of expenses of sale.**

**To realize the resources and record the gain sold with recourse** *(TC
NEW).*

## *Budgetary entry*

4265 Actual Collections From Sale of Foreclosed Property[^20] 775

4060 Anticipated Collections From Non-Federal Sources[^21] 95

4450 Unapportioned Authority 615

4901 Delivered Orders -- Obligations, Unpaid[^22] 65

## *Proprietary entry*

1010 Fund Balance With Treasury 775

2110 Accounts Payable \[to Borrowers Upon Sale of Foreclosed Property\]
[^23] 65

1340 Interest Receivable \[Direct Loans\] 90

1350 Loans Receivable \[Direct\] 100

1551 Foreclosed Property \[Direct Loans\] 520

**To allot the realized resources to the extent apportioned** [^24] *(TC
A122).*

## *Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 95

4610 Allotments - Realized Resources 95

**1-6b. The agency repays the excess cash collected to the
borrower.**[^25]

**To record payment.** *(TC B110)*

## *Budgetary entry*

4901 Delivered Orders -- Obligations, Unpaid 65

4902 Delivered Orders -- Obligations, Paid \[Foreclosed Property
Transactions\] 65

## *Proprietary entry* 

2110 Accounts Payable \[to Borrowers Upon Sale of Foreclosed Property\]
65

1010 Fund Balance With Treasury 65

**Pre-Closing Entry**

**1-7. To record adjustments for resources realized in excess of those
anticipated. (TC F116)**

*Budgetary Entry*

4060 Anticipated Collections From Non-Federal Sources 380

4450 Unapportioned Authority 380

# 

# PRE-CLOSING TRIAL BALANCES

Pre-closing trial balances are shown below, with debits shown as
positive numbers and credits in

parentheses. Remember that these trial balances do not reflect alternate
transactions 1-6a and

1-6b.

*Budgetary* *Proprietary* *Memorandum*

4060 \$ 0 1010 \$515 9XAA (\$425)

4201 150 1310 235 9XAB [425]{.underline}

4264 20 1340 150 \$ 0

4265 475 1350 200

4450 (380) 1399 (425)

4590 0 1551 25

4610 (135) 2510 [(700)]{.underline}

4902 [(130)]{.underline} \$ 0

\$ 0

**CLOSING ENTRIES**

**To record the consolidation of actual net-funded resources and
reductions for withdrawn funds and to record the closing of Expended
Authority -- Paid (TC F204 and F214).**

Budgetary entry

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 130

4201 Total Actual Resources Collected 365

4264 Actual Collection of Rent 20

4265 Actual Collections From Sale of Foreclosed Property 475

**To close unobligated authority (TC F210).**

Budgetary entry

4610 Allotments - Realized Resources 135

4450 Unapportioned Authority 135

# 

# 

# POST-CLOSING TRIAL BALANCES

Post-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary* *Memorandum*

4201 \$515 1010 \$515 9XAA (\$425)

4450 [(515)]{.underline} 1310 235 9XAB [425]{.underline}

\$ 0 1340 150 \$ 0

1350 200

1399 (425)

1551 25

2510 [(700)]{.underline}

\$ 0

# FINANCIAL STATEMENTS

**The Statement of Net Cost and the Statement of Changes in Net Position
are not presented because the balances are zero.**

+-----------------------------------------------------------------------+
| **BALANCE SHEET**                                                     |
|                                                                       |
| **Assets**                                                            |
|                                                                       |
| **Intragovernmental Assets**                                          |
|                                                                       |
| 1\. Fund Balance With Treasury (1010E) \$515                          |
|                                                                       |
| **Assets With the Public**                                            |
|                                                                       |
| 9\. Accounts Receivable \$160                                         |
|                                                                       |
| (1310E, 1340E, 1350E and 1399E)                                       |
|                                                                       |
| 11. Loans Receivable and Related                                      |
|                                                                       |
| > Foreclosed Property (1551E) [\$25]{.underline}                      |
|                                                                       |
| 15\. Total Assets \$700                                               |
|                                                                       |
| **Intragovernmental Liabilities**                                     |
|                                                                       |
| 17\. Debt (2510E) \$700                                               |
|                                                                       |
| 27\. Total Liabilities \$700                                          |
|                                                                       |
| ### Net Position                                                      |
|                                                                       |
| 29\. Unexpended Appropriations (3100E) \$0                            |
|                                                                       |
| 30\. Cumulative Results of Operations (3310E) \$0                     |
|                                                                       |
| 31\. Total Net Position [\$0]{.underline}                             |
|                                                                       |
| 32\. Total Liabilities and Net Position \$700                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **STATEMENT OF BUDGETARY RESOURCES**                                  |
|                                                                       |
| **(Non-budgetary Financing Fund)**                                    |
|                                                                       |
| **Budgetary Resources**                                               |
|                                                                       |
| 2\. Unobligated Balance:                                              |
|                                                                       |
| > A. Beginning of Period (4201B) \$150                                |
|                                                                       |
| 3\. Spending Authority From Offsetting Collections:                   |
|                                                                       |
| #### A1. Collected (4264E[^26] and 4265E[^27]) \$[495]{.underline}    |
|                                                                       |
| 7\. Total Budgetary Resources \$645                                   |
|                                                                       |
| **Status of Budgetary Resources**                                     |
|                                                                       |
| 8.  Obligations Incurred:                                             |
|                                                                       |
| > A. Direct (4902E) \$130                                             |
|                                                                       |
| 9.  Unobligated Balance:                                              |
|                                                                       |
| > A1. Anticipated (4610E) \$135                                       |
|                                                                       |
| 10. Unobligated Balance Not Available                                 |
|                                                                       |
| > D. Other (4450E) \$380                                              |
|                                                                       |
| 11\. Total Status of Budgetary Resources \$645                        |
|                                                                       |
| **Relationship of Net Obligations to Outlays**                        |
|                                                                       |
| 15. Outlays                                                           |
|                                                                       |
| > A. Disbursements (+) (4902E) Gross Obligations \$130                |
| >                                                                     |
| > B. Collections (-) (4264E and 4265E) [\$(495)]{.underline}          |
|                                                                       |
| 17\. Net Outlays \$(365)                                              |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **STATEMENT OF FINANCING**                                            |
|                                                                       |
| Resources Used To Finance Activities:                                 |
|                                                                       |
| 1\. Obligations Incurred (4902E) \$130                                |
|                                                                       |
| 2.  Less: Spending Authority From                                     |
|                                                                       |
| ##### Offsetti                                                        |
| ng Collections and Recoveries (4264E and 4265E) [\$(495)]{.underline} |
|                                                                       |
| 3\. Obligations Net of Offsetting Collections and Recoveries \$(365)  |
|                                                                       |
| 11\. Total Resources Used to Finance Activities \$(365)               |
|                                                                       |
| Resources Used To Finance Items Not a Part of Net Cost of Operations: |
|                                                                       |
| 14a. Credit Program Collections That Increase Liabilities\            |
| That Do Not Affect Net Cost of Operations (4264E and 4265E) \$(495)   |
|                                                                       |
| Resources That Finance Acquisition of Assets (4902E) \$130            |
|                                                                       |
| 17\. Total Resources Used To Finance Items Not Part of the\           |
| Net Cost of Operations \$(365)                                        |
|                                                                       |
| 18\. Total Resources Used To Finance the Net Cost of Operations       |
| [\$0]{.underline}                                                     |
|                                                                       |
| 30\. Net Cost of Operations \$0                                       |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| # FMS 2108: YEAR END CLOSING STATEMENT                                |
|                                                                       |
| ##### Column 5 (1010E) \$515                                          |
|                                                                       |
| Column 11 (4450E and 4610E) \$(515)                                   |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **BUDGET PROGRAM AND FINANCING (P&F) SCHEDULE**                       |
|                                                                       |
| **OBLIGATIONS BY PROGRAM ACTIVITY**                                   |
|                                                                       |
| 1000 Total New Obligations (4902E) 130                                |
|                                                                       |
| **BUDGETARY RESOURCES AVAILABLE FOR OBLIGATION**                      |
|                                                                       |
| 2140 Unobligated balance carried forward, start of year (4201B) 150   |
|                                                                       |
| 2395 Total new obligations (130)                                      |
|                                                                       |
| 2440 Unobligated balance carried forward, end of year (4510E & 4610E) |
| 515                                                                   |
|                                                                       |
| **CHANGE IN OBLIGATED BALANCES**                                      |
|                                                                       |
| 7310 Total new obligations 0                                          |
|                                                                       |
| ##### 7320 Total Outlays (gross) (4902E) 130                          |
|                                                                       |
| **OUTLAYS (GROSS), DETAIL**                                           |
|                                                                       |
| 8693 Outlays from discretionary balances (4902E) 130                  |
|                                                                       |
| 8700 Total Outlays (gross) (-) (4902E) 130                            |
|                                                                       |
| **NET BUDGET AUTHORITY AND OUTLAYS**                                  |
|                                                                       |
| 8900 Budget Authority (net) 0                                         |
|                                                                       |
| 9000 Outlays (net) 130                                                |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **Note 8:** **Credit Program Footnote**                               |
|                                                                       |
| **Present Value Of Loan Assets**                                      |
|                                                                       |
| **Loan Assets Related to Direct Loans Obligated After September 30,   |
| 1991:**[^28]                                                          |
|                                                                       |
| > Loans Receivable (1350) \$200                                       |
| >                                                                     |
| > Interest Receivable (1340) 150                                      |
| >                                                                     |
| > Accounts Receivable (1310) 235                                      |
| >                                                                     |
| > Foreclosed Property[^29] (1551) 25                                  |
|                                                                       |
| L Less Allowance for Subsidy Cost (1399) [(425)]{.underline}          |
|                                                                       |
| > Present Value of Loan Assets \$185                                  |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **Credit Program Footnote**                                           |
|                                                                       |
| **Schedule Of Changes In The Allowance For Subsidy**[^30]             |
|                                                                       |
| Since the allowance for subsidy did not change during the year,[^31]  |
| and there were no components of change, a statement to that effect    |
| could be made or the following presentation may be presented:         |
|                                                                       |
| Balance October 1 (9XAAB) \$425                                       |
|                                                                       |
| Components of Change (9XAC) [0]{.underline}                           |
|                                                                       |
| Balance September 30 (should agree with 9XAAE) \$425                  |
+-----------------------------------------------------------------------+

SCENARIO 2: FORECLOSED PROPERTY TAKEN WITHOUT RECOURSE--POST-CREDIT
REFORM

The scenario presents transactions, interim and year-end trial balances,
and year-end reports relating to fiscal year X. If no entries appear in
a category of accounts (budgetary, proprietary, memorandum) for a
transaction, no entries are required in the category.

# 

# BEGINNING TRIAL BALANCES

The agency had the following financing fund account balances at the
beginning of fiscal year X:

[DR CR]{.underline}

## Budgetary

4201 Total Actual Resources - Collected[^32] \$150

4450 Unapportioned Authority \$150

## Proprietary

1010 Fund Balance With Treasury \$150

1340 Interest Receivable \[Direct Loans\] \$650

1350 Loans Receivable \[Direct\] \$300

1399 Allowance for Subsidy \[Direct Loans Receivable\] \$425

1551 Foreclosed Property \[Direct Loans\] \$25

2510 Principal Payable to the Bureau of the Public Debt
[\$700]{.underline}

> \$1,125 \$1,125

## Memorandum

9XAA Allowance for Subsidy - Beginning Balance \$425

9XAB Allowance for Subsidy - Contra \$425

# 

# TRANSACTIONS

**2-1. The agency estimated that \$100 of direct loans and \$500 of
interest receivable would default, and that the collateral property
involved would be foreclosed on. The agency further estimated that it
would receive collections of \$95 from sales and \$20 from rental of the
foreclosed property. No transactions related to the existing foreclosed
property at the beginning of the year were expected. OMB apportioned the
maximum amount, and the agency followed standard procedure in providing
for blanket allotment of anticipated collections as they are realized.
The agency allotted the full allowable apportionment at the beginning of
the year.**

**To request an apportionment from OMB** *(TC A140).*

## *Budgetary entry*

4060 Anticipated Collections From Non-Federal Sources 115

4450 Unapportioned Authority 115

**To record the OMB apportionment** *(TC A116 and A118).*

*Budgetary entry*

4450 Unapportioned Authority 265

4510 Apportionments 150

4590 Apportionments Unavailable - Anticipated Resources 115

**To record allotment of the realized resources** *(TC A120).*

*Budgetary entry*

4510 Apportionments 150

4610 Allotments - Realized Resources[^33] 150

**2-2. \$100 of direct loans and \$500 of interest receivable defaulted.
The fair market value of the property received was estimated to be
\$450. It came with a lien of \$40,**[^34] **which was paid.**[^35]
**The loan terms provided that the foreclosed property was taken without
recourse.**

**To record payment of loan** *(TC B116, NEW).*

## *Budgetary entry*

4610 Allotments - Realized Resources 40

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 40

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 450

1399 Allowance for Subsidy \[Direct Loans\][^36] 190

1340 Interest Receivable \[Direct Loans\] 500

1350 Loans Receivable \[Direct\] 100

1010 Fund Balance With Treasury 40

## *Memorandum Entry*

9XAC Allowance for Subsidy - Adj - Foreclosed Property Gain/Loss 190

9XAB Allowance for Subsidy - Contra 190

3.  **The agency paid \$60 to repair the new foreclosed property.**

**To record payment** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 60

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 60

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\][^37] 60

1010 Fund Balance With Treasury 60

**2-4. The agency rented the new property to a third party, and
collected \$20 for the rent.**

**To realize the resource** *(TC C109).*

## *Budgetary entry*

4264 Actual Collections of Rent 20

4060 Anticipated Collections From Non-Federal Sources 20

## *Proprietary entry*

1010 Fund Balance With Treasury 20

1551 Foreclosed Property \[Direct Loans\] [^38] 20

**To allot the realized resource** *(TC A122).*

## *Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 20

4610 Allotments - Realized Resources 20

**2-5. The agency paid expenses of \$30 related to rental of the new
property.**

**To record payment** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 30

4902 Delivered Orders -- Obligations, Paid \[Payments for Foreclosed
Property\] 30

*Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 30

1010 Fund Balance With Treasury 30

**2-6. The agency sold the new property, which at this point is on the
books at a gross value of \$520, for \$475, net of expenses of sale.**

**To realize the resource** *(TC C314).*

## *Budgetary entry*

4265 Actual Collections From Sale of Foreclosed Property[^39] 475

4060 Anticipated Collections From Non-Federal Sources[^40] 475

*Proprietary entry*

1010 Fund Balance With Treasury 475

1399 Allowance for Subsidy \[Direct Loans\] [^41] 45

1551 Foreclosed Property \[Direct Loans\] 520

**To allot the realized resources to the extent apportioned**[^42] *(TC
A122.)*

## *Budgetary Entry*

4590 Apportionments Unavailable - Anticipated Resources 95

4610 Allotments - Realized Resources 95

*Memorandum Entry*[^43]

9XAC Allowance for Subsidy - Adj - Foreclosed Property Gain/Loss 45

9XAB Allowance for Subsidy - Contra 45

**Pre-Closing Entry**

**2-7. To record adjustments for resources realized in excess of those
anticipated. (TC F116)**

*Budgetary Entry*

4060 Anticipated Collections From Non-Federal Sources 380

4450 Unapportioned Authority 380

PRE-CLOSING TRIAL BALANCES

Pre-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary* *Memorandum*

4060 \$ 0 1010 \$515 9XAA (\$425)

4201 150 1340 150 9XAB 190

4264 20 1350 200 9XAC [235]{.underline}

4265 475 1399 (190) \$ 0

4450 (380) 1551 25

4590 0 2510 [(700)]{.underline}

4610 (135) \$ 0

4902 [(130)]{.underline}

\$ 0

# CLOSING ENTRIES

**To record the consolidation of actual net-funded resources and
reductions for withdrawn funds and to record the closing of Expended
Authority -- Paid. (TC F204 and F214).**

## *Budgetary entry*

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 130

4201 Total Actual Resources Collected 365

4264 Actual Collections of Rent 20

4265 Actual Collections From Sale of Foreclosed Property 475

**To close unobligated authority (TC F210).**

*Budgetary entry*

4610 Allotments - Realized Resources 135

4450 Unapportioned Authority 135

## Memorandum Entry

9XAA Allowance for Subsidy 235

9XAC Allowance for Subsidy - Adj - Foreclosed Property Gain/Loss 235

# 

# POST-CLOSING TRIAL BALANCES

Post-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary* *Memorandum*

4201 \$515 1010 \$515 9XAA (\$190)

4450 [(515)]{.underline} 1340 150 9XAB [190]{.underline}

\$ 0 1350 200 \$ 0

1399 (190)

1551 25

2510 [(700)]{.underline}

\$ 0

# 

# FINANCIAL STATEMENTS

**The Statement of Net Cost and the Statement of Changes in Net Position
are not presented because the balances are zero.**

+-----------------------------------------------------------------------+
| **BALANCE SHEET**                                                     |
|                                                                       |
| **Assets**                                                            |
|                                                                       |
| **Intragovernmental Assets**                                          |
|                                                                       |
| 1\. Fund Balance With Treasury (1010E) \$515                          |
|                                                                       |
| **Assets With the Public**                                            |
|                                                                       |
| 9\. Accounts Receivable \$160                                         |
|                                                                       |
| (1310E, 1340E, 1350E, and 1399E)                                      |
|                                                                       |
| > 11\. Loans Receivable and Related\                                  |
| > Foreclosed Property (1551E) \$ [25]{.underline}                     |
|                                                                       |
| 15\. Total Assets \$700                                               |
|                                                                       |
| **Intragovernmental Liabilities**                                     |
|                                                                       |
| 17\. Debt (2510E) [\$700]{.underline}                                 |
|                                                                       |
| 27\. Total Liabilities \$700                                          |
|                                                                       |
| ### Net Position                                                      |
|                                                                       |
| 29\. Unexpended Appropriations (3100E) \$0                            |
|                                                                       |
| 30\. Cumulative Results of Operations (3310E) [\$0]{.underline}       |
|                                                                       |
| 31\. Total Net Position \$0                                           |
|                                                                       |
| 32\. Total Liabilities and Net Position \$700                         |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # STATEMENT OF BUDGETARY RESOURCES                                    |
|                                                                       |
| **(Non-budgetary Financing Fund)**                                    |
|                                                                       |
| **Budgetary Resources**                                               |
|                                                                       |
| 2\. Unobligated Balance:                                              |
|                                                                       |
| > A. Beginning of Period (4201B) \$150                                |
|                                                                       |
| 3\. Spending Authority From Offsetting Collections:                   |
|                                                                       |
| #### A1. Collected (4264E[^44] and 4265E[^45]) \$[495]{.underline}    |
|                                                                       |
| 7\. Total Budgetary Resources \$645                                   |
|                                                                       |
| **Status of Budgetary Resources**                                     |
|                                                                       |
| 8.  Obligations Incurred:                                             |
|                                                                       |
| > A. Direct (4902E) \$130                                             |
|                                                                       |
| 9.  Unobligated Balance:                                              |
|                                                                       |
| > A1. Anticipated (4610E) \$135                                       |
|                                                                       |
| 10. Unobligated Balance Not Available                                 |
|                                                                       |
| > D. Other (4450E) \$380                                              |
|                                                                       |
| 11\. Total Status of Budgetary Resources \$645                        |
|                                                                       |
| **Relationship of Net Obligations to Outlays**                        |
|                                                                       |
| 15. Outlays                                                           |
|                                                                       |
| > A. Disbursements (+) (4902E)Gross Obligations \$130                 |
| >                                                                     |
| > B. Collections (-) (4264E and 4265E) \$[(495)]{.underline}          |
|                                                                       |
| 17\. Net Outlays \$(365)                                              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **FMS 2108: YEAR END CLOSING STATEMENT**                              |
|                                                                       |
| ##### Column 5 (1010E) \$515                                          |
|                                                                       |
| Column 11 (4450E and 4610E) \$(515)                                   |
+-----------------------------------------------------------------------+

**BUDGET PROGRAM AND FINANCING (P&F) SCHEDULE**

**OBLIGATIONS BY PROGRAM ACTIVITY**

1000 Total New Obligations (4902E) 130

**BUDGETARY RESOURCES AVAILABLE FOR OBLIGATION**

2140 Unobligated balance carried forward, start of year (4201B) 150

2395 Total new obligations (130)

2440 Unobligated balance carried forward, end of year (4510E & 4610E)
515

**CHANGE IN OBLIGATED BALANCES**

7310 Total new obligations 0

7320 Total Outlays (gross) (4902E) 130

**OUTLAYS (GROSS), DETAIL**

8693 Outlays from discretionary balances (4902E) 130

8700 Total Outlays (gross) (-) (4902E) 130

**NET BUDGET AUTHORITY AND OUTLAYS**

8900 Budget Authority (net) 0

9000 Outlays (net) 130

+-----------------------------------------------------------------------+
| **Note 8:** **Credit Program Footnote**                               |
|                                                                       |
| **Present Value Of Loan Assets**                                      |
|                                                                       |
| **Loan Assets Related to Direct Loans Obligated After September 30,   |
| 1991:**[^46]                                                          |
|                                                                       |
| Loans Receivable (1350) \$200                                         |
|                                                                       |
| Interest Receivable (1340) 150                                        |
|                                                                       |
| Foreclosed Property[^47] (1551) 25                                    |
|                                                                       |
| Less Allowance for Subsidy Cost (1399) [(190)]{.underline}            |
|                                                                       |
| Present Value of Loan Assets \$185                                    |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **Credit Program Footnote**                                           |
|                                                                       |
| **Schedule Of Changes In The Allowance For Subsidy**[^48]             |
|                                                                       |
| Balance October 1 (9XAAB) (\$425)                                     |
|                                                                       |
| Losses From Foreclosed Property Transactions (9XAC)                   |
| \$[235]{.underline}                                                   |
|                                                                       |
| Balance September 30 (should = 9XAAE) (\$190)                         |
+-----------------------------------------------------------------------+

SCENARIO 3: FORECLOSED PROPERTY TAKEN WITH RECOURSE--PRE-CREDIT REFORM

The scenario presents transactions, interim and year-end trial balances,
and year-end reports relating to fiscal year X. If no entries appear in
a category of accounts (budgetary, proprietary, memorandum) for a
transaction, no entries are required in the category.

# BEGINNING TRIAL BALANCES

The agency had the following liquidating fund account balances at the
beginning of fiscal year X:

##  [DR CR]{.underline}

## Budgetary

4201 Total Actual Resources - Collected \$150

4450 Unapportioned Authority \$150

## Proprietary

1010 Fund Balance With Treasury \$150

1340 Interest Receivable \[Direct Loans\] \$650

1349 Allowance for Loss on Interest Receivable \[Direct Loan\] \$320

1350 Loans Receivable \[Direct\] \$300

1359 Allowance for Loss on Loans Receivable \[Direct\] \$100

1551 Foreclosed Property \[Direct Loans\] \$25

1559 Foreclosed Property - Allowance \[Direct Loans\] \$5

3310 Cumulative Results of Operations [\$700]{.underline}

> \$1,125 \$1,125

# TRANSACTIONS

**3-1. The agency estimated that \$100 of direct loans and \$500 of
interest receivable would default, and that the collateral property
involved would be foreclosed on. The agency further estimated that it
would receive collections of \$95 from sales and \$20 from rental of the
foreclosed property. No transactions related to the existing foreclosed
property at the beginning of the year were expected. OMB apportioned the
maximum amount, and the agency followed standard procedure in providing
for blanket allotment of anticipated collections as they are realized.
The agency allotted full allowable apportionment at the beginning of the
year.**

## To request an apportionment from OMB *(TC A140).*

## *Budgetary entry*

4060 Anticipated Collections From Non-Federal Sources 115

4450 Unapportioned Authority 115

**To record the OMB apportionment** *(TC A116 and A118).*

*Budgetary entry*

4450 Unapportioned Authority 265

4510 Apportionments 150

4590 Apportionments Unavailable - Anticipated Resources 115

**To record allotment of the realized resources** *(TC A120).*

*Budgetary entry*

4510 Apportionments 150

4610 Allotments - Realized Resources[^49] 150

2.  **\$100 of direct loans and \$500 of interest receivable defaulted.
    The fair market value of the property received was estimated to be
    \$450.**

**It came with a lien of \$40, which was paid.**[^50] **The loan terms
provided that the foreclosed property was taken with recourse.**

**To record payment** *(TC B116, and C162).*

## *Budgetary entry*

4610 Allotments - Realized Resources 40

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 40

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 450

1340 Interest Receivable \[Direct Loans\] [^51] 410

1010 Fund Balance With Treasury 40

**3-3. The agency paid \$60 to repair the new foreclosed property.**

**To record payment** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 60

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 60

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\][^52] 60

1010 Fund Balance With Treasury 60

**3-4. The agency rented the new property to a third party, and
collected \$20 for the rent.**

**To realize the resource** *(TC C109).*

## *Budgetary entry*

4264 Actual Collections of Rent 20

4060 Anticipated Collections From Non-Federal Sources 20

## *Proprietary entry*

1010 Fund Balance With Treasury 20

1551 Foreclosed Property \[Related to Direct Loans\][^53] 20

**To allot the realized resource** *(TC A122).*

## *Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 20

4610 Allotments - Realized Resources 20

**3-5. The agency paid expenses of \$30 related to rental of the new
property.**

**To record payment** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 30

4902 Delivered Orders -- Obligations, Paid \[Payments for Foreclosed
Property\] 30

*Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 30

1010 Fund Balance With Treasury 30

**3-6. The agency sold the new property, which at this point is on the
books at a gross value of \$520, for \$475, net of expenses of
sale.**[^54]

**To realize the resource** *(TC C318).*

## *Budgetary entry*

4265 Actual Collections From Sale of Foreclosed Property[^55] 475

4060 Anticipated Collections From Non-Federal Sources[^56] 475

## 

## *Proprietary entry*

1010 Fund Balance With Treasury 475

1310 Accounts Receivable \[From Borrowers Upon Sale of Foreclosed
Property\] [^57] 235

1340 Interest Receivable \[Direct Loans\] 90

#####  1350 Loans Receivable \[Direct\] 100

1551 Foreclosed Property \[Direct Loans\] 520

**To allot the realized resources to the extent apportioned**[^58] *(TC
A122).*

## *Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 95

4610 Allotments - Realized Resources 95

**Pre-Closing Entry**

**3-7. To record adjustments for resources realized in excess of those
anticipated. (TC F116)**

*Budgetary Entry*

4060 Anticipated Collections From Non-Federal Sources 380

4450 Unapportioned Authority 380

# 

# 

# 

# 

# 

# PRE-CLOSING TRIAL BALANCES

Pre-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary*

4060 \$ 0 1010 \$515

4201 150 1310 235

4264 20 1340 150

4265 475 1349 (320)[^59]

4450 (380) 1350 200

4610 (135) 1359 (100)

4590 0 1551 25

4902 [(130)]{.underline} 1559 (5)

> \$ 0 3310 [(700)]{.underline}
>
> \$ 0

**CLOSING ENTRIES**

**To record the consolidation of actual net-funded resources and
reductions for withdrawn funds and to record the closing of Expended
Authority -- Paid. (TC F204 and F214).**

## *Budgetary entry*

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 130

4201 Total Actual Resources Collected 365

4264 Actual Collections of Rent 20

4265 Actual Collections From Sale of Foreclosed Property 475

**To close unobligated authority (TC F210).**

*Budgetary Entry*

4610 Allotments - Realized Resources 135

4450 Unapportioned Authority 135

# POST-CLOSING TRIAL BALANCES

Post-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary*

4201 \$515 1010 \$515

4450 [(515)]{.underline} 1310 235

\$ 0 1340 150

1349 (320)

1350 200

1359 (100)

1551 25

1559 (5)

> 3310 [(700)]{.underline}
>
> \$ -0-

# FINANCIAL STATEMENTS

**The Statement of Net Cost is not presented because the balance is
zero.**

+-----------------------------------------------------------------------+
| **BALANCE SHEET**                                                     |
|                                                                       |
| **Assets**                                                            |
|                                                                       |
| **Intragovernmental Assets**                                          |
|                                                                       |
| 1\. Fund Balance With Treasury (1010E) \$515                          |
|                                                                       |
| **Assets With the Public**                                            |
|                                                                       |
| 9\. Accounts Receivable \$165                                         |
|                                                                       |
| (1310E, 1340E, 1350E, and 1399E)                                      |
|                                                                       |
| > 11\. Loans Receivable and Related\                                  |
| > Foreclosed Property (1551E) \$[20]{.underline}                      |
|                                                                       |
| 15\. Total Assets \$700                                               |
|                                                                       |
| **Intragovernmental Liabilities** \$0                                 |
|                                                                       |
| ###                                                                   |
|                                                                       |
| ### Net Position                                                      |
|                                                                       |
| 29\. Unexpended Appropriations (3100E) \$0                            |
|                                                                       |
| 30\. Cumulative Results of Operations (3310E) [\$700]{.underline}     |
|                                                                       |
| 31\. Total Net Position \$700                                         |
|                                                                       |
| 32\. Total Liabilities and Net Position \$700                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **STATEMENT OF CHANGES IN NET POSITION**                              |
|                                                                       |
| Cum. Res.                                                             |
|                                                                       |
| 1\. Beginning Balance (3310B) \$700                                   |
|                                                                       |
| 18\. Ending Balance \$700                                             |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **STATEMENT OF BUDGETARY RESOURCES**                                  |
|                                                                       |
| **(Non-budgetary Financing Fund)**                                    |
|                                                                       |
| ## Budgetary Resources                                                |
|                                                                       |
| 2\. Unobligated Balance:                                              |
|                                                                       |
| > A. Beginning of Period (4201B) \$150                                |
|                                                                       |
| 3\. Spending Authority From Offsetting Collections:                   |
|                                                                       |
| #### A1. Collected (4264E and 4265E) \$[495]{.underline}              |
|                                                                       |
| 7\. Total Budgetary Resources \$645                                   |
|                                                                       |
| **Status of Budgetary Resources**                                     |
|                                                                       |
| 8.  Obligations Incurred:                                             |
|                                                                       |
| > A. Direct (4902E) \$130                                             |
|                                                                       |
| 9.  Unobligated Balance:                                              |
|                                                                       |
| > A1. Anticipated (4610E) \$135                                       |
|                                                                       |
| 10. Unobligated Balance Not Available                                 |
|                                                                       |
| > D. Other (4450E) \$380                                              |
|                                                                       |
| 11\. Total Status of Budgetary Resources \$645                        |
|                                                                       |
| **Relationship of Net Obligations to Outlays**                        |
|                                                                       |
| 15. Outlays                                                           |
|                                                                       |
| > A. Disbursements (+) (4902E) Gross Obligations \$130                |
| >                                                                     |
| > B. Collections (-) (4264E and 4265E) \$[(495)]{.underline}          |
|                                                                       |
| 17\. Net Outlays \$(365)                                              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| # STATEMENT OF FINANCING                                              |
|                                                                       |
| Resources Used To Finance Activities:                                 |
|                                                                       |
| 1\. Obligations Incurred (4902E) \$130                                |
|                                                                       |
| 2\. Less: Spending Authority From                                     |
|                                                                       |
| ##### Offsetti                                                        |
| ng Collections and Recoveries (4264E and 4265E) [\$(495)]{.underline} |
|                                                                       |
| 3\. Obligations Net of Offsetting Collections and Recoveries \$(365)  |
|                                                                       |
| 11\. Total Resources Used To Finance Activities \$(365)               |
|                                                                       |
| Resources Used To Finance Items Not a Part of Net Cost of Operations: |
|                                                                       |
| 14a. Credit Program Collections That Increase Liabilities\            |
| That Do Not Affect Net Cost of Operations (4264E and 4265E) (\$495)   |
|                                                                       |
| Resources That Finance Acquisition of Assets (4902E) \$130            |
|                                                                       |
| 17\. Total Resources Used To Finance Items Not Part of the\           |
| Net Cost of Operations (\$365)                                        |
|                                                                       |
| 18\. Total Resources Used To Finance the Net Cost of Operations       |
| [\$0]{.underline}                                                     |
|                                                                       |
| 30\. Net Cost of Operations \$0                                       |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **FMS 2108: YEAR END CLOSING STATEMENT**                              |
|                                                                       |
| ##### Column 5 (1010E) \$515                                          |
|                                                                       |
| Column 11 (4450E and 4610E) \$(515)                                   |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **BUDGET PROGRAM AND FINANCING (P&F) SCHEDULE**                       |
|                                                                       |
| **OBLIGATIONS BY PROGRAM ACTIVITY**                                   |
|                                                                       |
| 1000 Total New Obligations (4902E) 130                                |
|                                                                       |
| ## BUDGETARY RESOURCES AVAILABLE FOR OBLIGATION                       |
|                                                                       |
| 2140 Unobligated balance carried forward, start of year (4201B) 150   |
|                                                                       |
| 2395 Total new obligations (130)                                      |
|                                                                       |
| ##### 2440                                                            |
|  Unobligated balance carried forward, end of year (4510E & 4610E) 515 |
|                                                                       |
| **CHANGE IN OBLIGATED BALANCES**                                      |
|                                                                       |
| 7310 Total new obligations 0                                          |
|                                                                       |
| ##### 7320 Total Outlays (gross) (4902E) 130                          |
|                                                                       |
| **OUTLAYS (GROSS), DETAIL**                                           |
|                                                                       |
| 8693 Outlays from discretionary balances (4902E) 130                  |
|                                                                       |
| 8700 Total Outlays (gross) (-) (4902E) 130                            |
|                                                                       |
| **NET BUDGET AUTHORITY AND OUTLAYS**                                  |
|                                                                       |
| 8900 Budget Authority (net) 0                                         |
|                                                                       |
| 9000 Outlays (net) 130                                                |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| []{.mark}                                                             |
|                                                                       |
| # Note 8: Credit Program Footnote                                     |
|                                                                       |
| **Net Realizable Value Of Loan Assets**                               |
|                                                                       |
| **Loan Assets Related to Direct Loans Obligated Before October 1,     |
| 1991**[^60]                                                           |
|                                                                       |
| Accounts Receivable (1310) \$235                                      |
|                                                                       |
| Loans Receivable (1350) 200                                           |
|                                                                       |
| Interest Receivable (1340) [150]{.underline}                          |
|                                                                       |
| ####### Total 585                                                     |
|                                                                       |
| Less Allowance for Loss (1340 +1350) [(420)]{.underline}              |
|                                                                       |
| ######## Net Realizable Value of Receivables \$165                    |
|                                                                       |
| Foreclosed Property (1551) 25                                         |
|                                                                       |
| Less Allowance for Loss (1559) [(5)]{.underline}                      |
|                                                                       |
| Net Realizable Value of Foreclosed Property [20]{.underline}          |
|                                                                       |
| Net Realizable Value of Loan Assets (should equal B/S) \$185          |
+-----------------------------------------------------------------------+

SCENARIO 4: FORECLOSED PROPERTY TAKEN WITHOUT RECOURSE--PRE-CREDIT
REFORM

The scenario presents transactions, interim and year-end trial balances,
and year-end reports relating to fiscal year X. If no entries appear in
a category of accounts (budgetary, proprietary) for a transaction, no
entries are required in the category.

# 

# BEGINNING TRIAL BALANCES

The agency had the following liquidating fund account balances at the
beginning of fiscal year X:

[DR CR]{.underline}

## Budgetary

4201 Total Actual Resources - Collected \$150

4450 Unapportioned Authority \$150

## Proprietary

######### 1010 Fund Balance With Treasury \$150

######### 1340 Interest Receivable \[Direct Loans\] \$650

1349 Allowance for Loss on Interest Receivable \[Direct Loan\] \$320

1350 Loans Receivable \[Direct\] \$300

1359 Allowance for Loss on Loans Receivable \[Direct\] \$100

######### 1551 Foreclosed Property \[Direct Loans\] \$25

1559 Foreclosed Property - Allowance \[Direct Loans Receivable\] \$5

3310 Cumulative Results of Operations [\$700]{.underline}

> \$1,125 \$1,125

# TRANSACTIONS

**4-1. The agency estimated that \$100 of direct loans and \$500 of
interest receivable would default, and that the collateral property
involved would be foreclosed on. The agency further estimated that it
would receive collections of \$95 from sales and \$20 from rental of the
foreclosed property. No transactions related to the existing foreclosed
property at the beginning of the year were expected. OMB apportioned the
maximum amount, and the agency followed standard procedure in providing
for blanket allotment of anticipated collections as they are realized.
The agency allotted the full allowable apportionment at the beginning of
the year.**

**To request an apportionment from OMB (***TC A140).*

## *Budgetary entry*

4060 Anticipated Collections From Non-Federal Sources 115

4450 Unapportioned Authority 115

**To record the OMB apportionment (***TC A116 and A118).*

*Budgetary entry*

4450 Unapportioned Authority 265

4510 Apportionments 150

4590 Apportionments Unavailable - Anticipated Resources 115

**To record allotment of the realized resources** *(TC A120).*

*Budgetary entry*

4510 Apportionments 150

4610 Allotments - Realized Resources[^61] 150

**4-2. \$100 of direct loans and \$500 of interest receivable defaulted.
The fair market value of the property received was estimated to be
\$450. It came with a lien of \$40, which was paid.**[^62] **The loan
terms provided that the foreclosed property was taken without
recourse.**

**To record payment** *(TC B116, and NEW)*

## *Budgetary entry*

4610 Allotments - Realized Resources 40

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 40

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] 450

7210 Losses on Disposition of Assets - Other[^63] 190

1340 Interest Receivable \[Direct Loans\] 500

1350 Loans Receivable \[Direct\] 100

1010 Fund Balance With Treasury 40

**4-3. The agency paid \$60 to repair the new foreclosed property.**

**To record payment** *(TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 60

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 60

## *Proprietary entry*

1551 Foreclosed Property \[Direct Loans\] [^64] 60

1010 Fund Balance With Treasury 60

**4-4. The agency rented the new property to a third party, and
collected \$20 for the rent.**

**To realize the resource** *(TC C109).*

## *Budgetary entry*

4264 Actual Collections of Rent 20

4060 Anticipated Collections From Non-Federal Sources 20

## *Proprietary entry*

1010 Fund Balance With Treasury 20

1551 Foreclosed Property \[Direct Loans\] [^65] 20

**To allot the realized resource** *(TC A122).*

*Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 20

4610 Allotments - Realized Resources 20

**4-5. The agency paid expenses of \$30 related to rental of the new
property.**

**To record payment (***TC B116).*

## *Budgetary entry*

4610 Allotments - Realized Resources 30

4902 Delivered Orders -- Obligations, Paid \[Payments for Foreclosed
Property\] 30

*Proprietary entry*

1551 Foreclosed Property \[Related to Direct Loans\] 30

1010 Fund Balance With Treasury 30

**4-6. The agency sold the new property, which at this point is on the
books at a gross value of \$520, for \$475, net of expenses of
sale.**[^66]

**To realize the resource (TC NEW).**

## *Budgetary entry*

4265 Actual Collections From Sale of Foreclosed Property[^67] 475

4060 Anticipated Collections From Non-Federal Sources[^68] 475

## *Proprietary entry*

1010 Fund Balance With Treasury 475

7210 Losses on Dispositions of Assets 45

1551 Foreclosed Property \[Direct Loans\] 520

**To allot the realized resources to the extent apportioned**[^69] *(TC
A122).*

## *Budgetary entry*

4590 Apportionments Unavailable - Anticipated Resources 95

4610 Allotments - Realized Resources 95

**Pre-Closing Entry**

**4-7. To record adjustments for resources realized in excess of those
anticipated. (TC F116)**

*Budgetary Entry*

4060 Anticipated Collections From Non-Federal Sources 380

4450 Unapportioned Authority 380

# 

# 

# PRE-CLOSING TRIAL BALANCES

Pre-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary*

4060 \$ 0 1010 \$515

4201 150 1340 150

4264 20 1349[^70] (320)

4265 475 1350 200

4450 (380) 1359 (100)

4590 0 1551 25

4610 (135) 1559 (5)

4902 [(130)]{.underline} 3310 (700)

> \$ 0 7210 [235]{.underline}
>
> \$ 0

# CLOSING ENTRIES

**To record the consolidation of actual net-funded resources and
reductions for withdrawn funds and to record the closing of Expended
Authority -- Paid** (TC F204 and F214).

## *Budgetary entry*

4902 Delivered Orders - Obligations, Paid \[Payments on Foreclosed
Property\] 130

4201 Total Actual Resources Collected 365

4264 Actual Collections of Rent 20

4265 Actual Collections From Sale of Foreclosed Property 475

**To close unobligated authority (***TC F210)*

## *Budgetary entry*

4610 Allotments - Realized Resources 135

4450 Unapportioned Authority 135

**To record the closing of other financing sources to cumulative results
of operations** *(TC F231)*

*Proprietary entry*

3310 Cumulative Results of Operations 235

7210 Losses on Disposition of Assets - Other 235

# 

# 

# POST-CLOSING TRIAL BALANCES

Post-closing trial balances are shown below, with debits shown as
positive numbers and credits in parentheses.

*Budgetary* *Proprietary*

4201 \$515 1010 \$515

4450 [(515)]{.underline} 1340 150

\$ 0 1349 (320)

1350 200

1359 (100)

1551 25

1559 (5)

3310 [(465)]{.underline}

> \$ 0

# FINANCIAL STATEMENTS

+-----------------------------------------------------------------------+
| **BALANCE SHEET**                                                     |
|                                                                       |
| **Assets**                                                            |
|                                                                       |
| **Intragovernmental Assets**                                          |
|                                                                       |
| 1\. Fund Balance With Treasury (1010E) \$515                          |
|                                                                       |
| **Assets With the Public**                                            |
|                                                                       |
| 9\. Accounts Receivable \$(70)                                        |
|                                                                       |
| (1340E, 1349E, 1350E and 1399E)                                       |
|                                                                       |
| 11. Loans Receivable and Related                                      |
|                                                                       |
| > Foreclosed Property (1551E and 1559E) \$20                          |
|                                                                       |
| 15\. Total Assets \$465                                               |
|                                                                       |
| **Intragovernmental Liabilities** \$0                                 |
|                                                                       |
| ###                                                                   |
|                                                                       |
| ### Net Position                                                      |
|                                                                       |
| 29\. Unexpended Appropriations (3100E) \$0                            |
|                                                                       |
| 30\. Cumulative Results of Operations (3310E) \$465                   |
|                                                                       |
| 31\. Total Net Position [\$465]{.underline}                           |
|                                                                       |
| 32\. Total Liabilities and Net Position \$465                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **STATEMENT OF NET COST**                                             |
|                                                                       |
| **Program Costs:**                                                    |
|                                                                       |
| 1\. Intragovernmental Gross Costs (7210E) [\$235]{.underline}         |
|                                                                       |
| Net Cost of Operations \$235                                          |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **STATEMENT OF CHANGES IN NET POSITION**                              |
|                                                                       |
| Cum. Res.                                                             |
|                                                                       |
| 1\. Beginning Balance (3310B) \$700                                   |
|                                                                       |
| 17\. Net Cost of Operations [(\$235)]{.underline}                     |
|                                                                       |
| 18\. Ending Balance \$465                                             |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **STATEMENT OF BUDGETARY RESOURCES**                                  |
|                                                                       |
| **(Non-budgetary Financing Fund)**                                    |
|                                                                       |
| **Budgetary Resources**                                               |
|                                                                       |
| 2\. Unobligated Balance:                                              |
|                                                                       |
| > A. Beginning of Period (4201B) \$150                                |
|                                                                       |
| 3\. Spending Authority From Offsetting Collections:                   |
|                                                                       |
| #### A1. Collected (4264E[^71] and 4265E[^72]^)^ \$[495]{.underline}  |
|                                                                       |
| 7\. Total Budgetary Resources \$645                                   |
|                                                                       |
| **Status of Budgetary Resources**                                     |
|                                                                       |
| 8.  Obligations Incurred:                                             |
|                                                                       |
| > A. Direct (4902E) \$130                                             |
|                                                                       |
| 9\. Unobligated Balance:                                              |
|                                                                       |
| > A1. Anticipated (4610E) \$135                                       |
|                                                                       |
| 10\. Unobligated Balance Not Available                                |
|                                                                       |
| > D. Other (4450E) \$380                                              |
|                                                                       |
| 11\. Total Status of Budgetary Resources \$645                        |
|                                                                       |
| **Relationship of Net Obligations to Outlays**                        |
|                                                                       |
| 15. Outlays                                                           |
|                                                                       |
| > A. Disbursements (+) (4902E) Gross Obligations \$130                |
| >                                                                     |
| > B. Collections (-) (4264E and 4265E) [(495)]{.underline}            |
|                                                                       |
| 17\. Net Outlays \$(365)                                              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # STATEMENT OF FINANCING                                              |
|                                                                       |
| Resources Used To Finance Activities:                                 |
|                                                                       |
| 1\. Obligations Incurred (4902E) \$130                                |
|                                                                       |
| 2\. Less: Spending Authority From                                     |
|                                                                       |
| #####  Offsetti                                                       |
| ng Collections and Recoveries (4264E and 4265E) [\$(495)]{.underline} |
|                                                                       |
| 3\. Obligations Net of Offsetting Collections and Recoveries \$(365)  |
|                                                                       |
| 11\. Total Resources Used To Finance Activities \$(365)               |
|                                                                       |
| Resources Used To Finance Items Not a Part of Net Cost of Operations: |
|                                                                       |
| 14a. Credit Program Collections That Increase Liabilities\            |
| That Do Not Affect Net Cost of Operations (4264E and 4265E) (\$495)   |
|                                                                       |
| Resources That Finance Acquisition of Assets (4902E) \$130            |
|                                                                       |
| 17\. Total Resources Used To Finance Items Not Part of the\           |
| Net Cost of Operations [(\$365)]{.underline}                          |
|                                                                       |
| 18\. Total Resources Used To Finance the Net Cost of Operations \$0   |
|                                                                       |
| Components Not Requiring or Generating Resources:                     |
|                                                                       |
| 26\. Revaluation of Assets or Liabilities (7210E) [\$235]{.underline} |
|                                                                       |
| 30\. Net Cost of Operations \$235                                     |
+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **FMS 2108: Year End Closing Statement**                              |
|                                                                       |
| ##### Column 5 (1010E) \$515                                          |
|                                                                       |
| Column 11 (4450E and 4610E) \$(515)                                   |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
|                                                                       |
+-----------------------------------------------------------------------+
| **BUDGET PROGRAM AND FINANCING (P&F) SCHEDULE**                       |
|                                                                       |
| ## OBLIGATIONS BY PROGRAM ACTIVITY                                    |
|                                                                       |
| 1000 Total New Obligations (4902E) 130                                |
|                                                                       |
| **BUDGETARY RESOURCES AVAILABLE FOR OBLIGATION**                      |
|                                                                       |
| 2140 Unobligated balance carried forward, start of year (4201B) 150   |
|                                                                       |
| 2395 Total new obligations (130)                                      |
|                                                                       |
| 2440 Unobligated balance carried forward, end of year (4510E & 4610E) |
| 515                                                                   |
|                                                                       |
| **CHANGE IN OBLIGATED BALANCES**                                      |
|                                                                       |
| 7310 Total new obligations 0                                          |
|                                                                       |
| 7320 Total Outlays (gross) (4902E) 130                                |
|                                                                       |
| **OUTLAYS (GROSS), DETAIL**                                           |
|                                                                       |
| 8693 Outlays from discretionary balances (4902E) 130                  |
|                                                                       |
| 8700 Total Outlays (gross) (-) (4902E) 130                            |
|                                                                       |
| **NET BUDGET AUTHORITY AND OUTLAYS**                                  |
|                                                                       |
| 8900 Budget Authority (net) 0                                         |
|                                                                       |
| 9000 Outlays (net) 130                                                |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| **CREDIT PROGRAM FOOTNOTE**                                           |
|                                                                       |
| **NET REALIZABLE VALUE OF LOAN ASSETS**                               |
|                                                                       |
| **Loan Assets Related to Direct Loans Obligated Before October 1,     |
| 1991:**[^73]                                                          |
|                                                                       |
| Loans Receivable (1350) \$200                                         |
|                                                                       |
| Interest Receivable (1340) [150]{.underline}                          |
|                                                                       |
| Total Receivables 350                                                 |
|                                                                       |
| Less Allowance for Loss (1340 & 1350) [(420)]{.underline}             |
|                                                                       |
| Net Realizable Value of Receivables[^74] \$(70)                       |
|                                                                       |
| Foreclosed Property (1551) 25                                         |
|                                                                       |
| Less Allowance for Loss (1559) [(5)]{.underline}                      |
|                                                                       |
| Net Realizable Value of Foreclosed Property [20]{.underline}          |
|                                                                       |
| Net Realizable Value of Loan Assets \$(50)                            |
+-----------------------------------------------------------------------+

APPENDIX I: YEAR-END ADJUSTMENTS TO VALUATION OF FORECLOSED PROPERTY

Often, a Federal credit program agency will foreclose on collateral
property and dispose of it in the same fiscal year. The transactions in
the body of this guide illustrate how an agency record and report
transactions to acquire repair and maintain, rent, and sell foreclosed
property. In some instances, foreclosed property will be sold in a later
fiscal year than that during foreclosure. This appendix discusses the
valuation of foreclosed property existing at the Balance Sheet date
under Credit Reform and Pre-Credit Reform.

# CREDIT REFORM VALUATION

Under Credit Reform, loan assets (receivables and foreclosed property)
are valued at the present value of their cash flows. An agencies report
this by listing and summing the receivables, and subtracting an
allowance for subsidized costs from the sum of the receivables to yield
their net cash flow. This reporting is illustrated via the credit
program footnote in Scenarios 1 and 2.

Each year, an agency re-estimate cash flows and increase or decrease the
allowance for subsidy for each cohort of loans (by risk categories under
each cohort, if any). The agency recognizes an additional subsidy
expense when the allowance is increased, and a decrease in subsidy
expense when the allowance is decreased. This is illustrated in the
direct loan programs guide. The entries and methodologies are
essentially the same for loan assets related to defaulted guaranteed
loans and those related to direct loans, though an agency must report
each separately.

Since no allowance account related solely to foreclosed property is
recognized (the allowance account applies to the sum of the non-cash
loan assets), the guide does not illustrate the recording and reporting
of adjustments to the allowance for subsidy caused by changes in cash
flows relating to foreclosed property. Refer to the sections on upward
and downward adjustments relating to direct loan, non-cash assets
discussed in the accounting and reporting for direct loans guide under
Credit Reform concepts.

# Pre-Credit Reform--Present Value Used

Agencies may use either present value or net realizable value concepts
for recording and valuing non-cash loan assets for Pre-Credit Reform
direct loans or defaulted guaranteed loans. If agencies use present
value concepts, the valuation of the receivables and foreclosed property
and related accounting and reporting are basically the same as that
under Credit Reform. Agencies should use account 6800, "Future Funded
Expenses."

# Pre-Credit Reform--Net Realizable Value Used

Under the net realizable value concept, separate valuations are made for
each receivable (accounts receivable, loans receivable, interest
receivable, penalties and late charges receivable, etc.) and for
foreclosed property. Accounting and reporting related to the valuation,
accounting, and reporting of Pre-Credit Reform receivables on a net
realizable value basis is presented in the Pre-Credit Reform guide. This
section discusses valuation, accounting, and reporting for Pre-Credit
Reform foreclosed property.

SFFAS No. 3, *Accounting for Inventory and Related Property*, governs
the valuation of Pre-Credit Reform foreclosed property when the present
value of cash flows is not used as a basis for valuation. In that case,
SFFAS No. 3 specify that the lower of cost of market rule be used.[^75]
This means that in valuing foreclosed property on the Balance Sheet, it
be reduced by a related valuation account which, when netted against the
gross amount of foreclosed property, yields the lower of what the
property cost (as determined via the transactions discussed in the body
of this case), or what its estimated fair market value is at the Balance
Sheet date. While foreclosed property may thus be reported at lower than
cost if its fair market value is less, it cannot be valued at greater
than cost, even if the fair market value is more. This is essentially
the same rule as used in commercial accounting.

Assume that foreclosed property is taken during fiscal year A, and at
the end of that year, it is on the books at a value of \$100, based on
transactions involving acquisition, repairs and maintenance, and
rentals. The agency does not sell the property until fiscal year E, and
no additional transactions occur, except those related to valuation for
balance sheet purposes at the end of each of the fiscal years A, B, C,
and D. The agency determines fair market value for each of those fiscal
years as follows:

> **Fiscal Year** **Fair Market Value**
>
> A \$96
>
> B \$93
>
> C \$98
>
> D \$102

The journal entries to value the foreclosed property on the balance
sheet for each year and to close the accounts at year-end are set forth
below, along with related reporting (solely for these transactions). All
entries are proprietary, as the revaluation of foreclosed property to
the lower of cost or market does not affect budgetary resources or the
status of resources. The Balance Sheet and Statement of Changes in Net
Position assume that the cumulative results of operations in fiscal year
A before valuation are \$100 for illustrative purposes only.
Additionally, the balance sheet presents details of the cost and market
valuations, normally found in the credit program footnote. This detail
is not illustrated for brevity. The Statement of Budgetary Resources is
not presented, since no budgetary accounts are affected.

> **TRANSACTIONS**

###### Fiscal Year A

**To value the property at the lower of cost (\$100) or market (\$96).
(TC NEW)**

## *Proprietary entry*

6790 Other Expenses Not Requiring Budgetary Resources 4

1559 Foreclosed Property - Allowance 4

**To close the expense account*.* (TC F228)**

## *Proprietary entry*

3310 Cumulative Results of Operations 4

6790 Other Expenses Not Requiring Budgetary Resources 4

**FINANCIAL STATEMENTS**

###### Fiscal Year A

# BALANCE SHEET

## Assets 

**Intragovernmental Assets**

11\. Loans Receivable and Related\
Foreclosed Property (1551E & 1559E) [\$96]{.underline}

15\. Total Assets \$96

**Intragovernmental Liabilities** \$0

### 

### Net Position

29\. Unexpended Appropriations (3100E) \$0

30\. Cumulative Results of Operations (3310E) \$96

31\. Total Net Position [\$96]{.underline}

32\. Total Liabilities and Net Position \$96

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| **STATEMENT OF NET COST**                                             |
|                                                                       |
| **Program Costs:**                                                    |
|                                                                       |
| 1\. Intragovernmental Gross Costs (6790E) \$4                         |
|                                                                       |
| 2\. Less: Intragovernmental Earned Revenues [\$0]{.underline}         |
|                                                                       |
| 10\. Net Cost of Operations \$4                                       |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------

**STATEMENT OF CHANGES IN NET POSITION**

Cum. Res.

1\. Beginning Balance (3310B) \$100

17\. Net Cost of Operations [(\$4)]{.underline}

18\. Ending Balance [\$96]{.underline}

**STATEMENT OF FINANCING**

Resources Used To Finance Activities:

11\. Total Resources Used To Finance Activities \$0

Components Not Requiring or Generating Resources:

27\. Other (6790E) \$4

28\. Total Components of Net Cost of Operations That Will Not\
Require or Generate Resources \$4

29\. Total Components of Net Cost of Operations That Will Not\
Generate or Require Resources in the Current Period [\$4]{.underline}

30\. Net Cost of Operations \$ 4

> **TRANSACTIONS**

###### Fiscal Year B

**To value the property at the lower of cost (\$100) or market (\$93).**
[^76] (TC NEW)

## *Proprietary entry*

6790 Other Expenses Not Requiring Budgetary Resources 3

1559 Foreclosed Property - Allowance 3

**To close the expense account (TC F228)**

## *Proprietary entry*

3310 Cumulative Results of Operations 3

6790 Other Expenses Not Requiring Budgetary Resources 3

**FINANCIAL STATEMENTS**

###### Fiscal Year B

## BALANCE SHEET

**Assets**

**Intragovernmental Assets**

11\. Loans Receivable and Related\
Foreclosed Property (1551E & 1559E) [\$93]{.underline}

15\. Total Assets \$93

**Intragovernmental Liabilities** \$0

### 

### Net Position

29\. Unexpended Appropriations (3100E) \$0

30\. Cumulative Results of Operations (3310E) \$93

31\. Total Net Position [\$93]{.underline}

32\. Total Liabilities and Net Position \$93

+-----------------------------------------------------------------------+
| **STATEMENT OF NET COST**                                             |
|                                                                       |
| **Program Costs:**                                                    |
|                                                                       |
| 1\. Intragovernmental Gross Costs (6790E) \$3                         |
|                                                                       |
| 2\. Less: Intragovernmental Earned Revenues [\$0]{.underline}         |
|                                                                       |
| 10\. Net Cost of Operations \$3                                       |
+-----------------------------------------------------------------------+

**STATEMENT OF CHANGES IN NET POSITION**

Cum. Res.

1\. Beginning Balance (3310B) \$96

17\. Net Cost of Operations [(\$3)]{.underline}

18\. Ending Balance \$93

**STATEMENT OF FINANCING**

Resources Used To Finance Activities:

11\. Total Resources Used To Finance Activities \$0

Components Not Requiring or Generating Resources:

27\. Other (6790E) \$3

28\. Total Components of Net Cost of Operations That Will Not\
Require or Generate Resources \$3

29\. Total Components of Net Cost of Operations That Will Not\
Generate or Require Resources in the Current Period [\$3]{.underline}

30\. Net Cost of Operations \$3

## TRANSACTIONS

## Fiscal Year C

**To value the property at the lower of cost (\$100) or market (\$98).**
[^77] (TC NEW)

## *Proprietary entry*

1559 Foreclosed Property - Allowance 5

6790 Other Expenses Not Requiring Budgetary Resources 5

**To close the expense account** *(TC F228).*

## *Proprietary entry*

6790 Other Expenses Not Requiring Budgetary Resources 5

3310 Cumulative Results of Operations 5

## FINANCIAL STATEMENTS

## Fiscal Year C

**BALANCE SHEET**

**Assets**

**Intragovernmental Assets**

11\. Loans Receivable and Related\
Foreclosed Property (1551E & 1559E) \$98

15\. Total Assets \$98

**Intragovernmental Liabilities** \$0

### 

### Net Position

29\. Unexpended Appropriations (3100E) \$0

30\. Cumulative Results of Operations (3310E) \$98

31\. Total Net Position \$98

32\. Total Liabilities and Net Position \$98

+-----------------------------------------------------------------------+
| **STATEMENT OF NET COST**                                             |
|                                                                       |
| **Program Costs:**                                                    |
|                                                                       |
| 1\. Intragovernmental Gross Costs (6790E) \$(5)                       |
|                                                                       |
| 2\. Less: Intragovernmental Earned Revenues \$0                       |
|                                                                       |
| 10\. Net Cost of Operations \$(5)                                     |
+-----------------------------------------------------------------------+

**STATEMENT OF CHANGES IN NET POSITION**

Cum. Res.

1\. Beginning Balance (3310B) \$93

17\. Net Cost of Operations [\$5]{.underline}

18\. Ending Balance \$98

**STATEMENT OF FINANCING**

Resources Used To Finance Activities:

11\. Total Resources Used To Finance Activities \$0

Components Not Requiring or Generating Resources:

27\. Other (6790E) (\$5)

28\. Total Components of Net Cost of Operations That Will Not\
Require or Generate Resources (\$5)

29\. Total Components of Net Cost of Operations That Will Not\
Generate or Require Resources in the Current Period ([\$5)]{.underline}

30\. Net Cost of Operations (\$ 5)

## TRANSACTIONS

## Fiscal Year D

**To value the property at the lower of cost (\$100) or market
(\$102).** [^78] (TC NEW)

## *Proprietary entry*

1559 Foreclosed Property - Allowance 2

6790 Other Expenses Not Requiring Budgetary Resources 2

**To close the expense account** *(TC F228).*

## *Proprietary entry*

6790 Other Expenses Not Requiring Budgetary Resources 2

3310 Cumulative Results of Operations 2

## FINANCIAL STATEMENTS

## Fiscal Year D

**BALANCE SHEET**

**Assets**

**Intragovernmental Assets**

11\. Loans Receivable and Related\
Foreclosed Property (1551E) \$100

15\. Total Assets \$100

**Intragovernmental Liabilities** \$0

### 

### Net Position

29\. Unexpended Appropriations (3100E) \$0

30\. Cumulative Results of Operations (3310E) \$100

31\. Total Net Position \$100

32\. Total Liabilities and Net Position \$100

+-----------------------------------------------------------------------+
| **STATEMENT OF NET COST**                                             |
|                                                                       |
| **Program Costs:**                                                    |
|                                                                       |
| 1\. Intragovernmental Gross Costs (6790E) \$(2)                       |
|                                                                       |
| 2\. Less: Intragovernmental Earned Revenues \$0                       |
|                                                                       |
| 10\. Net Cost of Operations \$(2)                                     |
+-----------------------------------------------------------------------+

**STATEMENT OF CHANGES IN NET POSITION**

Cum. Res.

1\. Beginning Balance (3310B) \$98

17\. Net Cost of Operations [\$2]{.underline}

18\. Ending Balance \$100

**STATEMENT OF FINANCING**

Resources Used To Finance Activities:

11\. Total Resources Used To Finance Activities \$0

Components Not Requiring or Generating Resources:

27\. Other (6790E) (\$2)

28\. Total Components of Net Cost of Operations That Will Not\
Require or Generate Resources (\$2)

29\. Total Components of Net Cost of Operations That Will Not\
Generate or Require Resources in the Current Period ([\$2)]{.underline}

30\. Net Cost of Operations (\$ 2)

**APPENDIX II: REFERENCES**

This appendix lists some key references and Web sites for readers who
want to obtain additional information.

**OFFICE OF MANAGEMENT AND BUDGET**

-   OMB Bulletin No. 01-09, *Form and Content of Agency Financial
    Statements for Audit*

-   OMB Circular No. A-11, *Preparation, Submission, and Execution of
    the Budget*

-   OMB Credit Model

    -   OMB Publications Office at (202) 395-7332

    -   Office of Federal Financial Management (202) 395-3993

    -   Website: www.whitehouse.gov/omb

**FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD**

Statement of Federal Financial Accounting Standards (SFFAS) and
Statement of Federal Financial Accounting Concepts (SFFAC) No. 1,

-   SFFAS No. 1, *Accounting for Selected Assets and Liabilities*

-   SFFAS No. 2, *Accounting for Direct Loans and Loan Guarantees*

-   SFFAS No. 3, *Accounting for Inventory and Related Property*

-   SFFAS No. 7, *Accounting for Revenue and Other Financing Sources*
    (including related implementation guide)

-   SFFAS No. 18, *Amendments to Accounting Standards for Direct Loans
    and Loan Guarantees*

-   SFFAS No. 19, *Technical Amendments to Accounting Standards for
    Direct Loans and Loan Guarantees*

-   SFFAC No. 2, *Entity and Display* (as amended by SFFAS No. 7)

Accounting and Auditing Policy Committee, Technical Release No. 3:
*Preparing and Auditing Direct Loan and Loan Guarantee Subsidies Under
the Federal Credit Reform Act*

-   FASAB Staff at (202) 512-7350

-   Website: www.fasab.gov

**TREASURY FINANCIAL MANAGEMENT SERVICE**

-   *U.S. Government Standard General Ledger (USSGL)* codified in the
    *Treasury Financial Manual (TFM)*

-   *Budgetary Accounting in the Federal Government*

-   Illustrative Scenarios in Accounting for Credit Programs (USSGL
    Staff)

-   TFM Volume I, Part 2, Chapter 4600 Treasury Reporting Instructions
    for Credit Reform Legislation

-   Present Value Monograph

    -   USSGL Staff at (202) 874-9980

[^1]: See U.S. Office of Management and Budget (OMB) Bulletin No. 01-09,
    Form and Content of Agency Financial Statements, dated September
    2001, §1.2, p.2.

[^2]: Under SFFAS No. 2, *Accounting for Direct Loans and Loan
    Guarantees*, agencies may use either net realizable value or net
    present value as the basis for Pre-Credit Reform accounting.

[^3]: OMB's Bulletin No. 01-09, Footnote 8 (§9.8).

[^4]: The direct loan guide illustrates a similar set of accounts to
    report the changes in the allowance for subsidy account in a
    Post-Credit Reform direct loan program.

[^5]: Note that SFFAS No. 18, *Amendments to Accounting Standards for
    Direct Loans and Loan Guarantees*, requires a schedule of changes in
    the Post-Credit Reform allowance for subsidy account only for direct
    loan programs. A schedule for the allowance related to defaulted
    guaranteed loans in a Post-Credit Reform loan guarantee program is
    not required. In addition, these schedules are not required for
    Pre-Credit Reform direct loan or loan guarantee programs.

[^6]: Related only to "with recourse" foreclosures.

[^7]: For simplicity, the case does not include penalties, fines, or
    administrative fees that also might have been assessed and unpaid.
    Agencies treat these fees in essentially the same manner as an
    interest receivable.

[^8]: Related only to "with recourse" foreclosures.

[^9]: In the financing fund, this account balance must be zero after
    closing. The financing fund cannot have a net cost of operations. If
    there is excess subsidy, the agency accrues a payable to transfer
    the excess to a designated miscellaneous receipt fund. If there is
    not enough subsidy, the agency accrues a receivable from the program
    fund for the deficiency. Financing sources must equal expenses, and
    assets must equal liabilities. Note, that the liquidating fund may
    have a balance in account 3310.

[^10]: Normally, a direct loan program uses its collections to repay its
    debt and interest to Treasury and does not have a cash balance.
    However, an agency may retain cash from collections if it needs to
    use the cash before it receives additional collections. For example,
    the agency foresees the need to make payments related to foreclosed
    property before any collections become available. If there was no
    available cash and payments needed to be made, the agency would have
    to borrow from Treasury.

[^11]: Note that in accordance with OMB guidance (OMB Circular No. A-11,
    § 145.6), only the realized resources, those in the unobligated
    balance forward (as represented by the beginning balance of account
    4450) can be allotted. Anticipated resources cannot be obligated
    until they are realized.

[^12]: Although collateral property should be free of liens when the
    Government forecloses on it, creditors may have placed liens on the
    property, such as for an unpaid contractor's lien or for unpaid
    property taxes.

    If the agency paid the lien in a separate transaction from the
    acquisition of the property, it makes a budgetary entry to credit
    account 4901 for \$40 instead of 4902\[Payments on Foreclosed
    Property\]. In addition, the agency makes two proprietary entries
    (dr./cr.): 1551\[Direct Loans\] for \$450/1350 for \$410 and 1990
    (Other Assets) or 2110 for \$40. Upon payment, the agency would make
    a budgetary entry to account 4901 or 4902\[Payments on Foreclosed
    Property\], and the following proprietary entries: 1551\[Direct
    Loans\] or 1990 and 2110 or 1010. With few exceptions, an agency may
    not debit or credit account 1551 unless cash has been transacted.
    Finally, if at the end of the year, a lien is still unpaid, the
    entry debiting account 1990 and crediting account 2110 would be
    reversed in the process of consolidation to avoid double-counting
    between the unpaid lien and the foreclosed property's present value,
    which already contains the present value of the lien payment to be
    made.

[^13]: Note that the borrower is given credit for the net inflow of
    assets. The fair market value of the collateral property, reduced by
    the lien, in lieu of a cash collection. If the net fair market value
    is greater than the interest, but less than the sum of the principal
    and interest, the agency credits account 1350\[Direct\] for the
    difference between the amount of the interest receivable and the net
    fair market value. If the net amount is \$510, then the agency
    credits account 1340\[Direct Loans\] for \$500 and account
    1350\[Direct\] for \$10. If the net fair market value is greater
    than both principal and interest, the agency credits the amount in
    excess of accounts 1340\[Direct Loans\] and 1350\[Direct\] to
    account 1399\[Direct Loans Receivable\], and makes a memorandum
    entry debiting account 9XAB and crediting 9XAC for that amount. If,
    for example, the net fair market value of the foreclosed property is
    \$625, the agency credits account 1340\[Direct Loans\] for \$500,
    account 1350\[Direct\] for \$100, and account 1399 \[Direct Loans
    Receivable\] for \$25 (the entry involving accounts 9XAB and 9XAC
    would be \$25). Per SFFAS No. 3, *Accounting for Inventory and
    Related Property,* par. 87, this reporting follows the normal
    practice of crediting amounts first to late charges and penalties
    receivable (there are none in this case), then to interest
    receivable, then to loans receivable, and finally to the allowance
    for subsidy. If the loan contract specifies otherwise, then some
    other distribution consistent with the contract requirements would
    have to be made.

[^14]: A payment made on foreclosed property by the foreclosing agency
    increases the net present value of the property because, once made,
    the succeeding payments are less (remember that net present value of
    an asset equals the present value of cash receipts less the present
    value of cash payments). In theory, an agency can recognize this via
    a debit to account 1399\[Direct Loans Receivable\] or 1551\[Direct
    Loans\], either of which will provide the requisite increase.
    However, in a "with recourse" foreclosure, agencies must determine
    whether there is a net cash inflow or outflow related to the
    foreclosed property after sale, so they can collect cash owed from
    the borrower or refunded excess cash to the borrower. Additionally,
    agencies are often asked to report to OMB or the Congress on the
    results of their foreclosed property program. Agencies may consider
    using a subsidiary ledger for foreclosed property that shows the
    cash-flows by property, since good property management requires a
    subsidiary record of information to detail the balance in account
    1551\[Direct Loans\]. Accordingly, the agency makes the cash flows
    related to property in this guide to account 1551\[Direct Loans\]
    rather than account 1399\[Direct Loans Receivable\]. Note, too, that
    it makes no difference to the accounting treatment whether the
    payment is for major or for minor repairs, as it might in commercial
    sector accounting.

[^15]: Note that the credit is to account 1551\[Direct Loans\] instead
    of to account 1399\[Direct Loans Receivable\]. See the preceding
    note. (This caveat is not repeated in subsequent transactions
    involving debits or credits to account 1551\[Direct Loans\] instead
    of account 1399\[Direct Loans Receivable\].)

[^16]: The value of the entry is the net cash received. The Federal
    Budget normally would not report a collection of the gross amount
    and an unpaid, undelivered order for fees of sale because this could
    complicate preparing the Statement of Budgetary Resources. The
    Statement of Budgetary Resources must match net obligations to net
    outlays and must compute net outlays based on transactions reported
    to Treasury. The agency normally reports the transaction to
    Treasury, only as a net collection. Recording it as both a
    collection and a disbursement in the budgetary accounts is not
    appropriate unless the agency obtains approval from OMB, or is
    directed to do so by OMB or Treasury. If the amounts are material,
    provide a footnote explanation of any deviation from what was
    reported to Treasury for the Statement of Budgetary Resources.

[^17]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for a
    re-apportionment and OMB grants it. Therefore, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450, as
    indicated in this guide. An agency may also choose to record the
    anticipated amount remaining in account 4060 and the excess over the
    amount anticipated, which is unapportioned, into account 4450. For
    example, debit account 4265 for \$475, credit account 4060 for \$95,
    and credit account 4450 for \$380. As a result, a closing entry for
    accounts 4060 and 4450 would not be necessary.

[^18]: Alternatively, instead of using account 1310\[from Borrowers Upon
    Sale of Foreclosed Property\], the agency could record \$45 (\$235 -
    \$100 - \$90) to account 1350\[Direct\], leaving account
    1350\[Direct\] (related to the new foreclosed property, that was
    just sold) with a balance of \$145, and could make no entry make to
    account 1340\[Direct Loans\] (related to the new foreclosed
    property), which would remain at \$90. In other words, instead of
    \$235 appearing in account 1310\[from Borrowers Upon Sale of
    Foreclosed Property\] in the trial balance, the debit would be split
    between account 1340\[Direct Loans\], \$90, and account
    1350\[Direct\], \$145 (as it relates to the new foreclosed
    property). Regardless of the method used, agencies must report all
    receivables related to the transaction in the credit program
    footnote to the Balance Sheet. Of course, the agency may write-off
    the receivables against account 1399\[Direct Loans Receivable\], as
    illustrated in the guide for direct loans (or account 1399\[Direct
    Loans Receivable\] if related to defaulted guaranteed loans).

[^19]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for a
    re-apportionment and OMB grants it. Therefore, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative, and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450.

[^20]: The value of the entry is the net cash received. The Federal
    Budget normally would not report a collection of the gross amount
    and an unpaid, undelivered order for fees of sale, because this
    could complicate preparing the Statement of Budgetary Resources. The
    Statement of Budgetary Resources must match net obligations to net
    outlays and must compute net outlays based on transactions reported
    to Treasury. The agency normally reports the transaction to Treasury
    only as a net collection. Recording it as both a collection and a
    disbursement in the budgetary accounts is not appropriate unless the
    agency obtains approval from OMB, or is directed to do so by OMB or
    Treasury. If the amounts are material, provide a footnote
    explanation of any deviation from what was reported to Treasury for
    the Statement of Budgetary Resources.

[^21]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for
    re-apportionment and OMB grants it. As a result, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative, and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450.

[^22]: In this case, the agency collected \$65 cash in excess of that
    required to satisfy the underlying debt (see the proprietary entry
    following). Because this is a " with recourse" foreclosure, the
    agency must repay the excess to the borrower and credit account
    4901.

[^23]: In this case, the agency collected \$65 cash in excess of that
    required to satisfy the debt. Because this is a "with recourse"
    foreclosure, the agency must repay the excess to the borrower.

[^24]: See footnote 22.

[^25]: This assumes that the agency refunded the cash to the borrower in
    a separate transaction. In practice, the agency may pay the excess
    directly to the borrower at the time the foreclosed property is
    sold, such as through escrow. If that is the case, the agency
    reduces the net collection amount to \$710 in the budgetary and
    proprietary entries for 6a and does not record a payable.

[^26]: From rent.

[^27]: From sale of foreclosed property.

[^28]: If these loan assets were related to defaulted guaranteed loans,
    the heading would instead be "Loan Assets Related to Loan Guarantees
    Obligated Before September 30, 1991."

[^29]: Note that there are requirements to disclose narrative
    information in addition to the dollar amount of foreclosed property
    (See OMB's *Form and Content, Section 9 (*pp. 69-70).

[^30]: Note that there is no requirement for a schedule for the
    allowance for subsidy related to defaulted guaranteed loan assets.

[^31]: Normally, there would be other transactions not applicable to
    foreclosed property that would cause the allowance for subsidy to
    change. The agency would report these transactions in the Schedule
    of Changes.

[^32]: Normally, a direct loan program uses its collections to repay its
    debt and interest to Treasury, and, therefore, does not have a cash
    balance. However, an agency may retain cash from collections if it
    needs to use the cash before it receives additional collections. If
    the agency has no available cash and it needs to make payments, it
    would have to borrow from Treasury. In this guide, the agency is
    assumed to have foreseen the need to make payments related to
    foreclosed property before any collections become available. If
    there was no available cash, and payments needed to be made, the
    agency would have to borrow from Treasury.

[^33]: Note that in accordance with OMB guidance, agencies can allot
    only the realized resources, those in the Unobligated balance
    forward (as represented by the beginning balance of account 4450).
    They cannot obligate anticipated resources until the resources are
    realized.

[^34]: Although collateral property should be free of liens when the
    Government foreclosed on it, creditors may have placed liens on the
    property, such as for an unpaid contractor's lien or for unpaid
    property taxes.

[^35]: If the agency paid the lien in a separate transaction from
    acquisition of the property, it makes a budgetary entry to credit
    account 4901 for \$40 instead of 4902\[Payments on Foreclosed
    Property\], for \$40, and the proprietary entry would be changed as
    follows:

    > 1551 410

    1399 190

    > 1990 40

    1340 500

    1350 100

    2110 40

    Upon payment, the agency makes the budgetary entry (dr./cr.)
    4901/4902\[Payments on Foreclosed Property\], and the following
    proprietary entries: 1551/1990 and 2110/1010. With few exceptions,
    an agency may not debit or credit account 1551 unless cash has been
    transacted. Finally, if at the end of the year, a lien is still
    unpaid, the entry debiting account 1990 and crediting account 2110
    would be reversed in the process of consolidation to avoid
    double-counting between the unpaid lien and the foreclosed
    property's present value, which already contains the present value
    of the lien payment to be made.

[^36]: Note that because the collateral property is taken without
    recourse, the agency must remove the loan and interest receivable
    from its books, since it must consider acceptance of the foreclosed
    property as payment in full for the loan. The agency charges the
    difference between the fair market value of the property and the
    gross value of the receivables to account 1399\[Direct Loans
    Receivable\]. If the fair market value of the property is greater
    than the gross value of the receivables, the agency credits account
    1399 \[Direct Loans Receivable\].

[^37]: A payment made on foreclosed property by the foreclosing agency
    increases the net present value of the property because, once made,
    the succeeding payments are less (remember that net present value of
    an asset equals the present value of cash receipts less the present
    value of cash payments). In theory, the agency can recognize this
    via a debit to account 1399\[Direct Loans Receivable\] or
    1551\[Direct Loans\], either of which will provide the requisite
    increase. However, in a "with recourse" foreclosure, agencies must
    determine whether there is a net cash inflow or outflow related to
    the foreclosed property after sale so they can collect cash owed
    from the borrower or refund excess cash to the borrower.
    Additionally, agencies are often asked to report to OMB or the
    Congress on the results of their foreclosed property program.
    Agencies may consider using a subsidiary ledger for foreclosed
    property that show the cashflows by property since good property
    management requires a subsidiary record of information to detail the
    balance in account 1551\[Direct Loans\]. Accordingly, the cash flows
    related to property in this guide will be made to account
    1551\[Direct Loans\] rather than to account 1399\[Direct Loans
    Receivable\]. Note, too, that it makes no difference to the
    accounting treatment whether the payment is for major or for minor
    repairs, as it might in commercial sector accounting.

[^38]: Note that the credit is to account 1551\[Direct Loans\] instead
    of account 1399\[Direct Loans Receivable\]. See the preceding note.
    (This caveat is not repeated in subsequent transactions involving
    debits or credits to account 1551\[Direct Loans\] instead of account
    1399\[Direct Loans Receivable\].)

[^39]: The value of the entry is the net cash received. The Federal
    Budget normally would not report a collection of the gross amount
    and an unpaid, undelivered order for fees of sale, because this
    could complicate preparing the Statement of Budgetary Resources. The
    Statement of Budgetary Resources must match net obligations to net
    outlays and must compute net outlays based on transactions reported
    to Treasury. The agency normally reports the transaction to Treasury
    only as a net collection. Recording it as both a collection and a
    disbursement in the budgetary accounts is not appropriate unless the
    agency obtains permission from OMB, or is directed to do so by OMB
    or Treasury. If the amounts are material, provide a footnote
    explanation of any deviation from what was reported to Treasury for
    the Statement of Budgetary Resources.

[^40]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for a
    re-apportionment and OMB grants it. Therefore, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative, and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450, as
    indicated in this guide. An agency may also choose to record the
    anticipated amount remaining in account 4060 and the excess over the
    amount anticipated, which is unapportioned, into account 4450. For
    example, debit account 4265 for \$475, credit account 4060 for \$95,
    and credit account 4450 for \$380. As a result, a closing entry for
    accounts 4060 and 4450 would not be necessary.

[^41]: The agency charges the loss on sale against the allowance for
    subsidy. Note that this is different from the "with recourse"
    situation illustrated in Scenario 1, when the agency legally could
    collect the loss from the borrower. If there were a gain on sale,
    the agency would credit the allowance for subsidy.

[^42]: Ibid.

[^43]: If there was a gain on sale, the agency would reverse this entry
    from that shown.

[^44]: From rent.

[^45]: From sale of foreclosed property.

[^46]: If these loan assets were related to defaulted guaranteed loans,
    the heading would instead be "Loan Assets Related to Loan Guarantees
    Obligated After September 30, 1991."

[^47]: Note that there are requirements to disclose narrative
    information in addition to the dollar amount of foreclosed property.
    (See OMB's *Form and Content Section 9, (pp*. 69-70).

[^48]: Note that there is no requirement for a schedule for the
    allowance for subsidy related to defaulted guaranteed loan assets.

[^49]: Note that in accordance with OMB guidance, agencies can allot
    only the realized resources, those in the unobligated balance
    forward (as represented by the beginning balance of account 4450).
    They cannot obligate anticipated resources until the resources are
    realized (in accordance with §145.6 of *OMB Circular A-11*, only
    realized resources may be obligated).

[^50]: Although collateral property should be free of liens when the
    Government forecloses on it, creditors may have placed liens, such
    as for an unpaid contractor's lien or for unpaid property taxes.

    If agency paid the lien in a separate transaction from acquisition
    of the property, it makes a the budgetary entry to account 4901
    instead of account 4902\[Payments on Foreclosed Property\], and in
    accordance with SFFAS No. 3, *Accounting for Inventory and Related
    Property*, par. 87. In the proprietary the agency replaces account
    1010 with account 1559\[Direct Loans\]. Upon payment, the agency
    debits account 4901 and credits account 4902\[Payments on Foreclosed
    Property\]; it debits accounts 1559\[Direct Loans\] and credits
    account 1010.

[^51]: Note that the borrower is given credit for the net inflow of
    assets. The fair market value of the collateral property, reduced by
    the lien, in lieu of a cash collection. If the net fair market value
    is greater than the interest, but less than the sum of the principal
    and interest, the agency credits account 1350\[Direct\] for the
    difference between the amount of the interest receivable and the net
    fair market value. If the net amount is \$510, then the agency
    credits account 1340\[Direct Loan\] for \$500 and account
    1350\[Direct\] for \$10). If the net fair market value is greater
    than both principal and interest, the agency credits the amount in
    excess of accounts 1340\[Direct Loans\] and 1350\[Direct\] to a
    combination of account 1349\[Direct Loan\] and account
    1359\[Direct\], as determined by the agency. If, for example, the
    net fair market value of the foreclosed property is \$625, the
    agency credits account 1340\[Direct Loans\] for \$500, account 1350
    \[Direct\] for \$100, and account 1349\[Direct Loan\] and account
    1359\[Direct\] for a total of \$25. Per SFFAS No. 3, *Accounting for
    Inventory and Related Property,* par. 87, this reporting follows the
    normal practice of crediting amounts first to late charges and
    penalties receivable (there are none in this case), then to interest
    receivable, then to loans receivable, and finally to the allowance
    accounts. If the loan contract specifies otherwise, then some other
    distribution consistent with the contract requirements would have to
    be made. Normally, an agency would recognize a gain on foreclosed
    property, since the agency would have to repay any such gain, if it
    materialized after all transactions with the fixed property were
    recorded to the borrower.

[^52]: Agencies must determine whether there is a net cash inflow or
    outflow related to a piece of foreclosed property after sale in a
    "with recourse" foreclosure, so they can collect cash owed from the
    borrower or refund excess cash to the borrower. Additionally,
    agencies are often asked to report to OMB or the Congress on the
    results of their foreclosed property program. Accordingly, the
    agencies may consider using a subsidiary ledger for foreclosed
    property that shows the cash flows by property, since good property
    management requires a subsidy record of information to detail the
    balance in account 1551\[Direct Loan\]. Note, too, that it makes no
    difference to the accounting treatment whether the payment is for
    major or for minor repairs, as it might in commercial sector
    accounting.

[^53]: Note that the credit is to account 1551\[Direct Loan\]. See the
    preceding note. (This caveat is not repeated in subsequent
    transactions involving debits or credits to account 1551\[Direct
    Loan\].)

[^54]: See transactions 1-6a and 1-6b in Scenario 1 for an example of
    how to handle the transaction if the sale yielded more cash than
    necessary to satisfy the borrower's debt.

[^55]: The value of the entry is the net cash received. The Federal
    Budget normally would not report a collection of the gross amount
    and an unpaid, undelivered order for fees of sale, because this
    could complicate preparing the Statement of Budgetary Resources. The
    Statement of Budgetary Resources must match net obligations to net
    outlays and must compute net outlays based on transactions reported
    to Treasury. The agency normally reports the transaction to Treasury
    only as a net collection. Recording it as both a collection and a
    disbursement in the budgetary accounts is not appropriate unless the
    agency obtains permission from OMB, or is directed to do so by OMB
    or Treasury. If the amounts are material, provide a footnote
    explanation of any deviation from what was reported to Treasury for
    the Statement of Budgetary Resources.

[^56]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for a
    re-apportionment and OMB grants it. As a result, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative, and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450, as
    indicated in this guide. An agency may also choose to record the
    anticipated amount remaining in account 4060 and the excess over the
    amount anticipated, which is unapportioned, into account 4450. For
    example, debit account 4265 for \$475, credit account 4060 for \$95,
    and credit account 4450 for \$380. As a result, a closing entry for
    accounts 4060 and 4450 would not be necessary.

[^57]: Alternatively, instead of using account 1310\[from Borrowers Upon
    Sale of Foreclosed Property\], the agency could record \$45 (\$235 -
    \$100 - \$90) to account 1350\[Direct\], leaving account
    1350\[Direct Loan\] (related to the new foreclosed property, that
    was just sold) with a balance of \$145, and could make no entry to
    account 1340\[Direct Loans\] (related to the new foreclosed
    property), which would remain at \$90. In other words, instead of
    \$235 appearing in account 1310\[from Borrowers Upon Sale of
    Foreclosed Property\] in the trial balance, the debit would be split
    between account 1340\[Direct Loans, \$90, and account
    1350\[Direct\], \$145 (as it relates to the new foreclosed
    property). Regardless of the method used, agencies must report all
    receivables related to the transaction in the credit program
    footnote to the Balance Sheet. Of course, the agency may write-off
    the receivables against accounts 1349\[Direct Loan\] and
    1359\[Direct\] (or accounts 1349\[Direct Loan\] and 1359\[Direct\],
    if related to defaulted guaranteed loans).

[^58]: Ibid.

[^59]: The allowance for loss here is greater than the value of the
    receivable to which it applies. The agency would remedy this
    situation in the process of year-end adjustments for bad debts
    expense, by recomputing the amount of expected losses on the
    receivables remaining at that time. Because the adjustment is not a
    transaction involving foreclosed property, it is not illustrated in
    the guide and the allowance accounts remain as they were after the
    foreclosed property transactions. See the separate guide on
    Pre-Credit Reform accounting for an example of the adjusting entry
    for bad debts expense.

[^60]: If these loan assets were related to defaulted guaranteed loans,
    the heading would instead be "Loan Assets Related to Loan Guarantees
    Obligated Before October 1, 1991."

[^61]: Note that in accordance with OMB guidance, agencies can allot
    only the realized resources, those in the unobligated balance
    forward (as represented by the beginning balance of account 4450).
    They cannot obligate anticipated resources until the resources are
    realized. (in accordance with §145.6 of *OMB Circular A-11*, only
    realized resources may be obligated).

[^62]: Although collateral property is supposed to be free of liens when
    the Government forecloses on it, creditors may have placed liens on
    the property, such as for an unpaid contractor's lien or for unpaid
    property taxes.

    If the agency paid the lien in a separate transaction from
    acquisition of the property, it makes a budgetary to account 4901
    instead of account 4902\[Payments on Foreclosed Property\], and in
    accordance with SFFAS No. 3, *Accounting for Inventory and Related
    Property,* par. 87. In the proprietary entry, the agency replaces
    account 1010 with account 1559\[Direct Loans\]. Upon payment, the
    agency debits account 4901and credits account 4902\[Payments on
    Foreclosed Property\]; it debits account 1559\[Direct Loans\] and
    credits account 1010.

[^63]: Note that because the collateral property is taken without
    recourse, the loan and interest receivable must be removed from the
    books, since the agency must consider acceptance of the foreclosed
    property as payment in full for the loan. The agency charges the
    difference between the fair market value of the property and the
    gross value of the receivables to account 7210. If the fair market
    value of the property is greater than the gross value of the
    receivables, the agency credits account 7110. The agency also may
    remove the related allowance for loss accounts (1349\[Direct Loan\]
    and 1359\[Direct\]), if it knows the amounts related to the loan and
    interest for which the collateral property was foreclosed. If the
    agency does this, it decreases the amount of the loss or increases
    the amount of a gain commensurately. Alternatively, the allowance
    for loss accounts could be left alone until the year-end adjustment
    process to estimate bad debts expense, at which time the agency
    would adjust the amounts in accounts 1349 and 1359 to reflect the
    latest estimate relative to any loans and interest receivable still
    on the books at year-end. This guide illustrates the latter.

[^64]: Agencies must determine whether there is a net cash inflow or
    outflow related to a piece of foreclosed property after sale in a
    "with recourse" foreclosure, so they can collect cash owed from the
    borrower or refund excess cash to the borrower. Additionally,
    agencies are often asked to report to OMB or the Congress on the
    results of their foreclosed property program. Accordingly, agencies
    may consider using a subsidiary ledger for foreclosed property that
    shows the cashflows by property, since good property management
    requires a subsidiary record of information to detail the balance in
    account 1551\[Direct Loan\]. Note, too, that it makes no difference
    to the accounting treatment whether the payment is for major or for
    minor repairs, as it might in commercial sector accounting.

[^65]: Ibid. The agency credits account 1551\[Direct Loan\]. (This
    caveat is not repeated in subsequent transactions involving debits
    or credits to account 1551\[Direct Loan\].)

[^66]: See entries 1-6a and 1-6b for Scenario 1 for an example of how
    the transaction would be handled if the sale yielded more cash than
    necessary to satisfy the borrower's debt.

[^67]: The value of the entry is the net cash received. The Federal
    Budget normally would not report a collection of the gross amount
    and an unpaid, undelivered order for fees of sale, because this
    could unduly complicate preparing the Statement of Budgetary
    Resources. The Statement of Budgetary Resources must match net
    obligations to net outlays and must compute net outlays based on
    transactions reported to Treasury. The agency normally reports the
    transaction to Treasury only as a net collection, and recording it
    as both a collection and a disbursement in the budgetary accounts is
    not appropriate unless the agency obtains permission from OMB, or is
    directed to do so by OMB or Treasury. If the amounts are material,
    provide a footnote explanation of any deviation from what was
    reported to Treasury for the Statement of Budgetary Resources.

[^68]: In transaction 1-1, OMB apportioned \$115 related to anticipated
    collections. In transaction 1-4, the agency collected \$20 for rent,
    leaving a balance of \$95. The excess of collections over the
    anticipated amount is unapportioned unless the agency applies for a
    re-apportionment and OMB grants it. As a result, the agency cannot
    allot the excess. Some agencies may handle this by allowing account
    4060 to become negative, and then making an adjusting entry at
    year-end to move the amount in account 4060 to account 4450, as
    indicated in this guide. An agency may also choose to record the
    anticipated amount remaining in account 4060 and the excess over the
    amount anticipated, which is unapportioned, into account 4450. For
    example, debit account 4265 for \$475, credit account 4060 for \$95,
    and credit account 4450 for \$380. As a result, a closing entry for
    accounts 4060 and 4450 would not be necessary.

[^69]: Ibid.

[^70]: The allowance for loss is greater than the value of the
    receivable to which it applies. The agency would remedy this during
    year-end adjustments for bad debts expense, by recomputing the
    amount of expected losses on the receivables remaining at that time.
    This is not illustrated because the adjustment is not a transaction
    involving foreclosed property and the allowance accounts remain as
    they were after the foreclosed property transactions. See the
    Pre-Credit Reform accounting guide for an example of the bad debt
    expense adjusting entry.

[^71]: From rent.

[^72]: From sale of foreclosed property.

[^73]: If these loan assets were related to defaulted guaranteed loans,
    the heading would be "Loan Assets Related to Loan Guarantees
    Obligated Before October 1, 1991."

[^74]: The sum of the allowance for loss accounts--1349 and
    1359--exceeds the amount of the assets to which they apply, because
    the scenario does not illustrate year-end adjustments for bad debts.
    The net realizable value of the receivables would be a positive
    number. The adjustment for bad debts expense related to allowance
    for losses on receivables is illustrated in a separate guide on
    Pre-Credit Reform accounting.

[^75]: See SFFAS No. 3, *Accounting for Inventory and Related Property,*
    par. 86*.*

[^76]: The amount in the valuation account must be \$7, which is the
    amount of the decline from cost to market (\$100 - \$93). The
    balance before this entry (see the fiscal year A amount) was \$4;
    therefore, the agency must increase the amount in account 1559 by
    \$3.

[^77]: The amount in the valuation account must be \$2, which is the
    amount of the decline from cost to market (\$100 - \$98). The
    balance before this entry (see the fiscal year B amount) was \$7;
    therefore, the agency must reduce the amount in account 1559 by \$5.

[^78]: Although the market value increased \$4, the agency cannot report
    the foreclosed property above cost. The amount in the valuation
    account must be \$0, which allows reporting the lower of the cost
    (\$100) or market (\$102). Therefore, the agency must reduce the
    amount in account 1559 by \$2.