Test bank advanced financial accounting ch 17 governmental entities introduction and general fund accounting

Special revenue and capital projects funds.. Capital projects and special revenue funds.. Capital projects and Debt service funds.. Debt service and capital projects funds.. The followin

Governmental Entities: Introduction and General Fund AccountingMultiple Choice Questions

1 Under the modified accrual basis of accounting, revenue should be recognized when it is:

A measurable and earned

B received in cash

C available and earned

D measurable and available

2 Which of the following statements is(are) correct about the funds used by governmentalentities?

A I only

B II only

C I and II

D Neither I nor II

3 Which of the following funds should use the accrual basis of accounting?

A Enterprise and private-purpose trust funds

B Permanent funds and internal service funds

C Debt service and agency funds

D Special revenue and capital projects funds

4 Which of the following funds should use the modified accrual basis of accounting?

A Private-purpose trust and agency funds

B Capital projects and special revenue funds

C Internal service and enterprise funds

D Debt service and private-purpose trust funds

5 Which of the following funds are classified as fiduciary funds?

A Agency and Special revenue funds

B Internal service and Enterprise funds

C Private-purpose trust and Agency funds

D Capital projects and Debt service funds

6 Which of the following funds are classified as proprietary funds?

A Agency and special revenue funds

B Enterprise and internal service funds

C Debt service and capital projects funds

D Agency and pension trust funds

7 Which of the following funds are classified as governmental funds?

A Internal service and capital projects funds

B Internal service and debt service funds

C Enterprise and agency funds

D The general and special revenue funds

8 Which organization has the authority to establish generally accepted accounting principlesfor state and local government entities?

A The National Council on Governmental Accounting

B The Governmental Accounting Standards Board

C The Financial Accounting Standards Board

D The Municipal Officers Finance Organization

9 What is the correct sequence in the expenditure process in governmental accounting?

A Appropriation, Encumbrance, Expenditure, and Disbursement

B Encumbrance, Expenditure, Disbursement, and Appropriation

C Expenditure, Encumbrance, Disbursement, and Appropriation

D Appropriation, Expenditure, Encumbrance, and Disbursement

10 Which of the following observations concerning encumbrances is NOT true?

A Their purpose is to ensure that the expenditures within a period do not exceed the budgetedappropriations

B They provide a control system and safeguard for governmental unit administrators

C They are a unique element of governmental accounting

D They are recognized only at the time disbursements are made

11 The City of Ames uses the consumption method to report its inventory of supplies on itsgeneral fund balance sheet What account is debited in the general fund when Ames acquiressupplies?

A Expenditures

B Inventory of Supplies

C Supplies Expense

D Fund Balance-Reserved for Inventories

12 On July 25, 2008, the city of Pullman, which reports on a calendar-year basis, ordered fivepolice cars at an estimated cost of $200,000 On August 26, 2008, the police cars were

received, and the actual cost amounted to $197,000 Pullman encumbered the appropriationfor police cars in its general fund when the cars were ordered When the police cars werereceived, the general fund of Pullman should:

A Credit Budgetary Fund Balance Reserved for Encumbrances for $197,000

B Debit Encumbrances for $200,000

C Debit Expenditures for $197,000

D Credit Budgetary Fund Balance Reserved for Expenditures for $200,000

13 What amount should be reported as expenditures for the current fiscal year when

accounting for inventories of supplies under the purchase method and under the consumptionmethod?

on the calendar year On December 31, 2008, the general fund of Pasco should credit:

A Expenditures for $170,000

B Fund Balance-Unreserved for $170,000

C Fund Balance-Reserved for Inventories for $30,000

C Special revenue funds

D The general fund

16 The following information was obtained from the general fund balance sheet of LimaVillage on June 30, 2009, the close of its fiscal year:

On June 30, 2009, what was Lima's unreserved fund balance in its general fund?

A $84,000

B $44,000

C $34,000

D $24,000

17 The general fund of Park City acquired computer equipment at a cost of $50,000 on May

18, 2009 To record acquisition of this equipment, the general fund of Park City should debit:

19 Works of art and historical treasures purchased by the general fund should be reported as:

A I only

B II only

C Both I and II

D Neither I nor II

20 Identify the legal term that allows the general fund to make expenditures

A Exceptions

B Appropriations

C Encumbrances

D Consumption

21 Under the modified accrual basis of accounting for the general fund, expenditures should

be recognized in the period in which the related liability is:

23 The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30,

2009 The purchase order for the fire truck was recorded on February 15, 2009 Hatteras'acquisition of the fire truck required which of the following sequences of accounting

A Expenditures should be credited for $3,000

B Expenditures should be debited for $3,000

C Fund Balance-Reserved for Inventories should be debited for $7,000

D Fund Balance-Reserved for Inventories should be credited for $7,000

Gotham City acquires $25,000 of inventory on November 1, 2007, having held no inventorypreviously On December 31, 2007, the end of Gotham City's fiscal year, a physical countshows $8,000 still in stock During 2008, $6,500 of this inventory is used, resulting in a

$1,500 remaining balance of supplies on December 31, 2008

25 Based on the preceding information, which of the following would be the correct accountbalances for 2007 if Gotham City used the purchase method of accounting for inventories?

28 Based on the preceding information, which of the following would be the correct accountbalances for 2008 if Gotham City used the consumption method of accounting for

31 In a town's general fund operating budget for the year, the amount of its estimated

revenues exceeded the amount of its appropriations This excess should be:

A credited to Budgetary Fund Balance-Unreserved

B debited to Budgetary Fund Balance-Unreserved

C credited to Fund Balance-Unreserved

D debited to Fund Balance-Unreserved

32 The general fund of the Town of Dean levied property taxes of $3,000,000 for the fiscalyear beginning on January 1, 2008 It was estimated that 1% of the levy would be

uncollectible During the period January 1, 2008, through December 31, 2008, $2,960,000 ofthe property tax levy was collected At December 31, 2008, Dean estimated that $10,000 ofproperty taxes levied in 2008 would be collected during the first 60 days of 2009 Whatamount of property tax revenue should be reported by the general fund for the year endedDecember 31, 2008?

of 2009 On July 1, 2008, the general fund should record the receipt by debiting Cash for

$10,000 and by crediting

A Revenue-Property Tax for $10,000

B Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200

C Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200

D Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200

34 The general fund of Caldwell had the following operating budget for the fiscal year

credited, respectively, in the general fund on August 15, 2008, to record this transaction?

A Expenditures and Transfer Out to ISF

B Expenditures and Due to ISF

C Encumbrances and Due to ISF

D Encumbrances and Transfer Out to ISF

36 The general fund of Battle Creek budgeted a transfer to its capital projects fund for

$110,000 to be used in operations during the year ended June 20, 2009 On September 15,

2008, the general fund transferred $110,000 to the capital projects fund What account should

be debited in the general fund on September 15 to record this transfer?

A Appropriations

B Expenditures

C Budgetary Fund Balance—Reserved For Encumbrances

D Other Financing Uses—Transfer Out to Capital Projects Fund

37 The general fund of Sun City was billed $7,000 for using the services of one of its internalservice funds The general fund should account for this transaction as a(n)

38 The general fund of Athens ordered computer equipment on December 1, 2008, for

$32,000 The order was appropriately encumbered on this date Athens received the computerequipment on January 25, 2009, and issued a voucher to pay the vendor $32,400 Athens usesthe calendar year for reporting, and all outstanding encumbrances lapse at year-end Athens'governing board honors all outstanding encumbrances by including them in the followingyear's appropriations On January 25, 2009, the general fund of Athens should debit:

A Encumbrances for $32,000

B Fund Balance-Reserved for Encumbrances for $32,400

C Expenditures-2008 for $32,400

D Expenditures for $32,400

39 The general fund of Loveland ordered a new fire truck on November 12, 2008, for

$150,000 The order was appropriately encumbered on this date Loveland received the firetruck on January 15, 2009, and issued a voucher to the manufacturer for $148,600 Lovelanduses the calendar year for reporting, and outstanding encumbrances at December 31, 2008, arelapsing On January 15, 2009, the general fund of Loveland should debit:

A Fund Balance-Reserved for Encumbrances for $148,600

41 The general fund of Wold Township ordered office furniture for the mayor's office onAugust 1, 2008 The office furniture was estimated to cost $12,000 The office furniture wasreceived on September 1, 2008, with the actual cost being $11,800 Which of the followingaccounts decreased on September 1, 2008?

A Encumbrances only

B Expenditures only

C Encumbrances and Budgetary Fund Balance-Reserved for Encumbrances

D Expenditures and Budgetary Fund Balance-Reserved for Encumbrances

42 At the end of the fiscal year, uncollected property taxes in the general fund should be:

A reclassified from current to delinquent

B written off as uncollectible

C charged against unreserved fund balance

D reclassified from current to noncurrent

43 The Town of Baker reported the following items on the June 30, 2009, balance sheet of itsgeneral fund:

At June 30, 2009, what amount should be reported for Fund Balance-Unreserved?

C A statement of revenues, expenses, and changes in retained earnings

D A statement of revenues, expenditures, and changes in fund balance

45 Which accounts described below would have non-zero balances after the accounts areclosed in the general fund of a state or local government?

A Assets are overstated

B Liabilities are understated

C Total fund balance is overstated

D Unreserved fund balance is overstated

47 In a statement of revenues, expenditures, and changes in fund balance, the unreservedfund balance will be increased by:

I a decrease in the fund balance reserved for inventories

II an excess of other financing sources over other financing uses

A Appropriations Control and Budgetary Fund Balance—Unreserved

B Estimated Revenues Control and Estimated Residual Equity Transfer Out

C Budgetary Fund Balance—Reserved For Encumbrances and Expenditures

D Estimated Residual Equity Transfer Out and Estimated Transfer In

49 Revenues from parking meters and parking fines should be reported in the general fundwhen:

A received

B measurable and available

C measurable and earned

D available

50 The general fund of Gillette levied property taxes of $400,000 on November 1, 2008.However, the property taxes are not collectible until May and August of 2009 Assume

Gillette reports on the calendar year On Gillette's general fund balance sheet at December 31,

2008, the property taxes levied on November 1 should:

A be reported as an asset and as a decrease in unreserved fund balance

B be reported as an asset and as an increase in unreserved fund balance

C be reported as an asset and as a reservation of fund balance

D be reported as an asset and as a deferred revenue

51 Which of the following items should not be included as revenue for a state government?

A Property taxes levied in the current fiscal year

B Private property for which a state takes custody when the legal owner cannot be found

C Amounts received from other financing sources

D Fines and licensing fees for which amounts cannot be budgeted

52 GASB 31 "Accounting for Financial Reporting for Certain Investments and for ExternalReporting Investment Pools," establishes a general rule that government entities value

investments in option contracts, open-ended mutual funds, and debt securities for balancesheet presentation at:

A lower of cost or market

B fair value

C cost

D amortized cost

53 All of the following funds have a financial resources measurement focus with the

exception of which fund?

A debt service fund

B special revenue fund

C capital projects fund

D private-purpose trust fund

54 When an internal service fund (ISF) enters into a capital lease the transaction is recorded

in the:

I fixed assets of the ISF

II long-term debt of the ISF

A I only

B II only

C Both I and II

D Neither I nor II

55 Which of the following items is not recognized as revenue by a governmental unit?

A sales tax proceeds

B property tax levies

C bond proceeds

D grants received from other governmental units

56 GASB 34 established four types of interfund activities Interfund activities are recognized

as revenue in a governmental fund for an:

A Option A

B Option B

C Option C

D Option D

57 The general ledger of Broadway contains the following selected account balances:

Broadway wants to order additional goods and services before the fiscal year end What is theunencumbered balance of the budget that may be expended by Broadway?

A Appropriations minus Expenditures

B Appropriations minus (Encumbrances + Expenditures)

C Appropriations minus (Encumbrances - Expenditures)

D Appropriations minus Encumbrances

59 Which of the following observations concerning interfund transfers is true?

A They are expected to be repaid

B They are classified as fund revenues or expenditures

C The receiving fund recognizes these transfers as revenue

D These transfers are classified under "Other Financing Sources or Uses."

60 According to the latest GASB exposure draft, which of the following is the only

governmental fund type that may report an unassigned fund balance?

A General fund

B Special revenue fund

C Capital projects fund

D Permanent fund

61 Which governmental fund includes resources that are legally restricted so that the

governmental entity must maintain the principal and can use only the earnings from the fund'sresources to benefit the government's programs for all of its citizens?

A General fund

B Special revenue fund

C Capital projects fund

D Permanent fund

Essay Questions

62 Briefly discuss the various types of governmental funds and proprietary funds

63 Discuss major differences between a governmental entity's uses of the modified accrualmethod and a for-profit corporation's use of the accrual method

64 The town of Stow was incorporated and began governmental operations on July 1, 2008.Stow's transactions and events for the fiscal year ended June 30, 2009, are listed below Stowuses the consumption method of accounting for purchases of supplies Encumbrances do notlapse at year end.

d Collections for fines and licenses totaled $99,000 for the year

e Property taxes collected amounted to $680,000; the balance was reclassified as delinquent,and the allowance for uncollectible taxes was reduced to $15,000

f The equipment ordered was received, and a voucher was issued for the final invoice cost of

$91,000

g All but $12,000 of the other goods and services ordered was received Vouchers wereissued for the invoice cost of $622,000

h All but $10,000 of the vouchers issued during the year was paid

i A transfer in the amount of $40,000 was made to establish an internal service fund for thetown The general fund received services of $7,000 from the internal service fund during theyear, with $2,000 remaining unpaid at year end

j Expenditures recorded for the year included the purchase of supplies The estimated balance

of supplies on hand at year end was $2,000

k A reserve was established at year end for the outstanding encumbrances, all of which will

be honored in the next fiscal year

l Closing entries were made

65 Accounting processes differ between a for-profit entity and a governmental entity Discussthree differences between a governmental entity and a for-profit entity.

66 The adjusted trial balance for White River for the fiscal year ended June 30, 2009, ispresented below.

Required:

a Prepare a statement of revenues, expenditures, and changed in fund balance for White Riverfor the year ended June 30, 2009 Assume there were no supplies or outstanding

encumbrances at the beginning of the year

b Prepare a balance sheet for White River at June 30, 2009

Chapter 17 Governmental Entities: Introduction and General Fund Accounting

Answer Key

Multiple Choice Questions

1 Under the modified accrual basis of accounting, revenue should be recognized when it is:

A.measurable and earned

B.received in cash

C.available and earned

D measurable and available.

AACSB: Reflective Thinking

AICPA: Decision Making

2 Which of the following statements is(are) correct about the funds used by governmentalentities?

A.I only

B.II only

C I and II

D.Neither I nor II

AACSB: Reflective Thinking

AICPA: Decision Making

3 Which of the following funds should use the accrual basis of accounting?

A Enterprise and private-purpose trust funds.

B.Permanent funds and internal service funds

C.Debt service and agency funds

D.Special revenue and capital projects funds

AACSB: Reflective Thinking

AICPA: Decision Making

4 Which of the following funds should use the modified accrual basis of accounting?

A.Private-purpose trust and agency funds

B Capital projects and special revenue funds.

C.Internal service and enterprise funds

D.Debt service and private-purpose trust funds

AACSB: Reflective Thinking

AICPA: Decision Making

5 Which of the following funds are classified as fiduciary funds?

A.Agency and Special revenue funds

B.Internal service and Enterprise funds

C Private-purpose trust and Agency funds.

D.Capital projects and Debt service funds

AACSB: Reflective Thinking

AICPA: Decision Making

6 Which of the following funds are classified as proprietary funds?

A.Agency and special revenue funds

B Enterprise and internal service funds.

C.Debt service and capital projects funds

D.Agency and pension trust funds

AACSB: Reflective Thinking

AICPA: Decision Making

7 Which of the following funds are classified as governmental funds?

A.Internal service and capital projects funds

B.Internal service and debt service funds

C.Enterprise and agency funds

D The general and special revenue funds.

AACSB: Reflective Thinking

AICPA: Decision Making

8 Which organization has the authority to establish generally accepted accounting principlesfor state and local government entities?

A.The National Council on Governmental Accounting

B The Governmental Accounting Standards Board

C.The Financial Accounting Standards Board

D.The Municipal Officers Finance Organization

AACSB: Reflective Thinking

AICPA: Decision Making

9 What is the correct sequence in the expenditure process in governmental accounting?

A Appropriation, Encumbrance, Expenditure, and Disbursement.

B.Encumbrance, Expenditure, Disbursement, and Appropriation

C.Expenditure, Encumbrance, Disbursement, and Appropriation

D.Appropriation, Expenditure, Encumbrance, and Disbursement

AACSB: Reflective Thinking

AICPA: Decision Making

10 Which of the following observations concerning encumbrances is NOT true?

A.Their purpose is to ensure that the expenditures within a period do not exceed the budgetedappropriations

B.They provide a control system and safeguard for governmental unit administrators

C.They are a unique element of governmental accounting

D They are recognized only at the time disbursements are made.

AACSB: Reflective Thinking

AICPA: Decision Making

11 The City of Ames uses the consumption method to report its inventory of supplies on itsgeneral fund balance sheet What account is debited in the general fund when Ames acquiressupplies?

A Expenditures

B.Inventory of Supplies

C.Supplies Expense

D.Fund Balance-Reserved for Inventories

AACSB: Reflective Thinking

AICPA: Decision Making

12 On July 25, 2008, the city of Pullman, which reports on a calendar-year basis, ordered fivepolice cars at an estimated cost of $200,000 On August 26, 2008, the police cars were

received, and the actual cost amounted to $197,000 Pullman encumbered the appropriationfor police cars in its general fund when the cars were ordered When the police cars werereceived, the general fund of Pullman should:

A.Credit Budgetary Fund Balance Reserved for Encumbrances for $197,000

B.Debit Encumbrances for $200,000

C Debit Expenditures for $197,000.

D.Credit Budgetary Fund Balance Reserved for Expenditures for $200,000

AACSB: Analytic

AICPA: Decision Making