Test bank of Accounting for governmental and nonprofit entities, 14e chapter 7 to chapter 10

Proprietary funds are accounted for in a manner similar to investor-owned businesses: among otherfeatures, the full accrual basis is used and all of the capital assets used in fund opera

Student: _

1 Internal service funds of one government may not provide goods or services, on a cost-reimbursement

basis, to other governments

4 Internal service funds should not account for depreciation of capital assets used in their operations, since

this would, in effect, charge the government twice for the same assets

True False

5 Internal service funds account for any long-term liabilities to be serviced from revenue derived fromfund operations

True False

6 The fund equity of an internal service fund consists of contributed equity and reserves for assets that will

not be converted into cash in the normal operation of the fund.

True False

Cash: 350,000

Inventory of Supplies: 38,700

Interfund Loan from Electric Utility Fund: 320,000

Interfund Transfer In from General Fund: 89,200

7 In the entry above the account "Interfund Loan from Electric Utility Fund" is credited for $320,000because this amount was loaned by the electric utility fund to the supplies fund and will have to berepaid by the supplies fund

True False

8 In the information above the account "Interfund Transfer In from General Fund" is credited for $89,200because this is the amount of assets that was transferred from the General Fund to the supplies fund as acontribution

True False

9 Internal service funds are intended to operate on taxes or other financing sources authorized by thelegally enacted revenue budget for each year; therefore, they are classified as governmental funds.True False

10 Proprietary funds are accounted for in a manner similar to investor-owned businesses: among otherfeatures, the full accrual basis is used and all of the capital assets used in fund operations are accountedfor by the using fund.

True False

21 The liability for utility revenue bonds should be reported in business-type activities on the

government-wide statements, but not in the enterprise fund

True False

22 General obligation bonds used to increase the capacity of a water treatment plant (part of a water utilityenterprise fund), but for which the debt service (including repayment of principal) will be paid fromgeneral government revenues should be reported as a long-term liability in the water utility fund balancesheet

True False

27 The balance sheet format recommended by the NARUC and FERC for utilities subject to regulatoryreporting requirements shows Utility Plant before Current and Accrued Assets and Long-Term Debtbefore Current and Accrued Liabilities

True False

28 To facilitate the combination of utility financial statements with the statements of other enterprise funds,GAAP permits utilities to follow the customary format used by nonutility business organizations

True False

29 The liability for tax-supported long-term debt issued to provide financing for an enterprise fund and to

be serviced from revenues of the enterprise fund should be reported in the financial statements of theenterprise fund

True False

30 Premium or discount on bonds payable issued by enterprise funds should not be accounted for in the

same manner as premium or discount on tax supported bonds payable reported at the government-widelevel

True False

31 Plant and equipment utilized by a governmentally owned utility should be depreciated in the samemanner as if it belonged to an investor-owned utility

32 Which of the following may properly be reported as a component of equity in the proprietary fundstatement of net assets?

A Retained earnings

B Designated equity

C Restricted net assets

D Contributed capital

33 Internal service funds should be used only if

A The reporting government is the predominant participant in the activity

B The reporting government provides services primarily to external participants

D Capital projects fund

36 Which of the following is a difference between enterprise funds and internal service funds?

A The use of cost accounting by enterprise funds but not internal service funds

B The identity of those who benefit from the fund's service

C The number of basic financial statements required

D The measurement focus on economic resources for enterprise funds and current financial resourcesfor internal service funds

37 Depreciation on capital assets used by an enterprise fund of a government

A Should not be recorded for infrastructure assets

B Should be recorded in the General Fund as an expenditure

C Should be recorded in the enterprise fund by a debit to an expense account

D Should be recorded in the governmental activities accounts

38 Which of the following is not true regarding proprietary funds?

A The difference between assets and liabilities of proprietary funds is called "fund balance."

B Proprietary funds record long-term debt directly in the fund accounts

C Proprietary funds record capital assets directly in the fund accounts

D Proprietary funds report a statement of cash flows

39 The comprehensive annual financial report (CAFR) of a government should contain a statement ofrevenues, expenses, and changes in net assets for

A Both proprietary and governmental funds

B Proprietary but not governmental funds

C Governmental but not proprietary funds

D Neither governmental nor proprietary funds

40 Which of the following activities or services would most likely not be accounted for by an internal

service fund?

A Electronic data processing

B Central purchasing, warehousing, and issuing of supplies

C Municipal golf course

D Risk management

41 Which of the following is (are) an appropriate basis of accounting for an internal service fund?

A Modified accrual basis: No; Full accrual basis: Yes

B Modified accrual basis: No; Full accrual basis: No

C Modified accrual basis: Yes; Full accrual basis: No

D Modified accrual basis: Yes; Full accrual basis: Yes

42 Which of the following funds of a government would account for depreciation in the accounts of thefund?

D None of the above

44 In order to conform to GASB standards, goods and services provided by internal service funds to otherdepartments of the government must be priced to

A Cover variable costs only

B Cover full costs (both fixed and variable)

C Cover full costs, plus an additional charge to cover inflation and anticipated needs for expansion

D None of the above Each government determines its own operating and pricing policies, which mayinclude subsidizing the cost of operating an internal service fund

45 An internal service fund should prepare, in conformity with GAAP, all of the following financial

statements except for a

A Statement of revenues, expenditures, and changes in fund balance

B Statement of revenues, expenses, and changes in net assets

C Statement of net assets

D Statement of cash flows

46 What amount should be accounted for in an internal service fund?

48 To establish a new internal service fund with a transfer of funds (not to be repaid), which account would

be credited in the internal service fund?

A Cash

B Interfund Transfer In

C Interfund Transfer Out

D Estimated Revenues

49 GASB accounting and financial reporting standards for risk financing activities provide that an internalservice fund should recognize claims expense and a related liability when a claim has been asserted and

A It is reasonably possible that a loss has been incurred and the amount can be reasonably estimated

B It is probable that a loss has been incurred and the amount can be reasonably estimated

C A loss has been incurred, but the amount cannot be reasonably estimated

D A municipal court has awarded a judgment to a claimant fund (e.g., the General Fund)

50 Which of the following account balances would only be reported if a city-owned utility followed

regulatory accounting principles?

51 Customers' meter deposits, which cannot be spent for normal operating purposes, would be classified asrestricted cash in the balance sheet of which fund type?

A Conversion of the fund's noncash assets to cash and distribution of the cash to another fund or funds

B Transfer the fund's assets to another fund that will continue the same or similar operating activities

C Distribute the fund's assets in kind to another fund or funds that will not continue the same or similaroperating activities

D Any of the above, in any combination, would be feasible

53 Which of the following organizations or units would least likely be accounted for by an enterprisefund?

A Fund Balance: Yes: Net Assets: Yes

B Fund Balance: Yes; Net Assets: No

C Fund Balance: No; Net Assets: No

D Fund Balance: No; Net Assets: Yes

55 The water utility fund of the City of Houghton uses cycle billing procedures Under these procedures,the City of Houghton will likely do which of the following on December 31, the end of its fiscal year

A Read meters and bill all customers on December 31

B Accrue revenue and a receivable for the number of days from the last billing date for each customeruntil December 31

C Ignore water power consumed by customers from their last billing date until December 31

D Any of the above are acceptable under GAAP

56 Which of the following is a true statement about the Allowance for Funds Used During Construction(AFUDC)?

A AFUDC may have either a debt component or an equity component

B The amount credited to AFUDC may exceed the amount of interest paid during the period on bondsissued for construction

C AFUDC may be credited for an imputed amount of interest on the utility's own funds used for

construction

D All of the above are true statements

57 Which of the following items is not required to be included in the segment information that must be

reported for a municipality's enterprise funds?

A Material enterprise fund capital assets

B Material enterprise fund operating income or loss

C Material enterprise fund tax revenues

58 A municipal solid waste landfill (MSWLF) accounted for by an enterprise fund should recognize anexpense and liability for the year in the amount of

A The estimated total current costs for closure and postclosure of the MSWLF determined at the timethe landfill is placed into initial operation divided by the estimated number of years the landfill will

be operated

B The estimated total current costs for closure and postclosure of the MSWLF as reevaluated at the end

of each fiscal year divided by the remaining estimated number of years the landfill will be operated

C A portion of the estimated total current costs for closure and postclosure of the MSWLF, determined

at the time the landfill is placed into initial operation, equal to the ratio of landfill used during theyear to its total capacity

D A portion of the estimated total current costs for closure and postclosure of the MSWLF, as

reevaluated at the end of the fiscal year, equal to the ratio of landfill used to its total capacity

59 Under utility regulatory accounting principles (RAP), the account "Utility Plant Acquisition Adjustment"reflects

A The difference between the amount paid for utility plant and the amount originally paid by the utilitythat first placed the plant into public service, less accumulated depreciation

B The difference between the fair market value of the utility plant and the amount paid for it, lessaccumulated depreciation

C The difference between the amount paid for the utility plant less its current replacement cost

D The difference between the amount paid for the utility plant less the fair market value of its tangibleplant assets

60 The following cash transactions were among those reported by Crawford County's Water and SewerEnterprise Fund for the year:

Proceeds from sale of revenue bonds for construction: $5,000,000

Cash received from customers: $3,000,000

Capital contributed by developers: $1,000,000

In the Water and Sewer Enterprise Fund's statement of cash flows for the year ended December 31, whatamount should be reported as cash flows from capital and related financing activities?

A $9,000,000

B $8,000,000

C $6,000,000

D $5,000,000

61 Sales revenues of a utility for a certain fiscal period

A Are equivalent to total debits to Customer Accounts Receivable for that period

B Include receivables billed during a fiscal period, plus receivables billed early in the next year ifmeters were read before year-end

C Should be reported on the cash basis for the sake of conservatism

D Include billed receivables and an accrual for unbilled receivables as of the balance sheet date

62 The liability for general obligation bonds issued for the benefit of a governmentally owned electricutility and serviced by its earnings should be recorded in

A An enterprise fund

B An enterprise fund and disclosed in the notes to the financial statements

C An enterprise fund and the business-like activities accounts

D The governmental activities accounts

63 For which of the following assets can the "modified approach" be elected in lieu of depreciation?

A Eligible infrastructure assets

B All general capital assets

C Buildings and equipment

D All capital assets

64 The Central Purchasing Fund of Gotham City, an internal service fund, purchased new furniture for use

in the warehouse manager's office The debit for the entry to record the event should be to

A Expenditures

B Purchases

C Furniture and fixtures

D General capital assets

65 Which of the following accounts would least likely be found in the general ledger of an internal service

fund?

A Cash

B Expenditures

C Billings to Departments

D Machinery and equipment

66 Which of the following would be reflected in the operating statement of a proprietary fund?

A Issuance of debt

B Repayment of the principal of debt

C Purchase of a capital asset

D Incurrence of interest expense

67 How should internal service funds be incorporated into the government-wide financial statements?

A As part of governmental activities

B As part of business-type activities

C A or B, but normally A

D A or B, but normally B

68 The operating statement of a proprietary fund should answer which of the following questions?

A What are the transactions or events of the period that have increased or decreased the resourcesavailable for spending in the near future?

B Have current financial resources increased or decreased during the period?

C Have cash balances increased or decreased as a result of transactions and events of the period?

D What are the transactions or events of the period that have increased or decreased the fund's totaleconomic resources?

69 Most citizens and financial statement users do not have a clear understanding of the financial reportingentity whose financial position, results of operations, and cash flows are included in an annual financialreport

True False

70 State and local governments should prepare only those financial reports required by law generallyyear-end financial statements

True False

71 Comprehensive annual financial reports of state and local governments should include (1) an

introductory section, (2) a financial section, and (3) a supplemental section

76 Under GASBS 34, the financial statements that report on business-type activities at the government-wide

level include the statement of net assets, statement of activities, and statement of cash flows

81 In preparation of government-wide statements, converting information recorded using the modifiedaccrual basis of accounting to the accrual basis, where appropriate, is conceptually desirable

True False

82 GASB reporting objectives emphasize the role of accountability in external financial reporting, anddescribe accountability as the "paramount objective from which all other objectives must flow."

True False

83 One of the required reconciliations in converting governmental fund financial statements to

governmental activities statements at the government-wide level is to adjust for internal service funds'assets, liabilities, operating income (loss), and transfers

True False

84 What is the objective of financial reporting by state and local governments?

A The same as the objectives of financial reporting by business enterprises

B To report on the legal requirements imposed on the government by its elected officials

C To assist governments to discharge their duty to be publicly accountable in a democratic society

D To fulfill the government's statutory duty to report on cash received and cash disbursed

85 A component unit is dependent on the primary government when the

A Primary government is entitled to its resources

B Primary government is obligated to provide financial support

C Primary government is obligated for its debt

D All of the above

86 Which of the following circumstances would indicate that a potential component unit (PCU) should beincluded as part of the governmental financial reporting entity?

A The primary government does not approve the operating budget of the potential component unit

B Officials of the primary government appoint a majority of the members of the governing board of thePCU

C The PCU has sufficient operational and financial dependence that the primary government canimpose its will on the PCU

D Both B and C occurring together indicate that the PCU should be included in the reporting entity

87 Which of the following best describes the current state of financial reporting for state and local

governments?

A Required comprehensive annual financial reports for all public entities

B Focus on individual funds

C Cash basis accounting

D Integration of government-wide financial reporting and fund accounting

88 Combining financial statements for nonmajor funds of a government should be included in

A The basic financial statements

B The notes to the financial statements

C A comprehensive annual financial report (CAFR)

D Any of the above is acceptable under generally accepted accounting principles (GAAP)

89 Which of the following would not be included within the financial section of the comprehensive annual

financial report (CAFR)?

A Management's discussion and analysis (MD&A)

B Management's letter of transmittal

C Independent auditor's report

D Required supplementary information (RSI)

90 What is the paramount objective of general purpose external financial reporting?

A Reliability

B Relevance

C Accountability

91 The responsibility of governments to justify that their actions in the current period have complied withpublic decisions concerning the raising and spending of public monies in the short-term is know as:

D All of the above

93 Which of the following would increase the balance in net assets invested in capital assets, net of relateddebt?

A Acquisition of a building to be used by the police department

B Issuance of long-term debt to be used to acquire equipment for the police department

C A gift of land to the city restricted by the donor to be used as a park

D None of the above

94 Which of the following is evidence of fiscal independence for the purpose of considering whether oneentity is a component unit of another?

A The potential component unit is precluded from issuing long-term debt

B The potential component unit raises taxes without the approval of the primary government

C The budget of the potential component unit is approved by the primary government

D The board or council of the potential component unit includes any members of the primary

government's management team

95 What adjustments are needed before data from the governmental fund financial statements can beincorporated into the government-wide financial statements?

A Conversion from the current financial resources measurement focus to the economic resourcesmeasurement focus

B Conversion from the modified accrual basis of accounting to the accrual basis of accounting

C Aggregation

D All of the above

96 What constitutes the basic financial statements of a government?

A Financial section of the comprehensive annual financial report (CAFR)

B Government-wide financial statements plus notes

C Government-wide financial statements plus fund financial statements plus notes

D Government-wide financial statements plus fund financial statements plus notes plus required

supplementary information (RSI)

97 What is the minimum level of detail required for expenditures presented in the governmental fundstatement of revenues, expenditures, and changes in fund balance?

A Program and object

B Function and character

C Program and department

D Character and object

98 Which of the following is one of the basic sections of a comprehensive annual financial report?

A Financial section

B Single audit section

C Supplementary section

D Investment section

99 Government-wide financial statements present the government's financial position using

A Total financial resources measurement focus/accrual basis of accounting

B Economic resources measurement focus/accrual basis of accounting

C Current financial resources measurement focus/modified accrual basis of accounting

D Current financial resources measurement focus/cash basis of accounting

100.Required government-wide statements are a

A Statement of net assets and statement of cash flows

B Statement of net assets, statement of activities, and statement of cash flows

C Statement of net assets and statement of activities

D Statement of activities and statement of cash flows

101.Infrastructure assets and long-term liabilities will be reported in the

A Letter of transmittal

B Fund financial statements

C Management's discussion and analysis

D Government-wide financial statements

102.Nonmajor funds are reported

A In the management's discussion and analysis preceding the financial statements

B In a single column in the fund financial statements

C In a note disclosure following the financial statements

D In the government-wide financial statements

103.The comprehensive annual financial report (CAFR) of a government should contain a statement ofrevenues, expenses, and changes in net assets for

A Both proprietary and governmental funds

B Governmental but not proprietary funds

C Proprietary but not governmental funds

D Neither governmental nor proprietary funds

104.Culver City's school district is a legally separate entity, but two of its seven board members are also citycouncil members and the district is financially dependent upon the city The school district should bereported as a

A Blended unit

B Note disclosure

C Discrete presentation

D Primary government

105.Balsam City's library board is appointed by the city council which has agreed to subsidize the operatingcosts of the library at a material amount to be determined each year In addition, the city is paying debtservice on general obligation bonds issued to construct the library Based on generally accepted

accounting principles (GAAP) criteria for defining the reporting entity:

A The library is a component unit

B The city is the primary government

C Financial data for the library's General Fund should be blended with the financial data for the city'sspecial revenue funds

D Both A and B are correct

106.Which of the following items typically differ between governmental fund statements and governmentalactivities at the government-wide level?

A Cash collected on property taxes receivable

B Capital outlays

C Accounts payable and other accrued expenses

D Inventories

107.Which of the following is not one of the typical placement methods for communicating information to

external users of government financial reports?

A Recognition in the financial statements

B Disclosure in the notes to the financial statements

C Presentation as required supplementary information

D All of the above are used by governments

108.A report to citizens prepared by some governments to provide highly condensed financial information,budget summaries, and narrative descriptions is called a (an)

A Comprehensive annual financial report

B Basic financial statement

114.Financial condition refers to liquidity while financial position is a much broader concept that includesnot only financial position but consideration of long-term solvency.

119.Budget solvency is the government's ability to provide services at the level and quality that are requiredfor the health, safety, and welfare of the community and that its citizens desire

True False

120.Cash solvency is the government's ability in the long-run to pay all the costs of doing business such asexpenditures in the annual budget and those that appear only in the years in which they must be paid.True False

121.Political culture, one of the environmental factors affecting financial condition, includes such factors asform of government and the entity's economic, political, and social history

True False

122.Fiscal capacity is the government's ongoing ability and willingness to supply the capital and humanresources needed to meet its commitments to provide services

True False

123.The management discussion and analysis (MD&A) is designed to provide substantial information in

"plain English" so financial statement users can assess the financial health of the government

True False

124.Evaluating a government's financial condition is important in order to

A Prevent financial crises from developing

B Hold management accountable for the use of tax revenues

C Determine if the government can continue to offer the current level of services

D All of the above

125.The term that is defined as determining whether current-year revenues are sufficient to pay for theservices provided that year and whether future taxpayers will be required to assume burdens for servicespreviously provided is

A Financial position

B Financial condition

C Interperiod equity

D None of these terms

126.The term that is closely related to the concept of liquidity is

A Financial condition

B Financial position

C Interperiod equity

D None of these terms

127.Which of the following financial concepts has been defined by the GASB as "the probability that agovernment will meet both its financial obligations to creditors, consumers, employees, taxpayers,suppliers, constituents, and others as they become due and its service obligation to constituents, bothcurrently and in the future?"

A Liquidity

B Financial position

C Financial leverage

D Financial condition

128.Which of the following trends is most likely to be a signal of impending fiscal stress?

A A decreasing ratio of total revenues to total expenditures

B An increasing ratio of own source revenues to total revenues

C A decreasing ratio of debt service expenditures to operating revenues

D A decreasing ratio of operating expenditures to total revenues

129.Which of the following ratios would be most helpful in assessing the liquidity of a governmental

entity?

A Net tax-supported long-term debt/population

B Own source revenues/total revenues

C Debt service expenditures/total expenditures

D Unreserved fund balance/operating revenues

130.Benchmarking is a useful tool for

A Interpreting ratios in order to make informed judgments about financial condition

B Comparing ratios to established red-flag levels

C Time-series trend analysis

D All of the above

131.After financial ratios are calculated, the results should be compared to

A The same indicator from prior years

B Any credit market or other red flag indicators

C A comparative benchmark value, such as those from Moody's Medians

D All of the above would make useful comparisons

132.Which of the following ratios would be considered favorable if it was high, rather than low?

A Total revenues to population

B Debt service to total revenues

C Operating expenditures to total expenditures

D Total General Fund liabilities to General Fund revenues

133.A recognizable signal of fiscal stress is

A Total revenues from own sources increasing as a percent of total revenues for all sources

B Increasing population

C Declining property values

D An increasing ratio of total revenues to total expenditures

134.A measure of the extent to which the government's business-type activities depend on subsidies fromtaxpayer or other general revenues rather than having the full cost of the activities' operations funded bycharges to the users of the service is

A Unrestricted net assets/total revenues

B Business-type activities revenues/business-type activities expenses

C Total net assets (governmental activities and business-type activities) less total net assets at thebeginning of the year

D Total revenues/total expenses

135.A measure of whether the government lived within its means in the measurement year, or was required

to use prior year resources to fund a portion of current year costs, or shifted the funding of some currentyear costs to future periods is

A Business-type activities revenues/business-type activities expenses

B Unrestricted net assets/total revenues

C Total revenues/total expenses

D Total net assets (governmental activities and business-type activities) less total net assets at thebeginning of the year

136.A measure of the adequacy of the amount of the government's total unrestricted net assets or deficit atthe measurement date is

A Unrestricted net assets/total revenues

B Business-type activities revenues/business-type activities expenses

C Total net assets (governmental activities and business-type activities) less total net assets at thebeginning of the year

D Total revenues/total expenses

137.One of the most important reasons to evaluate the financial performance of a government is to

A Determine if property taxes and other revenue sources should be increased

B Assign responsibility for success or failure of the government to certain parties

C Determine whether the government is accomplishing its mission

D Have an early warning of impending financial difficulty for a diverse set of decision makers

138.A term that describes a government's ongoing ability and willingness to raise revenues, incur debt, andmeet its financial obligations as they become due is

A Financial condition

B Fiscal capacity

C Economic condition

D Financial position

139.Disaster risk, such as potential for natural disasters, is an example in the ICMA's Financial Trend

Monitoring Systems of:

A Environmental factors

B Organizational factors

C Financial factors

D Management practices and legislative policies

140.Which of the following statements about credit analysts' models is true?

A Credit analysts focus on debt and finances, and not demographics and management strategies

B Credit analysts have access to the same set of information that internal managers use

C Credit analysts are concerned with assessing a government's ability to pay interest and principal ondebt when due

D None of the above statements are true

141.For which of the following is a high or increasing value of the item associated with a stronger financialcondition of a governmental entity?

A Unfunded pension liability

B Debt service load

C Financing margin bonded debt per capita

D Financing margin legal debt limit

144.If a state or local government is a party to an agency relationship, it must automatically create an agencyfund in order to be in conformity with generally accepted accounting principles

147.Tax agency funds assume liability for gross levies, not for the amounts the levying funds or units expect

to collect

True False

148.It is common for an agency fund to have relatively small fund balances.

159.Fiduciary funds, including agency funds, investment trust funds, private-purpose trust funds, and

pension trust funds, report transactions between the fund and both internal and external parties

True False

160.Which of the following is the most reliable means of distinguishing a trust relationship from an agencyrelationship for purposes of deciding which type of fiduciary fund should be used?

A Examine the amount of money involved; agency relationships generally involve smaller amounts

B Examine the aggregate of factors, such as the enactment that brought the relationship into existence,statutes, regulations, etc, that help define the nature of the relationship

C Examine the length of time assets will be held; trust relationships are generally in existence longerthan agency relationships

D Examine the wording of any agreements to determine if the word "trust" or "agency" is used

161.Which of the following activities would be most appropriately recorded by an agency fund?

A Assets held for employees' federal and state withholding taxes

B Deposits held for customers of a city-owned electric utility

C Assets held for special assessment bondholders when the city is secondarily liable for the bonds

D Assets held for investment, the earnings from which are used for maintenance of the City Cemetery.162.Which of the following is a valid reason for establishing a tax agency fund and charging a collection fee

to other governments?

A To help eliminate a General Fund deficit

B To increase the total amount of taxes levied

C To avoid overlapping taxes

D To realize administrative efficiencies from centralizing tax billing and collection activities

163.Which of the following accounts is least likely to be used by a tax agency fund?

A Cash

B Revenues

C Taxes receivable for other funds and units

D Due to other funds and units

164.The long-term liability for special assessment bond issues for which the city is not obligated in any

manner should be recorded in a (an):

A Agency fund only

B Special assessment fund

C Agency fund and private-purpose trust fund

D None of the funds but should be disclosed in the notes to the financial statements

165.If special assessment receivables are recorded in the accounts of an agency fund, the appropriate

account(s) to credit is (are):

A Fund balance

B Revenues and deferred revenues

C Due to special assessment Bondholders

D Interfund transfers in

166.Which of the following grants received by a city would most appropriately be recorded in a

"pass-through" agency fund?

A A federal grant for various purposes, for which the ultimate allocation of funds will be decided by astate agency

B A state grant for summer employment of juveniles

C A federal grant for repairing and overhauling bridges

D A federal grant for upgrading low-rent housing

167.When a cash and investment pool of a certain city was established, the debt service fund transferredinvestments to the pool having a cost of $3,000,000 but a current fair market value of $3,100,000 Torecord this transaction, the journal entry made by the debt service fund will include:

A A debit to Equity in Pooled Cash and Investments in the amount of $3,100,000

B A credit to Revenues Change in Fair Value of Investments in the amount of $100,000

C A credit to Investments in the amount of $3,000,000

D All of the above

168.The cash and investment pool of Riverside City allocates dividends, interest, and capital gains and losses

on a periodic basis When the cash and investment pool accrues interest earned on investments in debtsecurities, pending allocation to participating funds, it would credit which of the following accounts?

A Interfund Loans

B Undistributed Earnings on Pooled Investments

C Revenues

D Interfund Receivables

169.Which of these fiduciary fund types has no fund equity?

A Investment trust funds

B Pension trust funds

C Agency funds

D Private-purpose trust funds

170.A difference between agency funds and governmental funds is

A Agency funds are not included on any fund financial statements

B Agency funds use a different basis of accounting

C Agency funds do not report fund balances; only assets and liabilities

A An investment trust fund

B The General Fund

C A permanent fund

D Private-purpose trust fund

173.A local golfer contributed $100,000 to the city stipulating that the money be invested and that the

earnings thereon be used for maintenance of the city golf course The $100,000 would most

appropriately be recorded in a (an)

174.A private-purpose trust fund sold investments in securities having a cost of $32,000 for $34,000,resulting in a $2,000 realized gain The gain is

A Generally transferred to an operating fund or the General Fund

B Generally used to maintain the principal of the trust

C Generally reported as income of the trust

D Generally transferred to a permanent fund

175.Employer contributions to a public employees retirement system (PERS) should be reported as

A An expenditure of the General Fund for employees paid by the General Fund

B An expense of a proprietary fund for employees paid by a proprietary fund

C An addition to net assets of the PERS

D All of the above

176.A statement of cash flows should be prepared for which of the following fiduciary fund types?

A Agency

B Pension trust

C Private-purpose trust

D None of the above

177.The financial position of the Policemen's Pension Fund administered by a city should be reported in thecity's basic financial statements as a column in the

A Statement of fiduciary net assets

B Statement of assets, liabilities, and fund balances

C Balance sheet governmental funds

D None of the above; the assets belong to the policemen, not to the city

178.Which of the following is the appropriate basis of accounting for an agency fund?

A Accrual basis

B Modified accrual basis

C Cash basis

D None of the above

179.A citizen contributed $200,000 to the city stipulating that the money be invested and that the earningsthereon be used for maintenance of the city municipal swimming pool The $200,000 would mostappropriately be recorded in a (an)

A Agency fund

B Private-purpose trust fund

C Permanent fund

D Endowment fund

180.In which of the following circumstances is the use of a fiduciary fund appropriate?

A When assets are held for the families of the government's police officers killed in the line of duty

B When assets are held for other governments in an investment pool

C When assets are held for Internal Revenue Code Section 457 deferred compensation plans

D All of the above

181.Which of the following is the appropriate measurement focus for agency funds?

A Economic resources

B Current financial resources

C Cash and cash equivalents

D None of the above

182.Fiduciary funds accounted for in a manner similar to proprietary funds are

A Agency funds and investment trust funds

B Pension trust funds, agency funds, investment trust funds, private-purpose trust funds

C Private-purpose trust funds and agency funds

D None of the above

183.Which of the following activities would be accounted for by a trust fund?

A Deposits held for customers of a city-owned electric utility

B Assets passed-through the state government to the local government

C Assets held for special assessment bondholders for which the city has no liability

D Assets which are used for maintenance of a private golf course, which is used by many city residents.184.Under GASB standards effective for 2006 and beyond, how will a government report other

post-employment retirement benefits (OPEB)?

A By disclosing information about OPEB in the notes to the financial statements, but without display ofOPEB expenses or liabilities on the face of the financial statements

B In a manner that is quite similar to the reporting requirements for pension plans

C Using two different methods, one for health care plans other types of OPEB

D By using a modified accrual basis, which requires only expenditures of the current period be reported.185.Which of the following statements is true about other post-employment retirement benefits (OPEB)?

A These statements relate only to health care plans, not life insurance or other benefit plans

B Employers must retroactively apply these standards in recognizing the expense and liability related tocommitments to benefit plans for retirees

C Relative to GASBS 26, GASBS 43 and GASBS 45 (issued in 2004) significantly expand on types of

OPEB reported

D None of the above

186.Which of the following statements is true regarding termination benefits?

A Voluntary termination benefits occur when employers provide an incentive to hasten an employee'svoluntary termination of employment, such as a one-time payout

B Voluntary terminations relate to layoffs or reductions in workforce

C Employers incur expenses related to voluntary terminations but not to involuntary terminations

D All of the above are true statements

Ch7-10 Key

1 Internal service funds of one government may not provide goods or services, on a

cost-reimbursement basis, to other governments

FALSE

The definition of internal service funds quoted in the text is to provide for service to other

governments as well as to other departments or agencies of the unit operating the internal servicefund While internal service funds exist primarily to provide goods and services to other departmentsand agencies of the same government, there is no probation from providing the goods or services toother governments as well

Content: Concept Level: Easy Wilson - Chapter 07 #1

2 Revenues of internal service funds should be recognized only when they are expected to be collected

in time to pay current liabilities of the fund

FALSE

Revenues of internal service funds should be recognized on the full accrual basis: when earned,without regard to when they will be collected or available to pay current liabilities of the fund

Content: Concept Level: Medium Wilson - Chapter 07 #2

3 Internal service funds should account for operating expenditures on the full accrual basis

FALSE

Internal service funds account for expenses, not expenditures, and use the full accrual basis

Content: Concept Level: Medium Wilson - Chapter 07 #3

4 Internal service funds should not account for depreciation of capital assets used in their operations,

since this would, in effect, charge the government twice for the same assets

FALSE

As for a business enterprise, including a depreciation charge is necessary to determine the full cost ofservices

Content: Concept Level: Medium Wilson - Chapter 07 #4

5 Internal service funds account for any long-term liabilities to be serviced from revenue derived from

fund operations

TRUE

Since the internal service fund uses full accrual accounting, it recognizes any long-term liabilities ofthe fund Long-term liabilities of an internal service fund ordinarily results from advances from otherfunds or governments, not from outside creditors

Content: Concept Level: Easy Wilson - Chapter 07 #5

6 The fund equity of an internal service fund consists of contributed equity and reserves for assets that

will not be converted into cash in the normal operation of the fund.

FALSE

Under GASBS 34, fund equity consists net assets invested in capital assets (net of related debt),

restricted, and unrestricted

Content: Concept Level: Easy Wilson - Chapter 07 #6

Cash: 350,000

Inventory of Supplies: 38,700

Interfund Loan from Electric Utility Fund: 320,000

Interfund Transfer In from General Fund: 89,200

Wilson - Chapter 07

7 In the entry above the account "Interfund Loan from Electric Utility Fund" is credited for $320,000

because this amount was loaned by the electric utility fund to the supplies fund and will have to berepaid by the supplies fund

TRUE

Loan is the term described in GASBS 34 that replaces "advances" (a term meaning a long-term

receivable or payable) and "Due to " (a current liability) Interfund loans should be properly

classified as current or noncurrent receivables or payables

Content: Journal Entry Level: Medium Wilson - Chapter 07 #7

8 In the information above the account "Interfund Transfer In from General Fund" is credited for

$89,200 because this is the amount of assets that was transferred from the General Fund to the

supplies fund as a contribution

9 Internal service funds are intended to operate on taxes or other financing sources authorized by the

legally enacted revenue budget for each year; therefore, they are classified as governmental funds

FALSE

Internal service funds and enterprise funds are intended to cover operating costs on a continuing basisand ordinarily obtain their revenues from user charges, not taxes or other financing sources providedfor by an annual budget; therefore, these are both proprietary, not governmental, funds However,

under GASBS 34, internal service funds are reported as governmental activities, not business-like

activities, on the government-wide statements as long as they are primarily serving other departments

or functions of the government

Content: Concept Level: Medium Wilson - Chapter 07 #9

10 Proprietary funds are accounted for in a manner similar to investor-owned businesses: among other

features, the full accrual basis is used and all of the capital assets used in fund operations are

accounted for by the using fund

TRUE

The features described are characteristic of GAAP applicable to proprietary funds

Content: Concept Level: Easy Wilson - Chapter 07 #10

11 The Encumbrances account should be used by an internal service fund in the same manner as by the

General Fund

FALSE

Internal service funds do not incorporate budgetary accounts with proprietary accounts

Memorandum records of purchase orders and contracts should be kept, however, for managementcontrol purposes

Content: Concept Level: Easy Wilson - Chapter 07 #11

12 If an internal service fund is created to improve the management of resources devoted to the supply

function, the supplies fund should use periodic inventory accounting instead of perpetual physicalinventory accounting

FALSE

Perpetual inventory accounting is needed in order to manage the supply function properly (Items oflow value which are not critical to the operations of any of the governmental departments may,however, properly be accounted for on a periodic physical inventory basis)

Content: Concept Level: Medium Wilson - Chapter 07 #12

13 Capital assets acquired under a capital lease for use by an internal service fund should be recorded in

the General Fund in order to report all leased assets in one financial statement

FALSE

All capital assets used by an internal service fund, regardless of source, should be recorded in theaccounts of that fund

Content: Concept Level: Easy Wilson - Chapter 07 #13

14 A statement of revenues, expenses, and changes in net assets for an internal service fund is similar in

many respects to an income statement prepared for an investor-owned business

TRUE

The terminology differs somewhat, but otherwise the statement is similar in format and display toincome statements prepared for business organizations

Content: Concept Level: Easy Wilson - Chapter 07 #14

15 A statement of cash flows is not prepared for an internal service fund.

FALSE

GASB standards require that a statement of cash flows be prepared for proprietary funds However,this statement is not required for governmental fund types

Content: Concept Level: Easy Wilson - Chapter 07 #15

16 An internal service fund can be liquidated only if a ready and willing buyer for the fund's assets

exists

FALSE

The text suggests three ways, or combinations thereof, in which liquidation of an internal servicefund may be accomplished Even if there is no external buyer for the fund's assets, the fund could bedissolved by either distributing the fund's assets in kind to other funds or by simply making the fund

a department of another fund

Content: Concept Level: Medium Wilson - Chapter 07 #16

17 Public utilities owned and operated by governments are the most common examples of enterprise

18 Enterprise funds are used by state and local governments to account for services that are provided to

the general public on a user-charge basis, or to account for any services that the governing body ofthe government has decided should be accounted for on a "business basis."

TRUE

Even if user charges are not the primary source of revenues, the enterprise fund approach may beused for any activities for which the governing body desires periodic determination of revenuesearned, expenses incurred, and/or net income

Content: Concept Level: Easy Wilson - Chapter 07 #18

19 Budgets for enterprise funds should be recorded in the accounts in the same manner as budgets for a

General Fund or a special revenue fund

FALSE

Budgets for enterprise funds are prepared to assist management in the efficient use of resources andnormally are not legally binding documents Consequently, GAAP do not require that budgets berecorded in the accounts of an enterprise fund (In jurisdictions in which enterprise funds are required

by law to prepare budgets it may be desirable to integrate budgetary accounts with proprietary

accounts Only the proprietary account balances should be reported in general purpose financialstatements, however.)

Content: Concept Level: Easy Wilson - Chapter 07 #19

20 Unbilled customer accounts receivable should be reflected in the balance sheet of a governmentally

owned utility even though the exact amount of service to be billed is unknown until the customers'meters can be read

21 The liability for utility revenue bonds should be reported in business-type activities on the

government-wide statements, but not in the enterprise fund

FALSE

Utility revenue bonds, for which interest and principal are to be paid from revenues of the enterprisefund, are a liability of that fund and should be so reported They should also appear as long-termliabilities of business-type activities on the government-wide statement of financial position

Content: Concept Level: Easy Wilson - Chapter 07 #21

22 General obligation bonds used to increase the capacity of a water treatment plant (part of a water

utility enterprise fund), but for which the debt service (including repayment of principal) will be paidfrom general government revenues should be reported as a long-term liability in the water utility fundbalance sheet

FALSE

Since water utility revenues will not be used for debt service on these bonds, the liability must bereported in the governmental activities financial statements However, the enterprise fund shouldreport a contribution from the General Fund (assumed) in the amount of the improvement to thewater treatment plant

Content: Concept Level: Medium Wilson - Chapter 07 #22

23 Matured interest and principal on revenue bonds should be recorded in a debt service fund until

paid

FALSE

Debt service for revenue bonds is paid from the revenues of the enterprise fund and therefore should

be accounted for by that fund

Content: Concept Level: Medium

24 Utility enterprise funds that report to regulatory agencies often capitalize both actual interest paid on

debt incurred for construction of plant assets and an imputed amount on their own funds so used

TRUE

Utilities that report to regulatory agencies are usually allowed to capitalize both the net cost for theperiod of construction of borrowed funds and a reasonable imputed rate on other funds so used.FASB standards also permit such capitalization by regulated entities, providing that imputed amountscapitalized are allowed to be recovered through rates charged to customers, and it is probable that allcapitalized costs will be recovered through future revenues

Content: Concept Level: Medium Wilson - Chapter 07 #24

25 In the context of regulatory utility plant accounting, original cost and historical cost have the same

meaning

FALSE

In the context of regulatory utility enterprise accounting, original cost is the cost to the owner whofirst devoted the property to public service, whereas historical cost is simply the acquisition cost tothe current owner

Content: Concept Level: Medium Wilson - Chapter 07 #25

26 The amount of expense and liability to be reported each period for the closure and postclosure costs

of a municipal solid waste landfill (MSWLF) is proportional to the amount of landfill capacity usedduring the period

27 The balance sheet format recommended by the NARUC and FERC for utilities subject to regulatory

reporting requirements shows Utility Plant before Current and Accrued Assets and Long-Term Debtbefore Current and Accrued Liabilities

TRUE

Utility plant and long-term debt ordinarily amount to a much greater percentage of total assets andtotal long-term debt than does the total of current and accrued assets and liabilities, respectively It istherefore considered more informative to present the noncurrent items first

Content: Concept Level: Medium Wilson - Chapter 07 #27

28 To facilitate the combination of utility financial statements with the statements of other enterprise

funds, GAAP permits utilities to follow the customary format used by nonutility business

29 The liability for tax-supported long-term debt issued to provide financing for an enterprise fund and

to be serviced from revenues of the enterprise fund should be reported in the financial statements ofthe enterprise fund

TRUE

Although the liability should be reported as a liability of the enterprise fund, the fact that it is

tax-supported must be disclosed as a contingent liability in the notes to the general purpose externalfinancial statements

Content: Concept Level: Medium Wilson - Chapter 07 #29

30 Premium or discount on bonds payable issued by enterprise funds should not be accounted for in the

same manner as premium or discount on tax supported bonds payable reported at the

government-wide level

FALSE

Under GASBS 34 premium or discount on bonds issued by enterprise funds should be amortized in

the same manner as if the bonds were business organizations Procedures used for tax-supported

bonds under GASBS 34 for state and local governments are to amortize the premium or discount on

bonds in the governmental activities accounts at the government-wide level

Content: Concept Level: Medium Wilson - Chapter 07 #30

31 Plant and equipment utilized by a governmentally owned utility should be depreciated in the same

manner as if it belonged to an investor-owned utility

TRUE

Accounting for governmentally owned enterprises should be comparable with that of investor-ownedenterprises in the same industry

Content: Concept Level: Medium Wilson - Chapter 07 #31

32 Which of the following may properly be reported as a component of equity in the proprietary fund

statement of net assets?

33 Internal service funds should be used only if

A The reporting government is the predominant participant in the activity.

B The reporting government provides services primarily to external participants

C Either A and B

D Neither A nor B

Content: Concept Level: Medium Wilson - Chapter 07 #33

34 Which of the following funds of a government uses the same basis of accounting as an enterprise

35 In which of the following funds is it appropriate to record depreciation of capital assets?

36 Which of the following is a difference between enterprise funds and internal service funds?

A The use of cost accounting by enterprise funds but not internal service funds

B The identity of those who benefit from the fund's service.

C The number of basic financial statements required

D The measurement focus on economic resources for enterprise funds and current financial

resources for internal service funds

Content: Concept Level: Easy Wilson - Chapter 07 #36

37 Depreciation on capital assets used by an enterprise fund of a government

A Should not be recorded for infrastructure assets

B Should be recorded in the General Fund as an expenditure

C Should be recorded in the enterprise fund by a debit to an expense account.

D Should be recorded in the governmental activities accounts

Content: Concept Level: Easy Wilson - Chapter 07 #37

38 Which of the following is not true regarding proprietary funds?

A The difference between assets and liabilities of proprietary funds is called "fund balance."

B Proprietary funds record long-term debt directly in the fund accounts

C Proprietary funds record capital assets directly in the fund accounts

D Proprietary funds report a statement of cash flows

Content: Essay Level: Medium Wilson - Chapter 07 #38

39 The comprehensive annual financial report (CAFR) of a government should contain a statement of

revenues, expenses, and changes in net assets for

A Both proprietary and governmental funds

B Proprietary but not governmental funds.

C Governmental but not proprietary funds

D Neither governmental nor proprietary funds

Content: Essay Level: Medium Wilson - Chapter 07 #39

40 Which of the following activities or services would most likely not be accounted for by an internal

service fund?

A Electronic data processing

B Central purchasing, warehousing, and issuing of supplies

C Municipal golf course.

D Risk management

Content: Concept Level: Medium Wilson - Chapter 07 #40

41 Which of the following is (are) an appropriate basis of accounting for an internal service fund?

A Modified accrual basis: No; Full accrual basis: Yes

B Modified accrual basis: No; Full accrual basis: No

C Modified accrual basis: Yes; Full accrual basis: No

D Modified accrual basis: Yes; Full accrual basis: Yes

Content: Concept Level: Easy Wilson - Chapter 07 #41