Exam Item 19-1 (True or False) - CPA Diary



Chapter 18 Test Bank

AN INTRODUCTION TO ACCOUNTING FOR STATE AND

LOCAL GOVERNMENTAL UNITS

Multiple Choice Questions

LO1

|1. | |Before the establishment of the Governmental Accounting Standards Board, which organization developed GAAP for governments? |

| | | | |

| | |a. |The Financial Accounting Standards Board. |

| | |b. |The Financial Accounting Foundation. |

| | |c. |The National Council on Governmental Accounting. |

| | |d. |There was no structured organization for governmental GAAP before the GASB. |

LO1

|2. | |What GAAP pronouncements take precedence for an auditor under SAS 69? |

| | | | |

| | |a. |Financial Accounting Standards Board statements. |

| | |b. |GASB statements. |

| | |c. |EITF. |

| | |d. |Accountants must exercise judgment because there was no structured organization for governmental GAAP. |

LO2

|3. | |The key focus of government fund accounting concerns |

| | | | |

| | |a. |capital expenditures. |

| | |b. |intergovernmental transfers from the general fund. |

| | |c. |income measurement. |

| | |d. |the flow of current financial resources. |

LO2

|4. | |When vehicles impounded by the city police are sold, the cash goes into which fund? |

| | | | |

| | |a. |The general fund. |

| | |b. |The debt service fund. |

| | |c. |The fiduciary fund. |

| | |d. |The proprietary fund. |

LO2

|5. | |Budgeted authority for expenditures that provide legislative control over expenditures are referred to as |

| | | | |

| | |a. |appropriations. |

| | |b. |allotments. |

| | |c. |allocations. |

| | |d. |encumbrances |

LO2

|6. | |Because a fund is an accounting entity, each fund has |

| | | |

| | |I. its own accounting equation. |

| | |II. its own journals, ledgers, and other accounting records. |

| | |III. its own separate auditor. |

| | | | |

| | |a. |I only. |

| | |b. |II only. |

| | |c. |I and II. |

| | |d. |I, II and III. |

LO3

|7. | |One of the required proprietary fund financial statements is a |

| | | | |

| | |a. |statement of cash flows. |

| | |b. |statement of revenues, expenses, and changes in retained earnings. |

| | |c. |statement of activity changes. |

| | |d. |statement of revenues, expenditures, and changes in fund balance. |

LO3

|8. | |Under the modified accrual basis of accounting, revenues are recognized in the period |

| | | | |

| | |a. |when the relevant service is done. |

| | |b. |when they are collected. |

| | |c. |when the enterprise customer is billed. |

| | |d. |when become both measurable and available. |

LO4

|9. | |Under GASB 33, which of the following is an exchange transaction? |

| | | | |

| | |a. |When the home owner pays property taxes |

| | |b. |When a university receives a federal grant for managing research. |

| | |c. |When an aquatic center receives cash for a group swim. |

| | |d. |When an employer deducts money for state tax withholding. |

LO4

|10. | |Which fund would most likely report depreciation expense? |

| | | | |

| | |a. |An intergovernmental service fund. |

| | |b. |An enterprise fund. |

| | |c. |A capital projects fund. |

| | |d. |A debt service fund. |

LO4

|11. | |Which type of fund is used to account for a government activity that sells goods or services either solely or almost solely to|

| | |external customers? |

| | | | |

| | |a. |A temporary fund. |

| | |b. |A general fund. |

| | |c. |An agency fund. |

| | |d. |An enterprise fund. |

LO4

|12. | |Centralized data processing, central motor pools and garages, centralized risk-financing activities, and central stores |

| | |typically would be accounted for using what type of fund? |

| | | | |

| | |a. |An agency fund. |

| | |b. |An enterprise fund. |

| | |c. |An internal service fund. |

| | |d. |A trust fund. |

LO4

|13. | |The modified accrual basis of accounting is used for |

| | | | |

| | |a. |governmental funds. |

| | |b. |proprietary funds. |

| | |c. |internal service funds. |

| | |d. |both a and c. |

LO4

|14. | |Goodtime City makes a levy on its seafront businesses for a retaining wall. Which of the following funds will have |

| | |transactions? |

| | | | |

| | |a. |A general fund. |

| | |b. |A capital projects and general fund. |

| | |c. |A special revenue fund. |

| | |d. |A capital projects and special revenue fund. |

LO5

|15. | |Motor fuel taxes are |

| | | | |

| | |a. |derived tax revenues. |

| | |b. |imposed non exchange revenues. |

| | |c. |government-mandated nonexchange transactions. |

| | |d. |voluntary nonexchange transactions. |

LO5

|16. | |A budget in government accounting |

| | | | |

| | |a. |only applies to the general fund. |

| | |b. |is a guideline for government management. |

| | |c. |has the force of law. |

| | |d. |only applies to proprietary funds. |

LO5

|17. | |A component unit |

| | | | |

| | |a. |requires discrete CAFR presentation of the primary government. |

| | |b. |does not appear in CAFR unless it is a proprietary fund of a primary government. |

| | |c. |activities are held responsible to a primary government. |

| | |d. |activities will be financially accountable to a primary government even though it is a legally separate organization.|

LO6

|18. | |Government-wide financial statements include a |

| | | | |

| | |a. |balance sheet, an income statement, and a statement of cash flows. |

| | |b. |statement of net assets, a statement of activities, and a statement of cash flows. |

| | |c. |statement of net assets and a statement of activities. |

| | |d. |statement of activities and a statement of cash flows. |

LO6

|19. | |A comprehensive annual financial report has the following three |

| | |major sections |

| | | | |

| | |a. |introductory, financial, and management's discussion and analysis. |

| | |b. |introductory, financial, and statistical. |

| | |c. |transmittal, financial, and statistical. |

| | |d. |transmittal, financial, and management's discussion and analysis. |

LO6

|20. | |Government-wide financial statements exclude the |

| | | | |

| | |a. |general fund. |

| | |b. |fiduciary funds. |

| | |c. |proprietary funds. |

| | |d. |special revenue funds. |

LO3

Exercise 1

|The following are transactions for the city of Novo. |

| |

|a. Borrowed $10,000 by issuing a three-month note. |

|b. Paid $2,000 for equipment. |

|c. Services for $250 were billed and collected. |

|d. Issued general obligation bonds, par value of $5,000, at 101 (101% of par value) to finance construction of a building. |

|e. Incurred and paid construction costs of $2,500 on the building. |

| |

|Required: |

| | |

|1. |Analyze the above transactions by using the accounting equation for a governmental fund. |

| | |

LO3

Exercise 2

|The following are transactions for the city of Novo. |

| |

|a. Borrowed $10,000 by issuing a three-month note. |

|b. Paid $2,000 for equipment. |

|c. Services for $250 were billed and collected. |

|d. Issued general obligation bonds, par value of $5,000, at 101 (101% of par value) to finance construction of a building. |

|e. Incurred and paid construction costs of $2,500 on the building. |

| |

|Required: |

| | |

|1. |Analyze the above transactions by using the accounting equation for a proprietary fund. |

| | |

LO3

Exercise 3

|The following are transactions for the city of Oz. |

| |

|a. Borrowed $10,000 by issuing a two-year note. |

|b. Issued a purchase order to a vendor for equipment worth $3,000. |

|c. Licenses for $350 were billed on account. |

|d. Received a $5,000 capital grant from another governmental fund. |

|e. Accrued employee salary costs of $3,500. |

| |

| |

|Required: |

| | |

|1. |Analyze the above transactions by using the accounting equation for a governmental fund. |

| | |

LO3

Exercise 4

|The following are transactions for the city of Oz. |

| |

|a. Borrowed $10,000 by issuing a two-year note. |

|b. Issued a purchase order to a vendor for equipment worth $3,000. |

|c. Licenses for $350 were billed on account. |

|d. Received a $5,000 capital grant from another governmental fund. |

|e. Accrued employee salary costs of $3,500. |

| |

| |

|Required: |

| | |

|1. |Analyze the above transactions by using the accounting equation for a proprietary fund. |

| | |

LO4

Exercise 5

|For each of the following funds and entities: |

| |

|Internal Service Fund |

|Investment Trust Fund |

|Debt Service Fund |

|Special Revenue Fund |

| |

|Required: |

|1. Identify the financial statements and/or schedules required to be presented. |

|2. State the required basis of accounting. |

| |

LO4

Exercise 6

|For each of the following funds and entities: |

| |

|Capital Projects Fund |

|Pension Trust Fund |

|Permanent Fund |

|Proprietary Fund |

| |

|Required: |

|1. Identify the financial statements and/or schedules required to be presented. |

|2. State the required basis of accounting. |

| |

LO4

Exercise 7

|For each of the following events or transactions, identify the fund or funds that will be affected. |

|1. A city government provides electricity services to residents for a fee. |

|2. A printing shop was established to handle the printing needs of a county government. |

|3. A philanthropist donates $1 million for a memorial. |

|4. A state government collects sales taxes on behalf of the state and for some of its counties and municipalities. |

|5. Interest is paid on a state government's general obligation bonds. |

LO4

Exercise 8

|For each of the following events or transactions, identify the fund or funds that will be affected. |

|1. A city government charges a fee for the use of the municipal golf |

|course. |

|2. Interest is paid on state government revenue bonds. |

|3. A motor pool was established to handle the vehicle needs of a |

|county government. |

|4. A county government receives a large contribution specifying that income from the contribution be distributed each year to three city |

|libraries within the county. The principal is to remain intact indefinitely. |

|5. A state government acquires the use of general fixed assets by |

|entering into a capital lease contract. |

LO4

Exercise 9

|For each of the following events or transactions, identify the fund or funds that will be affected. |

|1. A central purchasing department was established to handle all the |

|purchasing needs of a county government. |

|2. A county government levies real property taxes on behalf of the county and its municipalities. |

|3. A county government receives a large contribution specifying that income from the contribution be distributed each year to the county |

|zoo. The principal is to remain intact indefinitely. |

|4. A county government establishes an investment pool to manage the |

|cash and marketable securities of the county and participating |

|municipalities |

|5. A city government pays the final contract retained percentage for |

|a new fire station. |

LO6

Exercise 10

|List the financial statements and/or schedules required to be presented for each of the following funds and entities as well as the |

|required basis of accounting. |

|1. Agency Fund |

|2. General Fund |

|3. Private-purpose Trust Fund |

|4. Government-wide Financial Statements |

| |

SOLUTIONS

Multiple Choice Questions

| 1. |c | |

| 2. |b | |

| 3. |d | |

| 4. |a | |

| 5. |a | |

| 6. |c | |

| 7. |a | |

| 8. |d | |

| 9. |c | |

|10. |b | |

|11. |d | |

|12. |c | |

|13. |a | |

|14. |d | |

|15. |a | |

|16. |c | |

|17. |d | |

|18. |c | |

|19. |b | |

|20. |b | |

Exercise 1

|Governmental fund | | | | | |

|equation |a |b |c |d |e |

|Current assets |+10,000 |-2,000 |+250 |+5,050 |-2,500 |

|Current liabilities | | | | | |

| |+10,000 | | | | |

|Fund balance | |-2,000 |+250 |+5,050 |-2,500 |

Exercise 2

|Proprietary fund equation | | | | | |

| |a |b |c |d |e |

|Current assets |+10,000 |-2,000 |+250 |+5,050 |-2,500 |

|Noncurrent assets | |+2,000 | | |+2,500 |

|Current liabilities | | | | | |

| |+10,000 | | | | |

|Noncurrent liabilities | | | | | |

| | | | |+5,050 | |

|Net Assets | | |+250 | | |

Exercise 3

|Governmental fund | | | | | |

|equation |a |b |c |d |e |

|Current assets |+10,000 |0 |+350 |+5,000 | |

|Current liabilities | |0 | | |+3,500 |

|Fund balance |+10,000 |0 |+350 |+5,000 |-3,500 |

Exercise 4

|Proprietary fund equation | | | | | |

| |a |b |c |d |e |

|Current assets |+10,000 |0 |+350 |+5,000 | |

|Noncurrent assets | |0 | | | |

|Current liabilities | |0 | | |+3500 |

|Noncurrent liabilities | | | | | |

| |+10,000 |0 | | | |

|Net assets | |0 |+350 |+5,000 |-3,500 |

Exercise 5

1. Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. All statements are prepared on the modified accrual basis.

2. Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. All statements are prepared on the modified accrual basis.

3. Statement of Fiduciary (Plan) Net Assets and Statement of Changes in Fiduciary (Plan) Net Assets. All statements are prepared on the accrual basis.

4. Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Net Assets and a Statement of Cash Flows (direct method only). All statements are prepared on the accrual basis.

Exercise 6

1. Balance Sheet and Statement of Revenues, Expenditures, and Changes

in Fund Balances. All statements are prepared on the modified

accrual basis.

2. Balance Sheet and Statement of Revenues, Expenditures, and Changes

in Fund Balances. All statements are prepared on the modified

accrual basis.

3. Statement of Fiduciary (Investment) Net Assets and Statement of

Changes in Fiduciary (Investment) Net Assets. All statements are

prepared on the accrual basis.

4. Statement of Net Assets, Statement of Revenues, Expenses, and

Changes in Net Assets and a Statement of Cash Flows (direct method

only). All statements are prepared on the accrual basis.

Exercise 7

1. Enterprise Fund

2. Internal Service Fund

3. Permanent Fund

4. General Fund and Agency Fund

5. Debt Service Fund

Exercise 8

1. Enterprise Fund

2. Debt Service Fund

3. Internal Service Fund

4. Fiduciary (Private-purpose) Trust Fund

5. General Fund

Exercise 9

1. Internal Service Fund

2. General Fund and Agency Fund

3. Permanent Fund

4. Fiduciary (Investment) Trust Fund

5. Capital Projects Fund

Exercise 10

1. Statement of Fiduciary Net Assets and Statement of Changes in

Fiduciary Net Assets. All statements are prepared on the accrual

basis.

2. Balance Sheet, Statement of Revenues, Expenditures, and Changes

in Fund Balances and a Budgetary Comparison Schedule. All

statements are prepared on the modified accrual basis.

3. Statement of Fiduciary Net Assets and Statement of Changes in

Fiduciary Net Assets. All statements are prepared on the accrual

basis.

4. Statement of Net Assets and Statement of Activities. All statements are prepared on the accrual basis.

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