Exam Item 19-1 (True or False)



Chapter 19 Test Bank

ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS -

GOVERNMENTAL FUNDS

Multiple Choice Questions

LO1

|1. | |When a capital lease is used to acquire general fixed assets, the governmental fund acquiring the fixed assets records a(n) |

| | |__________________at the _____________________. |

| | | | |

| | |a. |expenditure, lease payment cost. |

| | |b. |fixed asset, lease payment cost. |

| | |c. |expenditure, present value of the minimum lease payments. |

| | |d. |fixed asset, present value of the minimum lease payments. |

LO1

|2. | |The estimated revenues control account of Star City general fund is eliminated when |

| | | | |

| | |a. |the city’s tax receipts are measurable and available. |

| | |b. |the budget is recorded. |

| | |c. |appropriations are made. |

| | |d. |budgetary accounts are closed. |

LO1

|3. | |When recording an approved budget into the general fund, which of the following accounts would be credited? |

| | | | |

| | |a. |Appropriations. |

| | |b. |Transfers in. |

| | |c. |Estimated revenues. |

| | |d. |Deferred revenues. |

LO1

|4. | |A fund balance increase resulting from an operating transfer to a governmental fund would have a |

| | | | |

| | |a. |credit to other financing sources. |

| | |b. |debit to other financing sources. |

| | |c. |credit to revenues. |

| | |d. |debit to revenues. |

LO2

|5. | |The proceeds from a bond issuance for the building of a new public school should be recorded in the ______________ fund at the|

| | |time the bonds are sold. The fund balance increase is classified as ______________. |

| | | | |

| | |a. |capital projects, revenues |

| | |b. |general, revenues |

| | |c. |general, other financing sources |

| | |d. |capital projects, other financing sources |

LO2

|6. | |A fire station that the city of Plenty constructed many years ago is sold and is accounted for as an other financing source. |

| | |Where should entries be made? |

| | | | |

| | |a. |In the general fund only. |

| | |b. |In the general fund and capital projects fund. |

| | |c. |In the general fund, capital projects fund and general fixed asset group. |

| | |d. |In the special revenue fund. |

LO2

|7. | |Capital improvement costs incurred for general government special assessments projects require recognition in the |

| | | | |

| | |a. |general fund. |

| | |b. |capital projects fund. |

| | |c. |trust fund. |

| | |d. |special revenue fund. |

LO3

|8. | |The purpose of encumbrance accounting is to prevent |

| | | | |

| | |a. |spending more than an appropriation. |

| | |b. |making unreasonable appropriations. |

| | |c. |spending more than deferred revenue. |

| | |d. |wasteful spending. |

LO3

|9. | |The proper sequence of events is |

| | | | |

| | |a. |order, appropriation, encumbrance, expenditure. |

| | |b. |order, encumbrance, expenditure, appropriation. |

| | |c. |appropriation, encumbrance, order, expenditure. |

| | |d. |appropriation, order, encumbrance, expenditure. |

LO3

|10. | |According to the GASB Codification, the "collected soon enough after year-end to pay liabilities for current expenditures" |

| | |criterion for revenue recognition means collected within a period not exceeding |

| | | | |

| | |a. |30 days after the fiscal year end. |

| | |b. |60 days after the fiscal year end. |

| | |c. |90 days after the fiscal year end. |

| | |d. |120 days after the fiscal year end. |

LO3

|11. | |Which of the following approaches is used to recognize governmental fund revenues? |

| | | | |

| | |a. |The gross amounts earned approach. |

| | |b. |The gross amounts levied approach. |

| | |c. |The net of estimated uncollectible accounts approach. |

| | |d. |The net of related expenditures approach. |

LO3

|12. | |At any point in time, a government will be able to spend an amount equal to |

| | | | |

| | |a. |appropriations minus expenditures. |

| | |b. |appropriations minus expenditures minus encumbrances. |

| | |c. |appropriations minus encumbrances. |

| | |d. |expenditures minus encumbrances. |

LO4

|13. | |Which of the following items would be presented in a Statement of Revenues, Expenditures, and Changes in Fund Balance? |

| | | | |

| | |a. |Appropriations. |

| | |b. |Encumbrances. |

| | |c. |Other financing sources. |

| | |d. |Unreserved fund balance. |

LO4

|14. | |Which of the following funds has similar accounting and reporting to the special revenue fund? |

| | | | |

| | |a. |The proprietary fund. |

| | |b. |The trust fund. |

| | |c. |The general fund. |

| | |d. |The agency fund. |

LO4

|15. | |Which financial statement(s) is (are) required for governmental funds with legally adopted annual budgets? |

| | | |

| | |I. The statement of cash flows |

| | |II. The statement of revenues, expenditures and changes in fund |

| | |balance-budget and actual |

| | | | |

| | |a. |I only. |

| | |b. |II only. |

| | |c. |I and II. |

| | |d. |Neither I nor II. |

LO4

|16. | |Which statement below is correct with respect to the general fund financial statements? |

| | | | |

| | |a. |A budgetary comparison must be presented. |

| | |b. |Encumbrances must be included on the statements. |

| | |c. |Capital leases must be included on the statements. |

| | |d. |All governmental fixed assets and long-term debt must be included on the statements. |

LO4

|17. | |General fund operating lease payments are typically reported as |

| | | | |

| | |a. |overhead expenditures. |

| | |b. |rental expenditures. |

| | |c. |general government expenses. |

| | |d. |capital outlay expenditures. |

LO5

|18. | |Infrastructure costs in government-wide financial statements |

| | | | |

| | |a. |must be recorded and depreciated by government. |

| | |b. |may be recorded and depreciated at the option of government as long as footnote disclosures are made. |

| | |c. |must be recorded and depreciated by a government unless a modified approach is used, in which case, depreciation is |

| | | |optional. |

| | |d. |must be expended in the year that they are incurred. |

LO5

|19. | |All of the following government fund items must be reconciled in government-wide financial statements except |

| | | | |

| | |a. |deferred revenue. |

| | |b. |long-term liabilities. |

| | |c. |construction expenditures. |

| | |d. |encumbrances. |

LO5

|20. | |Which statement below is incorrect with respect to the government wide financial statements? |

| | | | |

| | |a. |All fund categories must convert to the modified accrual |

| | | |basis of accounting. |

| | |b. |Internal service fund transactions with other governmental funds must be excluded from the statements. |

| | |c. |Capital leases must be included on the statements. |

| | |d. |All governmental fixed assets and long-term debt must be included on the statements. |

LO1

Exercise 1

|The City of Sharpesburg entered the following transactions during 2006: |

| |

|1. The city authorized a bond issue of $2,500,000 par to finance construction of a fountain in the city square. The bonds were issued for |

|$2,560,000. The premium was transferred to the fund for which the debt will be serviced. |

|2. The city entered into a contract for construction of the fountain at an estimated cost of $2,425,000. |

|3. The city received and paid a bill for $2,445,000 from the contractor upon completion of and approval of the fountain. |

|4. The unused bond proceeds were set aside for debt service on the bonds. Accordingly, those resources were paid to the appropriate fund. |

| |

|Required: |

| |

|Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by Sharpesburg. |

LO1

Exercise 2

|1. The city issued $6 million of refunding bonds at par. |

|2. The city transferred $3,700,000 from its General Fund to its Debt Service Fund to provide the additional resources needed to defease the|

|bonds in substance. |

|3. The city paid $9,700,000 into an irrevocable trust established at the First Seaside Bank to defease the bonds in substance. |

| |

| |

|Required: |

| |

|Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by the city of Plaza Royal. |

LO1

Exercise 3

Prepare journal entries to record the following grant-related transactions for a municipality special revenue fund.

1. Awarded an operating grant from the state, $2,500,000 (cash will be received after qualified expenditures are made).

2. Incurred and paid qualifying expenditures on the grant program, $1,600,000.

3. Received a federal grant to finance construction of a new school, $4,500,000 (cash received in advance).

4. Incurred and paid construction cost on the school building, $3,000,000.

LO1

Exercise 4

|The general fund trial balance for Overland City held the following balances at September 30, 2006, just before closing entries were made: |

| |

|Due from other funds |$ |750 |

|Unreserved fund balance | |5,000 |

|Estimated revenues | |20,000 |

|Revenues | |18,950 |

|Appropriations | |19,000 |

|Expenditures - current year | |16,800 |

|Expenditures - prior year | |2,500 |

|Encumbrances | |1,200 |

|Operating transfers in | |4,000 |

|Reserve for encumbrances | |1,200 |

|Reserve for encumbrances - prior year | |2,500 |

| | | |

| | | |

| | | |

|Required | | |

| | | |

|Prepare the necessary closing entries. | | |

LO1

Exercise 5

|The general fund trial balance for Owens Creek City held the following balances at June 30, 2006, just before closing entries were made: |

| |

|Due from other funds |$ |2,700 |

|Unreserved fund balance | |51,000 |

|Estimated revenues | |208,000 |

|Revenues | |198,900 |

|Appropriations | |196,500 |

|Expenditures - current year | |193,800 |

|Expenditures - prior year | |4,500 |

|Encumbrances | |3,200 |

|Operating transfers in | |6,000 |

|Reserve for encumbrances | |3,200 |

|Reserve for encumbrances - prior year | |4,500 |

| | | |

| | | |

| | | |

|Required | | |

| | | |

|Prepare the necessary closing entries. | | |

LO1&2

Exercise 6

|El Dorado County incurred the following transactions during 2006: |

|1. Marketable securities were donated to support the county's bike and nature trails. The donor acquired the securities for $35,000 ten |

|years earlier; however, their current market value was $200,000. The donor specified that all income from the securities be used for the |

|trails. The principal is to be held intact for an indefinite period of time. |

|2. Computer equipment was ordered for general fund departments. The estimated cost was $48,000. |

|3. The county received the computer equipment. The actual cost was $47,750, of which $42,000 was paid to the vendor before year-end. |

|4. The county sold a (general government) dump truck that originally cost $55,000. The county sold the truck at auction for $3,300. |

|5. The government leased equipment under a capital lease agreement. The capitalized cost was $120,000. The county made an initial down |

|payment of $10,000. |

|Required: |

| |

|Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by El Dorado County. |

LO1&2

Exercise 7

|Johnson County incurred the following transactions during 2006: |

|1. The county authorized a new general obligation bond issue of $5 million par to purchase an office building with a contract price of |

|$4,975,000. The bonds were issued for $4,960,000. |

|2. The county levied real property taxes of $10,000,000. Sixty per cent of the taxes levied were for local municipal governments. By fiscal|

|year-end, 85% of the taxes were collected and remitted to the municipalities. Two per cent of the total levy was estimated to be |

|uncollectible. |

|3. The escrow for the office building closed and the county paid the contract price. |

|4. The county paid $200,000 for interest on the bonds. |

| |

|Required: |

| |

|Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by Johnson County. |

LO3

Exercise 8

|Address the following situations separately. |

|1.For the budgetary year beginning July 1, 2006, Center Township expected the following cash flow resources: |

| |

|Property taxes, licenses, and fees $3,000,000 |

|Proceeds of debt issue 1,000,000 |

|Interfund transfers from debt service 750,000 |

| |

|In the budgetary entry, what amount did Center Township record for estimated revenues? |

|2. During the fiscal year ended June 30, 2006, Pacific City issued purchase orders totaling $7,000,000. Pacific City received $6,500,000 of|

|invoiced goods at the encumbered amounts and paid $6,100,000 toward them before year-end. |

| |

|How much were Pacific City's encumbrances on July 1, 2006? |

|3.The following information pertains to property taxes levied ($1,035,000 total) by Palm Lake City for the calendar year 2006: |

| |

|Expected collections during 2006 $750,000 |

|Expected collections in first 60 days of 2007 200,000 |

|Expected collections during the remainder of 2007 50,000 |

|Expected collections during January 2008 30,000 |

|Estimated to be uncollectible 5,000 |

| |

|What amount did Palm Lake City report for property tax revenues in 2006? |

|4.The following information pertains to Dodge City's general fund for 2006: |

| |

|Appropriations $7,000,000 |

|Expenditures 5,500,000 |

|Other financing sources 1,000,000 |

|Other financing uses 3,000,000 |

|Revenues 9,000,000 |

| |

|At what amount will Dodge City's total fund balance increase (decrease) in 2006? |

LO4

Exercise 9

|The following information regarding the fiscal year ended September 30, 2006, was drawn from the accounts and records of the Jasper County |

|general fund: |

| |

|Revenues and other asset inflows: | | |

|Taxes |$ |12,000,000 |

|Licenses and permits | |2,500,000 |

|Intergovernmental grants | |1,000,000 |

|Proceeds of short-term note issuances | |1,200,000 |

|Collection of interfund advance to other fund | |800,000 |

|Receipt of net assets of terminated fund | |1,800,000 |

|Expenditures and other asset outflows: | | |

|General government expenditures | |7,500,000 |

|Public safety expenditures | |2,000,000 |

|Judicial system expenditures | |1,200,000 |

|Health and welfare expenditures | |1,750,000 |

|Equipment purchases | |750,000 |

|Payment to debt service fund to cover future debt | | |

|service on general government bonds | |500,000 |

|Total fund balance, October 1, 2005 |$ |3,000,000 |

| | | |

|Required | | |

|Prepare a statement of revenues, expenditures, and changes in fund balance for the Jaspar County general fund| | |

|for the year ended September 30, 2006. | | |

| | | |

LO4

Exercise 10

|The unadjusted trial balance for the general fund of the City of Pegasus at June 30, 2006 is as follows: |

| |

|Debits | | |

|Accounts receivable |$ |40,000 |

|Cash | |75,000 |

|Due from agency fund | |25,000 |

|Encumbrances | |60,000 |

|Estimated revenues | |975,000 |

|Expenditures | |750,000 |

|Taxes receivable | |250,000 |

| | | |

|Credits | | |

|Allowance for doubtful accounts | |5,000 |

|Allowance for uncollectible taxes | |50,000 |

|Appropriations | |785,000 |

|Due to utility fund | |40,000 |

|Unreserved fund balance | |30,000 |

|Reserve for encumbrances | |60,000 |

|Revenues | |990,000 |

|Taxes received in advance | |15,000 |

|Vouchers payable | |200,000 |

| | | |

|Supplies on hand at June 30, 2006 totaled $8,000. The $60,000 encumbrance relates to equipment ordered but | | |

|not received by fiscal year-end. | | |

| | | |

|Required | | |

| | | |

|Prepare a balance sheet for the general fund of the City of Pegasus at June 30, 2006. | | |

Multiple Choice Questions

| 1. |c | |

| 2. |d | |

| 3. |a | |

| 4. |b | |

| 5. |d | |

| 6. |a | |

| 7. |b | |

| 8. |a | |

| 9. |d | |

|10. |b | |

|11. |c | |

|12. |b | |

|13. |c | |

|14. |c | |

|15. |b | |

|16. |a | |

|17. |b | |

|18. |a | |

|19. |d | |

|20. |a | |

Exercise 1

1.

CPF

Cash 2,560,000

Other financing sources-bond proceeds 2,560,000

Other financing uses-operating

transfers out 60,000

Cash 60,000

DSF

Cash 60,000

Other financing sources-operating

transfers in 60,000

2.

CPF

Encumbrances 2,425,000

Reserve for encumbrances 2,425,000

3.

CPF

Reserve for encumbrances 2,425,000

Encumbrances 2,425,000

Expenditures-capital outlay 2,445,000

Cash 2,445,000

4.

CPF

Residual equity transfers out 55,000

Cash 55,000

DSF

Cash 55,000

Residual equity transfers in 55,000

Exercise 2

1.

DSF

Cash 6,000,000

Other financing sources-refunding

bond proceeds 6,000,000

2.

GF

Other financing uses-operating

transfers out 3,700,000

Cash 3,700,000

DSF

Cash 3,700,000

Other financing sources-operating

transfers in 3,700,000

3.

DSF

Expenditures-payment to refunded bond

escrow agent 3,700,000

Other financing uses-payment to

refunded bond escrow agent 6,000,000

Cash 9,700,000

Exercise 3

1. No entry

2. Expenditures 1,600,000

Cash 1,600,000

Cash 1,600,000

Other financing sources-

reciprocal transfer from GF 1,600,000

Accounts receivable-grant 1,600,000

Grant revenue 1,600,000

3. Cash 4,500,000

Deferred grant revenue 4,500,000

4. Expenditures 3,000,000

Cash 3,000,000

Deferred grant revenue 3,000,000

Grant revenue 3,000,000

Exercise 4

Appropriations 19,000

Unreserved fund balance 1,000

Estimated revenues 20,000

Revenues 18,950

Operating transfers in 4,000

Expenditures 16,800

Encumbrances 1,200

Unreserved fund balance 4,950

Reserve for encumbrances-prior year 2,500

Expenditures-prior year 2,500

Exercise 5

Appropriations 196,500

Unreserved fund balance 11,500

Estimated revenues 208,000

Revenues 198,900

Operating transfers in 6,000

Expenditures 193,800

Encumbrances 3,200

Unreserved fund balance 7,900

Reserve for encumbrances-prior year 4,500

Expenditures-prior year 4,500

Exercise 6

1.

PF

Investments-marketable securities 200,000

Revenues-additions to permanent endowments 200,000

2.

GF

Encumbrances 48,000

Reserve for encumbrances 48,000

3.

GF

Reserve for encumbrances 48,000

Encumbrances 48,000

Expenditures-capital outlay 47,750

Cash 42,000

Vouchers payable 5,750

4.

GF

Cash 3,300

Other financing sources-proceeds from

sale of general fixed assets 3,300

5.

GF

Expenditures-capital outlay 120,000

Cash 10,000

Other financing sources-increase in

capital lease liabilities 110,000

Exercise 7

1.

GF

Cash 4,960,000

Other financing sources-bond proceeds 4,960,000

Encumbrances 4,975,000

Reserve for encumbrances 4,975,000

2.

AF

Taxes receivable 10,000,000

Liability to municipalities 6,000,000

Liability to county 4,000,000

Cash 8,500,000

Taxes receivable 8,500,000

Liability to county 3,400,000

Liability to municipalities 5,100,000

Cash 8,500,000

GF

Taxes receivable 4,000,000

Allowance for uncollectible taxes 80,000

Property tax revenue 3,920,000

Cash 3,400,000

Taxes receivable 3,400,000

3.

GF

Reserve for encumbrances 4,975,000

Encumbrances 4,975,000

Expenditures-capital outlay 4,975,000

Cash 4,975,000

4.

DSF

Expenditures 200,000

Cash 200,000

Exercise 8

| |

| |

|1.Center Township |$ |3,000,000 |

| | | |

|2.Pacific City |$ |500,000 |

| | | |

|3.Palm Lake City | | |

|Collections during 2006 |$ |750,000 |

|Expected collections in first 60 days of 2007 | |200,000 |

|2006 property tax revenue |$ |950,000 |

| | | |

|4.Dodge City | | |

|Revenues |$ |9,000,000 |

|Long-term debt proceeds | |1,000,000 |

|Expenditures | |(5,500,000) |

|Operating transfer out | |(3,000,000) |

|Fund balance increase |$ |1,500,000 |

| | | |

| | | |

| | | |

| | | |

| | | |

Exercise 9

Jasper County

General Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For the Year Ended September 30, 2006

Revenues:

Taxes $12,000,000

Licenses and permits 2,500,000

Intergovernmental grants 1,000,000

Total revenues 15,500,000

Expenditures:

Current operating expenditures:

General government 7,500,000

Public safety 2,000,000

Judicial 1,200,000

Health and welfare 1,750,000

Total current operating 12,450,000

Capital Outlay 750,000

Total expenditures 13,200,000

Excess of revenues over expenditures 2,300,000

Other financing sources (uses):

Operating transfer to debt service fund (500,000)

Excess of revenues and other financing sources

over (under) expenditures and other

financing uses 1,800,000

Fund Balance, October 1, 2005 3,000,000

Residual equity transfer in 1,800,000

Fund Balance, September 30, 2006 $6,600,000

Exercise 10

City of Pegasus

General Fund

Balance Sheet

June 30, 2006

Assets:

Cash $75,000

Taxes receivable (net of estimated

uncollectible of $50,000) 200,000

Accounts receivable (net of estimated

uncollectible of $5,000) 35,000

Due from other funds 25,000

Supplies 8,000

Total assets $343,000

Liabilities and Fund Balance:

Liabilities:

Vouchers payable 200,000

Due to enterprise fund 40,000

Taxes received in advance 15,000

Total liabilities 255,000

Fund Balance:

Reserved for encumbrances 60,000

Reserved for inventory 8,000

Unreserved 20,000

Total fund balance 88,000

Total liabilities and fund balance $343,000

Computation of Unreserved Fund Balance:

Pre-closing balance $ 30,000

Add:

Revenues $990,000

Appropriations 785,000 1,775,000

Deduct:

Expenditures $750,000

Encumbrances 60,000

Estimated revenues 975,000 1,785,000

Post-closing balance $ 20,000

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