Exam 2 Chapters 1-2 REVIEW

Exam 2 Chapters 1-2 REVIEW Key1. Under the dual-track accounting approach used in this text, recording the annual budget for the General Fund requires journal entries in the general journals of both the General Fund and governmental activities at the government-wide level. FALSE

General Fund budgetary information affects only the General Fund. It is not recorded at the government-wide level.

2. The account Budgetary Fund Balance can have either a debit or credit balance. TRUE

The difference between the budgetary accounts Estimated Revenues and Estimated Other Financing Sources and the budgetary accounts Appropriations and Estimated Other Financing Uses is credited to Budgetary Fund Balance when inflows are expected to exceed outflows and debited to Budgetary Fund Balance when outflows are expected to exceed inflows.

3. Vehicles used by the Parks and Recreation Department should be accounted for in the General Fund. FALSE

GASB standards provide that capital assets should not be accounted for in a governmental fund since those funds account for financial resources only. General capital assets, such as those used by the Parks and Recreation Department should be accounted for in the governmental activities section of the government-wide statements.

4. The government-wide statement of net position uses the same measurement focus and basis of accounting used by the General Fund balance sheet. FALSE

GASB standards require that the government-wide statement of net position be prepared using the economic resources measurement focus and accrual basis of accounting. By contrast, the governmental funds balance sheet is prepared on the current financial resources measurement focus and modified accrual.

5. To properly account for the receipt of goods or services ordered in a prior fiscal year, it is necessary to know which appropriations were affected when the encumbrance documents were issued. TRUE

The appropriations of the year in which encumbrance documents were issued were charged for the estimated liability at the time the encumbrances were issued. In most jurisdictions the encumbered portion of the appropriation does not lapse at fiscal year-end and may properly be expended in the subsequent years when goods and services are received.

6. If the actual liability for goods received in the current year differs from the estimated liability recorded when the goods were ordered in the prior year, the Encumbrances account should be credited in the amount of the estimated liability. TRUE

If the actual liability for goods received differs from the estimated liability (which is often the case), the Encumbrances account is credited for the estimated liability that was originally debited.

7. Under the modified accrual basis of accounting applicable to governmental fund types, revenue from sources such as fines and forfeits is accrued and recorded at net realizable value. FALSE

Fines and forfeits, and many other sources of revenue of the General Fund and special revenue funds, are generally recognized when cash is received because there is no practicable way of measuring the revenue before collection.

8. Under current GASB standards the revenue from property taxes should be recorded in the amounts collected during the current period. FALSE

Property tax revenue is considered susceptible to accrual and should be recognized when tax bills are prepared. GASB standards require that imposed nonexchange transactions, such as property taxes, be recognized in the period for which the taxes are levied.

9. Whenever a significant revenue source is restricted for a specific operating purpose, a special revenue fund should be established. TRUE

GASB standards require that significant amounts of revenues restricted for specific purposes be reported in a special revenue fund.

10.A payment made by a city-owned utility to the General Fund of the city in lieu of taxes is an example of an "internal exchange transaction".TRUE

This is a common example of an internal exchange transaction. However, if the amount paid by the utility is significantly greater than the value of services received from the city's departments, the General Fund should report the excess amount as an other financing source (interfund transfers in).

11.An interfund transfer occurs when one fund of government pays another fund of the same government for services provided.FALSE

If services are provided the transaction is considered an exchange transaction and an expenditure would be recognized. An interfund transfer occurs when no reciprocal exchange occurs.

12. Which of the following financial statement(s) reports both current and noncurrent assets and liabilities?

Government-wide Statement of Net Position

General Fund Balance Sheet

A)

No

Yes

B)

No

No

C)

Yes

No

D)

Yes

Yes

A. Choice A B. Choice B C. Choice C D. Choice D

13. Which of the following should not be reported on the balance sheet of the General Fund? A. Equipment. B. Vouchers payable. C. Tax anticipation notes payable. D. Due from federal government.

14. When a computer is ordered by a department of the government, the purchase order should be recorded in the General Fund as a debit to A. Appropriations. B. Equipment. C. Encumbrances. D. Expenditures.

15. An interfund transfer inshould be reported in a governmental fund operating statement as a(an) A. Revenue. B. Due from other funds. C. Other financing source. D. Other financing use.

16. The Revenues account of a government is debited when A. The budget is recorded at the beginning of the year. B. Property taxes are recorded. C. The account is closed to fund balanceunassigned at the end of the year. D. Property taxes are collected.

17. On July 1, the first day of its fiscal year, the Town of Eldon levied a $1,000,000 property tax which is payable in full on December 1 of the same year. On September 15, the town decided to borrow $200,000 in 90-day tax anticipation notes to cover operating expenditures until the tax revenues are collected. The journal entry on September 15 to record the issuance of tax anticipation notes will include A. A credit to Other Financing SourcesProceeds of Tax Anticipation Notes. B. A credit to Tax Anticipation Revenue. C. A credit to Tax Anticipation Notes Payable. D. For the General Fund journal choice A, and choice C for the governmental activities journal.

18. The voters of the city passed an ordinance to increase their sales tax by percent. The proceeds of the sales tax are to be used for culture and recreation. In the governmental activities journal, how would the percent sales tax revenue be recorded? A. Program RevenueCulture and RecreationSales Tax. B. Program RevenueCulture and RecreationOperating Grants and Contributions. C. General RevenueSales Tax. D. General RevenueCulture and RecreationSales Tax.

19. When a fire truck purchased from General Fund revenues is received, what account, if any, should have been debited in the General Fund? A. No journal entry should be made in the General Fund. B. Expenditures. C. Encumbrances. D. Equipment.

20. Which of the following accounts would not be closed at the end of each fiscal year? A. Fund balance. B. Estimated revenues. C. Interfund transfers out. D. Expenditures.

21.At the end of the 2014 fiscal year the General Fund had $500 in encumbrances that remained opened into fiscal year 2015.In 2015 the encumbered goods were received at an invoiced cost of $520.How much would be recorded as the 2015 expenditure?A.$0.B.$20.C.$500.D.$520.

22. The governmental funds operating statement presents all of the following except A. Expenditures. B. Other financing sources. C. Revenues. D. Encumbrances.

23. In which fund would a government most likely account for the assets confiscated in drug arrests and legally required to be used for drug prevention education? A. General Fund. B. Permanent fund. C. Special revenue fund. D. Enterprise fund.

24. The General Fund is used to account for: A. Revenues and expenditures legally restricted to a specific purpose. B. The accumulation of resources to pay for principal and interest on the current portion of long-term debt. C. Construction of major capital assets. D. General administration of the government.

25. Under the consumption method for recording supplies that are maintained on a perpetual inventory system, the adjusting entry made at year end would affect which of the following accounts? A. Fund BalanceNonspendableInventory of Supplies. B. Fund BalanceRestrictedInventory of Supplies. C. Expenditures. D. Inventory of Supplies.

26. Which of the following transactions is classified as an exchange transaction rather than a nonexchange transaction? A. Fees charged for use of an athletic field at a city park. B. State grant to conduct a smoking cessation program for middle school-aged youth. C. Bequest left to the city by a former mayor. D. Personal property taxes.

27. On May 1, Vacca City was notified of approval of a $300,000 federal operating grant, payable on a reimbursement basis as the city expends resources for the intended purpose of the grant. As of May 1, no expenditures had been made for grant purposes. The journal entry to record approval of this grant will include A. A credit to Revenues in the amount of $300,000. B. A credit to Deferred Revenues in the amount of $300,000. C. A debit to Grants Receivable in the amount of $300,000. D. No journal entry will be made until expenditures for the authorized purpose occurs.

28. The Governmental Activities column of the government-wide statement of net position differs from the General Fund balance sheet in that it reports both current and noncurrent assets and liabilities. TRUE

These are the primary differences discussed in Chapter 4. Other differences depicted in Illustration 4-1 are format differences and the usual practice of reporting government-wide financial information in a more condensed manner.

29.Governments that are temporarily short of cash but that have levied taxes expected to be collectible during the fiscal year are generally able to borrow on short-term notes known as "tax anticipation notes payable".TRUE

Property taxes are a lien on the underlying property; therefore, the tax levy is generally considered by bankers or other lenders to be good security for short-term loans.

30. When an activity accounted for by the General Fund results in issuance ofpurchase orders or contracts for goods or services a record must be kept, but no journal entries in the General Fund are necessary. FALSE

The use of encumbrance accounting is strongly recommended to assist in budgetary control over expenditures so that appropriations will not be over-expended.

31.Encumbrances Outstanding is shown on the balance sheet as a restriction on fund balance.FALSE

Encumbrances Outstanding is a type of budgetary account. The account is used internally and does not appear on any of the external financial statements.

32. Generally, encumbrance accounting is not used in the accounting for payroll. TRUE

Recurring expenditures that are relatively constant in nature, such as payroll, are generally not encumbered by governments.

33. Governments, unlike business organizations, generally do not incur expenditures/expenses for the employer's share of FICA taxes and for contributions to other retirement plans established by law. FALSE

Fringe benefits given to employees of state and local governments whose salaries are paid by a governmental fund must be authorized by appropriations and therefore result in expenditures; fringe benefits for employees paid by a proprietary fund result in expenses.

34. Under GASB standards, Revenues must be credited for the total amount of the property tax levy. FALSE

Revenues should be credited for the portion of the receivable expected to be collectible; the estimated uncollectible portion is credited to Estimated Uncollectible Current Taxes.

35. Estimated uncollectible tax amounts are recorded in the General Fund general journal as a reduction in revenues and in the governmental activities journal as a bad debt expense. FALSE

The estimated amount of uncollectible tax is recorded in both the general journal and the governmental activities journal as a reduction in revenues.

36. A gas tax that is restricted for use on street construction and maintenance projects should be recorded as general revenues in the governmental activities journal. TRUE

In accordance with GASB standards, all tax revenues, even those restricted for a specific use, should be recorded as general revenues.

37. An interim schedule comparing the detail of appropriations, expenditures, and encumbrances should be prepared on an appropriate periodic basis to determine whether appropriations are being expended at the expected rate for the period and for the budget year to date. TRUE

Refer to Illustration 4b-2 and related discussion.

38. A payment made by the General Fund to a debt service fund would not be recorded in the governmental activities journal. TRUE

Under the dual-track accounting approach used in the textbook, transactions between two governmental funds that will appear in the Governmental Activities column on the government-wide statements, in this case the General Fund and a debt service fund, are not recorded in the governmental activities journal.

39. Fines and forfeits are reported as charges for services on the government-wide statement of activities. TRUE

Although it may not be intuitive that fines and forfeits would be considered a charge for services, GASB requires that fines and forfeits be reported as program revenue in the Charges for Services column of the statement of activities.

40. Amounts due to or from other funds should be eliminated from government fund financial statements so that the statements show only the receivables from and payables to entities external to the government. FALSE

GASB standards regard funds as separate fiscal and accounting entities; therefore, interfund receivables and payables should not be eliminated.

41.As a general rule, revenues, expenditures, and expenses should be reported as such only once in the funds of a government.TRUE

This is the position taken by GASB and it serves as the rationale for recording the transactions illustrated in Chapter 4 under the caption "nonreciprocal interfund activity".

42. Property taxes due 75 days after the end of the 2014 fiscal year would be recognized in 2014 as revenues in the General Fund general journal. FALSE

Under GASB standards the property taxes would not be considered available for spending in the current year since they are due more than 60 days after the fiscal year end. Therefore, under modified accrual the General Fund would record deferred revenues in 2014 rather than revenues.

43.The General Fund gives assets to the internal service fund that the internal service fund is not expected to repay. The transaction would be recorded as an interfund transfer.TRUE

The transaction described is a nonrecurring event that meets the definition of an interfund transfer.

44. Under the dual-track accounting approach used in the text, which of the following transactions or events would be recorded in the general journal for governmental activities at the government-wide level? A. Recording the annual budget, property tax levy, and payroll. B. Recording the property tax levy, issuance of tax anticipation notes, and year-end accrual of interest on long-term debt. C. Recording the property tax levy, payroll, and encumbrances for purchase orders. D. Recording the property tax levy, encumbrances for purchase orders, and payment of interest on long-term debt.

45. The City of Newton purchased a vehicle for the police department. If the operations of the police department are financed by general revenues, an asset would be recorded in which journal(s)?

General Fund

Governmental Activities

A)

Yes

No

B)

No

No

C)

No

Yes

D)

Yes

Yes

A. Choice A. B. Choice B. C. Choice C. D. Choice D.

46. The Town of Ashland levied property taxes in the amount of $800,000. The town estimates that 1 percent will be uncollectible. The journal entry to record the tax levy will include A. A debit to Cash for $792,000. B. A credit to Revenues for $792,000. C. A debit to Estimated Uncollectible Current Taxes for $8,000. D. A debit to Estimated Revenues for $800,000.

47. The General Fund has transferred cash to the appropriate fund for eventual retirement of term bonds maturing in 10 years. Which funds would record this transaction?

General Fund

Capital Projects Fund

Debt Service Fund

A)

Yes

No

Yes

B)

No

No

Yes

C)

Yes

No

No

D)

Yes

Yes

Yes

A. Choice A. B. Choice B. C. Choice C. D. Choice D.

48. Using the information below, what amount should be accounted for in a special revenue fund or funds? A. $1,800,000. B. $2,100,000. C. $3,300,000. D. $5,350,000.

49. Which of the following would properly be reported in the operating statement of a governmental fund? A. Interest on a tax anticipation note issued and repaid during the period. B. Amortization expense. C. Depreciation expense. D. A grant that is intended to finance activities of the following period.

50. Which of the following would be considered an internal exchange transaction? A. The General Fund transfers $200,000 to establish a Central Supplies Fund; this amount will not be repaid. B. The General Fund transfers $125,000 to the Debt Service Fund for payment of currently due bond interest payments. C. The General Fund transfers $9,000 tothe Central Supplies Fund for supplies it received from Central Supplies. D. The Capital Projects Fund completes a library building project and transfers the remaining cash to the Debt Service Fund.

51. The General Fund used electricity provided by the city-owned electric utility (an enterprise fund of the city). The General Fund general journal entry to record the transaction will include A. A debit to Expenses. B. A debit to Expenditures. C. A debit to Interfund Transfers Out. D. A debit to Due to Other Funds.

52. The General Fund used electricity provided by the city-owned electric utility (an enterprise fund of the city). The governmental activities journal entry to record the transaction will include A. A debit to Expenses. B. A debit to Expenditures. C. A debit to Internal Balances. D. No entry would be recorded since the transaction is between two funds of the same government.

53. Which of the following best describes the proper treatment for uncollectible amounts of tax revenue? A. Report as bad debt expense. B. Report revenues net of uncollectible amounts. C. Report as bad debt expenditures. D. Report as deferred revenue.

54. The General Fund received $200,000 in lieu of taxes from the city owned water utility, an enterprise fund. This is an example of a(an) A. Interfund transfer. B. Interfund loan. C. Internal exchange transaction. D. Reimbursement.

55. Property taxes due and collectible 90 days after the 2014 fiscal year end would be recorded as revenues in 2014 in which journal?

General Fund

Governmental Activities

A)

Yes

No

B)

No

No

C)

No

Yes

D)

Yes

Yes

A. Choice A. B. Choice B. C. Choice C. D. Choice D.

56. Cartier Village's capital expenditures during the year ended December 31 included: What amounts should have been recorded in the General Fund and enterprise fund for the increase in equipment during the year ended December 31, assuming the electric utility is considered an enterprise fund? A. General Fund: $0; Enterprise Fund: $0 B. General Fund: $0; Enterprise Fund: $60,000 C. General Fund: $40,000; Enterprise Fund: $60,000 D. General Fund: $100,000; Enterprise Fund: $0

57. The City of Grand Marais' fiscal year ends on June 30. Grand Marais uses encumbrance accounting. On May 6, a purchase order was approved and issued for supplies in the amount of $6,000. Grand Marais received these supplies on June 2, and the $6,000 invoice was approved for payment. What General Fund journal entry should Grand Marais make on May 6, to record the approved purchase order

A)

Encumbrances

6,000

Appropriations

6,000

B)

Supplies

6,000

Vouchers Payable

6,000

C)

Encumbrances

6,000

Encumbrances Outstanding

6,000

D)

Expenditures

6,000

Encumbrances

6,000

A. Choice A B. Choice B C. Choice C D. Choice D

58. The City of Grand Marais uses encumbrance accounting. On May 6, a purchase order was approved and issued for supplies in the amount of $6,000. Grand Marais received these supplies on June 2, and the $6,000 invoice was approved for payment. What General Fund journal entry or entries should Grand Marais make on June 2, upon receipt of the supplies and approval of the invoice?

Debits

Credits

A)

Encumbrances Outstanding

6,000

Encumbrances

6,000

Expenditures

6,000

Vouchers Payable

6,000

B)

Encumbrances

6,000

Appropriations

6,000

Fund BalanceUnassigned

6,000

Vouchers Payable

6,000

C)

Supplies

6,000

Vouchers Payable

6,000

D)

Appropriations

6,000

Encumbrances

6,000

Supplies

6,000

Vouchers Payable

6,000

A. Choice A. B. Choice B. C. Choice C. D. Choice D.

59. The liabilities for accrued payroll (pay owed employees but not paid at year-end) would be recorded in which journal?

General Fund

Governmental Activities

A)

Yes

No

B)

No

No

C)

No

Yes

D)

Yes

Yes

A. Choice A. B. Choice B. C. Choice C. D. Choice D.

60. The Encumbrances Outstanding account is properly termed a A. Long-term liability. B. Reservation of unassigned fund balance. C. Budgetary account. D. Current liability if paid within a year; otherwise, long-term debt.

61. Which of the following will require a debit to Fund Balance--Unassigned of a governmental fund when operating statement accounts are closed at the end of the year, assuming there are no other financing sources or uses? A. Revenues are less than expenditures. B. Revenues are more than expenditures. C. Revenues are more than expenditures and encumbrances. D. Revenues are less than expenditures and encumbrances.

62. During January 2014 General Fund supplies ordered in the previous fiscal year and encumbered at an estimated amount of $2,000 were received at an actual cost of $2,200. The entry to record this transaction will require a debit to A. Expenditures2014 in the amount of $2,200. B. Expenditures2013 in the amount of $200. C. Expenditures2014 in the amount of $200. D. Expenditures2013 in the amount of $2,200.

63. In fiscal year 2014 the "Expenditures2013" account represents A. Excess expenditures in 2013 that will be offset against appropriations for 2014. B. Goods or services received in 2013 which the government has no record of ordering. C. Amount of expenditures for goods ordered in 2013 that were received in 2014 and chargeable to appropriations of 2013. D. The amounts of purchase orders issued in 2013 that were intended to be paid in full from appropriations for 2014.

64. If state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by GAAP, then the budgetary comparison schedule or statements should A. Not be included as part of the basic financial statements. B. Be included with the actual figures presented on the budget basis and then reconciled to the GAAP basis. C. Be included with budget figures and actual figures adjusted to the GAAP basis. D. Be included as part of management's discussion and analysis (MD&A).

65. Which of the following transactions is classified as an exchange transaction rather than a nonexchange transaction? A. Property taxes. B. Fees charged by a municipal airport. C. Bequest left to the city by a wealthy citizen. D. State grant to conduct an after school program for children.

66. The City of Tipton received 100 acres of land located in the city limits as a gift from a local property owner for use as a city park. The debit for the entry to record this event in the General Fund should be to A. General capital assets. B. Land. C. Expenditures. D. No entry is required in General Fund.

67. Equipment acquired several years ago by a capital projects fund and reported in the governmental activities statement of net position at a net book value of $2,000 was sold for $1,000 cash. Journal entries are necessary in the general journals of the A. General Fund, capital projects fund, and governmental activities. B. General Fund and governmental activities. C. General Fund, capital projects fund, and enterprise fund. D. Capital projects fund and governmental activities.

68. Which of the following journal entries should a government use to record $475,000 for police department salaries and wages during a particular month? A. Choice A. B. Choice B. C. Choice C. D. Choice D.

69. Which of the following assets would appropriately be reported on the governmental funds balance sheet? A. Capital assets. B. Inventories. C. Deferred charges for debt issuance costs. D. Goodwill.

70. Which of the following would be reported on the operating statement of a governmental fund? A. The liability for the annual obligation to the employee retirement plan. B. Depreciation expense. C. Resources received for services to be provided in future periods. D. Revenue related to prior periods.

71. If a government issues debt to finance capital acquisition, how should the related long-term debt be reported by the governmental fund that receives the proceeds of the debt? A. Long-term liability. B. Revenue. C. Other financing source. D. Not reported by the governmental fund; only reported at the government-wide level.

72. Under the modified accrual basis of accounting, revenues should be recognized when A. Realizable. B. Earned. C. Available. D. Spent.

73. Which of the following is properly reported as an other financing source by the General Fund? A. Sales taxes. B. Interfund transfers in. C. Parking fines. D. Sale of zoning maps.

74. When an enterprise fund pays the General Fund an amount in lieu of taxes, the account to be credited in the General Fund is A. Cash. B. Operating Transfer in. C. Revenues. D. Fund Balance--Unassigned.

75. Revenues that are legally restricted to be expended for specified operating purposes should be accounted for in special revenue funds, including A. Endowment where the investment earnings are to be used for public purposes. B. Pension trust fund revenues. C. Accumulation of resources for payment of general long-term debt principal and interest. D. Gasoline taxes to finance road repairs.

76. The citys electric utility fund sent $700,000 to the General Fund to help cover the citys operating costs. This transaction would be recorded in the governmental activities journal as A. Interfund transfer in. B. Internal balance. C. Revenue. D. It would not be recorded since the transaction involves two funds of the same government.

77. Which of the following types of nonexchange transactions recognize revenue when all the eligibility requirements are met? A. Voluntary nonexchange transactions. B. Imposed nonexchange transactions. C. Derived tax revenues. D. Property tax revenues.

78. Which of the following is not a program revenues classification used in the governmental activities journal and reported in the government-wide statement of activities? A. User fees. B. Operating grants and contributions. C. Charges for services. D. Capital grants and contributions.

79.The following are key terms in Chapter 4 that relate to exchange and nonexchange transactions: A. Derived tax revenues B. Exchange-like transactions C. Nonexchange transactions D. Nonexchange revenue E. Voluntary nonexchange transactions F. Imposed nonexchange revenue G. Exchange transactions H. Time restrictions I. Purpose restrictions J. Eligibility requirements For each of the following definitions, indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

1. C, 2. A, 3. E, 4. F, 5. B, 6. H

80.The following are key terms in Chapter 4 that relate to governmental operating activities and transfers: A. Inter-activity transactions B. Internal exchange transactions C. Interfund loans D. Intra-entity transactions E. Interfund transfers For each of the following definitions, indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

1. B, 2. D, 3. E, 4. A, 5. C.

82. General capital assets should be distinguished from capital assets that are specifically associated with activities financed by proprietary and fiduciary funds, since capital assets acquired by proprietary and fiduciary funds are accounted for by those funds. TRUE

Long-lived assets used by activities financed by the General Fund or other governmental funds are called general capital assets. Capital assets that are specifically associated with activities financed by proprietary and fiduciary funds are not general capital assets.

83. GASB standards require that all governmental expenditures for long-lived assets be accounted for by a capital projects fund. FALSE

If the acquisition of long-lived assets can be financed from use of General Fund or special revenue fund revenues a capital projects fund need not be utilized; for example, the purchase of a computer from General Fund revenues. A capital projects fund should be created to account for resources that are raised for the express purpose of financing the construction or acquisition of capital assets.

84. General capital assets acquired under capital leases should not be recorded in the governmental activities accounts. FALSE

General capital assets acquired by capital lease should be capitalized in the governmental activities accounts in the same manner as general capital assets acquired with other resources.

85. Capital projects funds generally do not use the Encumbrances control account. FALSE

Contracts and purchase orders for a capital project may be numerous and may be outstanding for several years. Thus, it is recommended that capital projects funds use encumbrance accounting.

86. At the timea bond issue is legally authorized it is usual practice to make either no entry or a memorandum entry in the capital projects fund general journal. TRUE

There are no cash proceeds to be recognized until bonds are actually sold, so it would be inappropriate to make a formal journal entry prior to actual issuance.

87. Construction contracts for governmental projects often provide that a certain percentage of each billing by the contractor will be retained by the government until the project is inspected and accepted upon completion. TRUE

This provision protects the government from situations in which a contractor may prematurely move equipment and/or personnel from a project, leaving project completion or minor rework to the government. It also avoids or minimizes the necessity of costly lawsuits to enforce full compliance with the contract.

88. When a project has been completed, inspected, and accepted, retained percentages of contract billings may be paid. TRUE

Upon final inspection and acceptance, if it is determined that all work on the project was satisfactorily completed and that no rework is required, there is no legal basis for continuing to retain a portion of the contractual amount.

89. Water rightspurchased by a city would be considered a capital asset. TRUE

As discussed in Chapter five, water rightspurchased by the city would be considered an intangible asset, which is a capital asset that does not have physical existence. If such assets are separable from the government, which is the case for water rights, the assets are accounted for like any other capital assets.

90.If general capital assets are donated, revenue related to the donation is recognized in the governmental fund statement of revenue, expenditures and changes in fund balance.FALSE

If general capital assets are donated, revenue related to the donation is recognized in the government-wide statement of activities and classified as program revenue or general revenue consistent with the criteria discussed in Chapter 3. Since general capital assets are not recorded in the fund financial statements, no revenue will be recognized within the fund financial statements.

91.After all liabilities are paid and the operating statement accounts closed, it is common to transfer any remaining assets of a capital projects fund to the General Fund.FALSE

Bond indentures usually provide that any portion of bond proceeds not needed for construction be transferred to the fund that will pay the interest on the bonds and redeem the principal upon maturity, the debt service fund in most cases. The disposition of excess amounts received under gifts or grants should be in accord with the wishes of the donors or grantors.

92. Under a service concession arrangement, a government transfers the rights and obligations of an asset to another legally separate governmental or private sector entity. TRUE

In a service concession arrangement, a government transfers the rights and obligations of an asset to another legally separate governmental or private sector entity. This external entity, the operator, provides public services through the use of the asset, collecting related fees in return for an up-front payment to the transferring government.

93. Which of the following would be considered a general capital asset? A. A vehicle purchased from General Fund revenues. B. A vehicle purchased and maintained by an enterprise fund. C. A computer purchased from revenues of an internal service fund and used by the supplies department. D. Real estate purchased with the assets of a pension trust fund.

94. The capital assets used by government departments accounted for in the governmental funds should be reported in A. The appropriate governmental funds. B. The property, plant, and equipment fund. C. Departmental memorandum records. D. The governmental activities accounts at the government-wide level.

95. GASB standards require that A. General capital assets be recorded at historical cost. B. Donated capital assets be recorded at their fair value at the time of receipt, plus ancillary charges. C. A capital asset be recorded at estimated cost if the cost of a capital asset was not recorded when the asset was acquired and it is unknown when accounting control over the asset occurred. D. All of the above.

96. Which of the following funds of a government uses the modified accrual basis of accounting? A. Private-purpose trust fund. B. Capital projects. C. Internal service. D. Enterprise.

97. A capital projects fund might be used to account for which of the following activities? A. Maintaining roads and bridges. B. Building a parking garage. C. Providing water and sewer services. D. Servicing long-term debt.

98. Which of the following statements is correct concerning interest expenditures incurred during the period of construction of capital projects? A. Interest expenditures may not be capitalized as part of the cost of general capital assets reported in governmental activities. B. Interest expenditures may be capitalized as part of the cost of general capital assets reported in the governmental activities accounts at the government-wide level. C. Interest expenditures must be capitalized as part of the cost of general capital assets reported in the capital projects fund. D. The capitalization of interest expenditures as part of the cost of general capital assets reported in the capital projects fund is optional.

99. For which of the following assets can the "modified approach" be elected in lieu of depreciation? A. Buildings and equipment. B. All general capital assets. C. All capital assets. D. Eligible infrastructure assets.

100. At the government-wide level, net position related to capital assets should be reported as A. Net investment in capital assets. B. Restricted or unrestricted financial assets, as appropriate. C. General capital assets, preceding general long-term liabilities. D. Net equity in capital assets.

101. In which of the following funds or activities general journals would it not be appropriate to record depreciation of capital assets? A. Capital projects fund. B. Internal service fund. C. Business-type activities. D. Governmental activities.

102. When a government transfers the rights and obligations of an asset to another legally separate governmental or private sector entity, the transaction is referred to as A. A capital lease. B. An operating lease. C. A service concession arrangement. D. A sale-leaseback agreement.

103. In addition to required disclosures about general capital assets, a government is required to allocate the depreciation expense on all of its general capital assets to functional categories. FALSE

Depreciation is to be included as an expense of a functional category if it can be specifically identified with a function or program, or is a shared capital asset. Depreciation can be reported as a separate line item for capital assets that essentially serve all functions of government (such as city hall). Depreciation on infrastructure can also be reported as a separate line item.

104. Under a service concession arrangement, A. The transferring government continues to report the transferred asset as a capital asset and any related contractual obligations as liabilities. B. The operating government will record the transferring governments payment or receivable, a liability for the present value of significant contractual obligations and a corresponding deferred inflow of resources for the difference between the two. C. Any deferred inflow is recognized as revenue at the time the arrangement takes place. D. All of the above statements are true.

105. If a capital projects fund starts construction of a building in one year and finishes it in a subsequent year an entry must be made in the governmental activities accounts until the building is completed, inspected, and accepted. TRUE

In each year during construction, an entry must be made in the general journal of Governmental Activities to record Construction in Progress. During the year the building is completed, Construction in Progress is reclassified to the Building account.

106. The disposal of a general capital asset, resulting in no revenue or expenditure to the government, is recorded only in the governmental activities accounts. TRUE

The transaction would not be recorded in a governmental fund since there is no inflow or outflow of current financial resources.

107. A government must capitalize the cost of improvements such as roads and bridges, because the GASB requires the cost of such assets to be displayed in the basic financial statements. TRUE

GASB standards require that improvements that enhance the utility or life of capital assets be capitalized.

108. Depreciation of general capital assets for the period should be reported in the operating statement for governmental activities at the government-wide level. TRUE

Under GASB standards depreciation expense that can be identified with particular functions or programs and be reported as part of the expenses of those functions or programs in the government-wide statement of activities. Depreciation that cannot be identified with functions or activities may be reported as a separate line item.

109.Governments may choose the modified approach, whereby they are not required to record depreciation on general capital assets.FALSE

Under the modified approach, governments elect not to record depreciation of infrastructure assets if certain requirements are met. Depreciation is recorded for general capital assets other than infrastructure assets.

110. The cost of the periodic recarpeting of the city mayor's office should be capitalized in the governmental activities accounts. FALSE

Periodic recarpeting does not add to the utility or function of the building nor does it enhance the value of the building, or any other capital assets; therefore, redecorating is not a capitalizable cost.

111.A governmentexpended $200,000 to buy land to be used by the city electric utility as a site for an office building. This land should be capitalized in the utility fund, not in the governmental activities accounts.TRUE

GASB standards require that capital assets acquired by or used by a proprietary fund be accounted for in that fund, thus distinguishing those capital assets from general capital assets. The land would also be reported in the business-type activities accounts.

112. Cash discounts available on the purchase of capital assets but not taken should be capitalized as part of the cost of the capital assets. FALSE

Cash discounts, whether or not taken, are not a cost of the asset. Cash discounts taken should be treated as a reduction of cost; those not taken are noncapitalizable expenditures of the governmental fund acquiring the assets.

113. One of the required general capital asset disclosures is a report on the additions to, and deductions from, general capital assets during the course of a fiscal year. TRUE

These disclosures are part of the capital asset disclosures shown in Illustration 5-2 for the City of Jacksonville.

114. Capital projects funds should use the modified accrual basis of accounting for revenues and expenses. FALSE

Modified accrual accounting records revenues and expenditures, not expenses.

115. Proceeds of debt issued for the construction or acquisition of capital assets are recognized by the capital projects fund as "other financing sources" and as a liability in the governmental activities journal. TRUE

The long-term liability would not be recorded in the capital projects fund since it is a governmental fund type. Governmental funds account for only current assets and liabilities.

116. If a bond sale occurs between interest dates, accrued interest sold should be credited to Proceeds of Bonds. FALSE

Accrued interest sold is conceptually an offset against the first semiannual interest payment after the issue; therefore, it should be recorded in a debt service fund rather than a capital projects fund. If this is not possible, the amount collected by the capital projects fund should be recorded as Due to Debt Service Fund, a current liability account, rather than as part of Proceeds of Bonds.

117. The recorded premium on tax-supported bonds issued should be amortized at the government-wide level in the same manner as a bond premium would be amortized by a business that issued bonds. TRUE

It is important to note, however, that the amortization is recorded only at the government-wide level.

118. Interest incurred on interim or long-term financing during construction of general capital assets cannot be capitalized as part of the cost of those assets. TRUE

GASB standards require that interest incurred during the period of construction not be capitalized as part of self-constructed general capital assets. Such interest should be capitalized, however, for self-constructed capital assets of a proprietary fund.

119. Streets, curbs, and sidewalks constructed or acquired through use of capital projects fund resources should never be reported in the financial statements of a government because they are for the use of the public, not for use by the government. FALSE

GASB standards require infrastructure assets to be reported in the Governmental Activities column of the government-wide statements, in part because the long-term liabilities incurred to finance these projects are recorded.

120. The acquisition of long-lived assets under an operating lease does not require any asset recognition in the accounts of any governmental fund. TRUE

While it is true that there is no need to record an acquisition of an asset or a liability under an operating lease (particularly in a governmental fund, since those funds never report a long-lived asset), scheduled rental payments will be recorded as expenditures and use of cash in the appropriate governmental fund.

121. Water rightspurchased by a city would be considered a capital asset. TRUE

As discussed in Chapter five, water rightspurchased by the city would be considered an intangible asset, which is a capital asset that does not have physical existence. If such assets are separable from the government, which is the case for water rights, the assets are accounted for like any other capital assets.

122. Even though the life of a capital projects fund is the life of the project, not year-to-year, operating statement accounts should be closed at year-end to facilitate preparation of year-end financial statements. TRUE

A year-end statement for a capital projects fund is in reality interim in the life of the project, but the capital projects fund financial information needs to be combined with that of the other funds and account groups for purposes of preparing the annual financial report.

123. If all asset, liability, and fund equity accounts of a capital projects fund were closed during a certain fiscal year, it is unnecessary to prepare any financial statements for that fund for that year. FALSE

Even though no amounts can be shown in a balance sheet, all revenues, other financing sources, expenditures, other financing uses, and changes in fund balance during the year should be reported in the appropriate operating statements.

124. The following items were included in Prairie City's General Fund expenditures for the year ended JuneHow much should be classified as capital assets in Prairie City's General Fund balance sheet at June 30? A. $0. B. $4,000. C. $10,000. D. $14,000.

125. During the year, a wealthy local merchant donated a building to the city of Pasedena. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The appraised fair market value of the donation at the date of the gift was $600,000, of which $40,000 was the value of the land on which the building was situated. At what amount should Rosewood record this donated property in the governmental activities accounts at the government-wide level? A. $50,000. B. $300,000. C. $600,000. D. $0.

126. During the year, a wealthy local merchant donated a building to the city of Pasedena. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The appraised fair market value of the donation at the date of the gift was $600,000, of which $40,000 was the value of the land on which the building was situated. At what amount should Rosewood record this donated property in the General Fund? A. $50,000. B. $300,000. C. $600,000. D. $0.

127. Which of the following is not a required disclosure about each major class of capital assets? A. Beginning-of-year and end-of-year balances showing accumulated depreciation separate from historical cost. B. Capital acquisitions and sales or other dispositions during the year showing the date and method of acquisition or disposition. C. Depreciation expense for the current period with disclosure of the amounts charged to each function in the statement of activities. D. Disclosures describing works of art or historical treasures that are not capitalized and explaining why they are not capitalized.

128. The city of Oak Park constructed a new storage facility using the city's own public works employees. Construction costs were incurred in the amount of $900,000, plus $25,000 in interest on short-term notes used to finance construction. What amount should be capitalized as a general capital asset? A. $900,000. B. $925,000. C. $875,000. D. $0.

129. The following general capital assets were owned by the town of Otterville:What amount should be recorded as capital assets in the town's governmental activities accounts if Otterville follows GASB standards? A. $0. B. $3,250,000. C. $5,250,000. D. $6,250,000.

130. Equipment in general governmental service that had been acquired several years ago by a special revenuefund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the governmental activities journal will include all of the following except A. A debit to Cash for $15,000. B. A debit to Accumulated Depreciation for $30,000. C. A credit to Equipment for $40,000. D. A credit to Other Financing Sources for $5,000.

131. Equipment in general governmental service that had been acquired several years ago by a special revenuefund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the special revenue fundwill include A. A credit to Other Financing Sources for $15,000. B. A debit to Accumulated Depreciation for $30,000. C. A credit to Equipment for $40,000. D. All of the above.

132. How should a capitallease for a general capital asset be recorded in the governmental activities accounts at the inception of the lease? A. Debit to a capital asset account. B. Debit to a capital expense/expenditure account. C. Credit to Capital Lease Obligations Payable. D. Both A and C are correct.

133. How should a capitallease for a general capital asset be recorded in the General Fundaccounts at the inception of the lease? A. Debit to a capital asset account. B. Debit to a capital expense/expenditure account. C. Credit to Capital Lease Obligations Payable. D. Both A and C are correct.

134. The city of Columbus issued bonds at par for the construction of a new city office building. Receipt of the bond proceeds would result in journal entries in which funds? A. Capital Projects Fund: Yes; Debt Service Fund: No B. Capital Projects Fund: No; Debt Service Fund: Yes C. Capital Projects Fund: Yes; Debt Service Fund: Yes D. Capital Projects Fund: No; Debt Service Fund: No

135.A government enters into a capital lease for the purchase of a new fire truck. The present value of the future lease payments is $745,500 and there is a down payment at the inception of the lease of $25,000. The fire truck should be recorded in the General Fund atA.$25,000.B.$770,500.C.$745,500.D.$0.

136.A government enters into a capital lease for the purchase of a new fire truck. The present value of the future lease payments is $745,500 and there is a down payment at the inception of the lease of $25,000. The fire truck should be recorded in the governmental activities accounts atA.$25,000.B.$770,500.C.$745,500.D.$0.

137. With regard to depreciation of general capital assets, which of the following statements is correct? A. Depreciation expense should be recorded in the appropriate governmental funds, and recorded in the governmental activities accounts. B. Depreciation expense must be recorded in the governmental fund, but no depreciation expense is recorded in the governmental activities accounts. C. No depreciation can be recorded in any governmental fund, but depreciation expense must be recorded in the governmental activities accounts. D. No depreciation can be recorded in any governmental fund, nor is it permissible to record depreciation expense in the governmental activities accounts.

138. Which of the following is true regarding capital projects funds? A. Encumbrances accounting is employed. B. Encumbrances accounting is not normally employed, but Estimated Revenues and Appropriations accounts are used. C. No budgetary accounts are ever used. D. All budgetary accounts are employed in the same manner as for the General Fund and special revenue funds.

139. In 2014, Canon City signed a contract in the amount of $6,000,000 for the construction of a new city hall. Expenditures were $4,000,000 in 2014 and $2,050,000 in 2015, which included a change to the original construction design in the amount of $50,000. What amount should be added to net capital assets in the governmental activities accounts in 2015? A. $6,000,000 B. $6,050,000 C. $2,050,000 D. $2,000,000

140. The sale of tax-supported bonds at par for the eventual construction of a new city jail would require recognition in which of the following funds and/or activities? A. Capital projects and debt service funds. B. Debt service fund, capital projects, and governmental activities. C. Debt service fund and the governmental activities. D. Capital projects fund and the governmental activities.

141.To defray engineering and other preliminary expenses incurred prior to the issuance of a long-term bond issue, a capital projects fund borrowed the sum of $50,000 on a short-term basis from National Bank.This transaction should be recorded inA.The capital projects fund.B.The debt service fund.C.The General Fund.D.None of the above. Debt is not recorded in governmental funds.

142. Interfund transfers from the General Fund to the capital projects fund to provide partial financing of a capital project would be reported by the capital projects fund as a(an) A. Fund balance addition. B. Revenue. C. Other financing source. D. Current liability.

143. Which of the following is a true statement about governments that issue tax-supported debt to finance capital projects? A. Most states do not permit bonds to be issued at a premium. B. Accrued interest is recorded as an other financing source of the capital projects fund. C. Premiums on bonds issued must be amortized in the debt service fund. D. Premiums on bonds issued are recorded as an other financing source of the debt service fund.

144.When materials that were ordered for a capital projects fund for use on a construction project are received but the invoice has not yet paid, what account is debited?A.Encumbrances.B.Appropriations.C.Vouchers payable.D.Construction Expenditures.

145.Which of the following activities or transactions would normally not be accounted for in a capital projects fund?A.Construction of a new city jail.B.Construction of airport runways financed by revenue bonds and to be repaid from the revenues of the city airport, an enterprise fund.C.Lease of a building to be used as a city office building.D.Construction of a new city park to be maintained primarily from General Fund revenues.

146.A city recorded an asset impairment to a Public Works facility. Which of the following is correct concerning the recording of the amount of the asset impairment?A.The General Fund would record a debit to Expenditures.B.The General Fund would record a debit to Other Financing UsesLoss due to Impairment.C.The governmental activities accounts would record a debit to Loss due to Impairment.D.The governmental activities accounts would record a debit to ExpensesPublic Works.

147.Premiums received on tax-supported bonds are generally transferred to what fund?A.Internal service fund.B.Debt service.C.General.D.Special revenue.

148. In late June, the Buildit Construction Co. submitted a $600,000 progress billing on a construction contract. On July 2, the bill was approved for payment, subject to a five percent retention, as provided by the contract. Construction expenditures should be debited when A. The bill is approved for payment. B. The bill is received. C. The bill is paid (except for the five percent retention). D. The final five percent of the bill is paid.

149. In late June, the Buildit Construction Co. submitted a $600,000 progress billing on a construction contract. On July 2, the bill was approved for payment, subject to a five percent retention, as provided by the contract. The amount that should be debited to Construction Expenditures is A. $0. B. $30,000. C. $570,000. D. $600,000.

150. At the start of a capital lease the journal entry required in the capital projects fund will include which of the following? A. A debit to Capital Lease Equipment. B. A debit to Expenditures. C. A credit to Obligations under Capital Leases. D. A debit to Other Financing UsesCapital Leases.

151. Which of the following is one of the requirements that must be met to elect the "modified approach" to reporting certain eligible infrastructure assets? A. The government omits the cost of the assets from the government-wide statement of net assets. B. The government maintains the assets at a condition level equal to or greater than 75 percent of the condition of a new asset. C. The government manages the assets using an asset management system that meets specific criteria. D. The government gets the permission of the Government Accounting Standards Board.

152. A capital projects fund might be used to record which of the following activities? A. Building an addition to the city hall building. B. Maintaining roads and bridges. C. Operating a municipal golf course. D. Paying the principal and interest on debt incurred to build a municipal swimming pool.

153. The following are the city of Beaver Creek's capital assets:What aggregate amount should Beaver Creek record in the governmental activities journal? A. $7,000,000. B. $8,000,000. C. $8,700,000. D. $9,700,000.

154. When a police vehicle purchased by a government is received, it should be recorded in the governmental activities general journal as a(an) A. Expenditure. B. Capital asset. C. Appropriation. D. Expense.

155. Equipment acquired several years ago by a capital projects fund and recorded in the governmental activities general journal was sold. The cash received was considered to be unrestricted revenue. Entries are necessary in the A. General Fund, capital projects fund, and governmental activities. B. General Fund, capital projects fund, and enterprise fund. C. General Fund and governmental activities. D. Governmental activities only.

156. The city of Palisades purchased a squad car for the police department. If the operations of the police department are financed by general revenues, which of the following is correct concerning where the purchase of the car would be recorded? A. General Fund: No; Governmental Activities: Yes B. General Fund: No; Governmental Activities: No C. General Fund: Yes; Governmental Activities: No D. General Fund: Yes; Governmental Activities: Yes

157.The following key terms from Chapter 5 relate to general capital assets and capital projects: A. Bond anticipation notes B. Infrastructure assets C. Service Concession Arrangements D. General capital assets E. Capital projects funds F. Asset impairment G. Capital leases H. Operating leases I. Depreciation For each of the following definitions, indicate the key term from the list above that best matches the definition by placing the appropriate letter in the blank space next to the definition. _____ 1. A rental-type lease in which the risks and benefits of ownership are primarily those of the lessor _____ 2. Short-term interest-bearing instruments issued by a government with a plan to replace with longer-term debt _____ 3. Roads, bridges, curbs and gutters, streets, sidewalks, and drainage systems installed for the common good _____ 4. Capital assets of a government that are not recorded in a proprietary or fiduciary fund _____ 5. Significant, unexpected decline in the service utility of a capital asset

1. H, 2. A, 3. B, 4. D, 5. F