Chapter 19 Test Bank

ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS - GOVERNMENTAL FUNDS

Multiple Choice Questions

LO11. 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.

LO12. 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.

LO13. 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.

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LO14. 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.

LO25. 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, revenuesb. general, revenuesc. general, other financing sourcesd. capital projects, other financing sources

LO26. 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.

LO27. 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.

LO38. 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.

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LO39. 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.

LO310. 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.

LO311. 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.

LO312. 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.

LO413. 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.

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LO414. 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.

LO415. Which financial statement(s) is (are) required for governmental

funds with legally adopted annual budgets?

I. The statement of cash flowsII. 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.

LO416. 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.

LO417. General fund operating lease payments are typically reported as

a. overhead expenditures.b. rental expenditures.c. general government expenses.d. capital outlay expenditures.

LO518. 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.

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LO519. 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.

LO520. 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.

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LO1Exercise 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.

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LO1Exercise 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.

LO1Exercise 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.

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LO1Exercise 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 $ 750Unreserved fund balance 5,000Estimated revenues 20,000Revenues 18,950Appropriations 19,000Expenditures - current year 16,800Expenditures - prior year 2,500Encumbrances 1,200Operating transfers in 4,000Reserve for encumbrances 1,200Reserve for encumbrances - prior year 2,500

Required

Prepare the necessary closing entries.

LO1Exercise 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 $ 2,700Unreserved fund balance 51,000Estimated revenues 208,000Revenues 198,900Appropriations 196,500Expenditures - current year 193,800Expenditures - prior year 4,500Encumbrances 3,200Operating transfers in 6,000Reserve for encumbrances 3,200Reserve for encumbrances - prior year 4,500

Required

Prepare the necessary closing entries.

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LO1&2Exercise 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.

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LO1&2Exercise 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.

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LO3Exercise 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..........$3,000,000Proceeds of debt issue.......................1,000,000Interfund 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 $750,000Expected collections in first 60 days of 2007 200,000Expected collections during the remainder of 2007 50,000Expected collections during January 2008 30,000Estimated 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..............................$7,000,000Expenditures.................................5,500,000Other financing sources......................1,000,000Other financing uses.........................3,000,000Revenues ................................ 9,000,000

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

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LO4Exercise 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 $ 12,000,000Licenses and permits 2,500,000Intergovernmental grants 1,000,000Proceeds of short-term note issuances 1,200,000Collection of interfund advance to other fund 800,000Receipt of net assets of terminated fund 1,800,000Expenditures and other asset outflows:General government expenditures 7,500,000Public safety expenditures 2,000,000Judicial system expenditures 1,200,000Health and welfare expenditures 1,750,000Equipment purchases 750,000Payment to debt service fund to cover future debt service on general government bonds 500,000Total fund balance, October 1, 2005 $ 3,000,000

RequiredPrepare a statement of revenues, expenditures, and changes in fund balance for the Jaspar County general fund for the year ended September 30, 2006.

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LO4Exercise 10

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

DebitsAccounts receivable $ 40,000Cash 75,000Due from agency fund 25,000Encumbrances 60,000Estimated revenues 975,000Expenditures 750,000Taxes receivable 250,000

CreditsAllowance for doubtful accounts 5,000Allowance for uncollectible taxes 50,000Appropriations 785,000Due to utility fund 40,000Unreserved fund balance 30,000Reserve for encumbrances 60,000Revenues 990,000Taxes received in advance 15,000Vouchers 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.

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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

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Exercise 1

1.CPFCash....................................... 2,560,000

Other financing sources-bond proceeds... 2,560,000

Other financing uses-operatingtransfers out........................ 60,000

Cash.................................... 60,000

DSFCash....................................... 60,000

Other financing sources-operatingtransfers in ........................ 60,000

2. CPFEncumbrances............................... 2,425,000

Reserve for encumbrances................ 2,425,000

3. CPFReserve for encumbrances................... 2,425,000

Encumbrances............................ 2,425,000

Expenditures-capital outlay................ 2,445,000Cash.................................... 2,445,000

4.CPFResidual equity transfers out.............. 55,000

Cash.................................... 55,000

DSFCash....................................... 55,000

Residual equity transfers in............ 55,000

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Exercise 2

1.DSFCash....................................... 6,000,000

Other financing sources-refundingbond proceeds........................... 6,000,000

2.GFOther financing uses-operating

transfers out........................... 3,700,000Cash.................................... 3,700,000

DSFCash....................................... 3,700,000

Other financing sources-operatingtransfers in............................ 3,700,000

3. DSFExpenditures-payment to refunded bond

escrow agent............................ 3,700,000Other financing uses-payment to

refunded bond escrow agent.............. 6,000,000Cash.................................... 9,700,000

Exercise 3

1. No entry

2. Expenditures......................... 1,600,000Cash............................. 1,600,000

Cash................................. 1,600,000Other financing sources-

reciprocal transfer from GF..... 1,600,000 Accounts receivable-grant........... 1,600,000 Grant revenue.................... 1,600,000

3. Cash................................. 4,500,000Deferred grant revenue........... 4,500,000

4. Expenditures......................... 3,000,000Cash............................. 3,000,000

Deferred grant revenue............... 3,000,000Grant revenue 3,000,000

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Exercise 4

Appropriations............................. 19,000Unreserved fund balance.................... 1,000

Estimated revenues...................... 20,000

Revenues................................... 18,950Operating transfers in..................... 4,000

Expenditures............................ 16,800Encumbrances............................ 1,200Unreserved fund balance................. 4,950

Reserve for encumbrances-prior year........ 2,500Expenditures-prior year................. 2,500

Exercise 5

Appropriations............................. 196,500Unreserved fund balance.................... 11,500

Estimated revenues...................... 208,000

Revenues................................... 198,900Operating transfers in..................... 6,000

Expenditures............................ 193,800Encumbrances............................ 3,200Unreserved fund balance................. 7,900

Reserve for encumbrances-prior year........ 4,500Expenditures-prior year................. 4,500

Exercise 6

1.PFInvestments-marketable securities.......... 200,000

Revenues-additions to permanent endowments 200,000

2. GF Encumbrances............................... 48,000

Reserve for encumbrances................ 48,000

3.GFReserve for encumbrances................... 48,000

Encumbrances............................ 48,000

Expenditures-capital outlay................ 47,750Cash.................................... 42,000

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Vouchers payable........................ 5,750

4.GFCash....................................... 3,300

Other financing sources-proceeds fromsale of general fixed assets......... 3,300

5. GFExpenditures-capital outlay................ 120,000

Cash.................................... 10,000Other financing sources-increase in

capital lease liabilities............ 110,000

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Exercise 7

1.GFCash....................................... 4,960,000

Other financing sources-bond proceeds... 4,960,000 Encumbrances............................... 4,975,000

Reserve for encumbrances................ 4,975,000

2. AFTaxes receivable........................... 10,000,000

Liability to municipalities............. 6,000,000 Liability to county..................... 4,000,000

Cash....................................... 8,500,000Taxes receivable........................ 8,500,000

Liability to county........................ 3,400,000Liability to municipalities................ 5,100,000 Cash.................................... 8,500,000

GFTaxes receivable........................... 4,000,000

Allowance for uncollectible taxes....... 80,000 Property tax revenue.................... 3,920,000

Cash....................................... 3,400,000Taxes receivable........................ 3,400,000

3. GFReserve for encumbrances................... 4,975,000

Encumbrances............................ 4,975,000

Expenditures-capital outlay................ 4,975,000Cash.................................... 4,975,000

4.DSFExpenditures............................... 200,000

Cash.................................... 200,000

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Exercise 8

1.Center Township $ 3,000,000

2.Pacific City $ 500,000

3.Palm Lake CityCollections during 2006 $ 750,000Expected collections in first 60 days of 2007 200,0002006 property tax revenue $ 950,000

4.Dodge CityRevenues $ 9,000,000Long-term debt proceeds 1,000,000Expenditures (5,500,000)Operating transfer out (3,000,000)Fund balance increase $ 1,500,000

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Exercise 9

Jasper CountyGeneral Fund

Statement of Revenues, Expenditures, and Changes in Fund BalanceFor the Year Ended September 30, 2006

Revenues:Taxes...................................... $12,000,000Licenses and permits....................... 2,500,000Intergovernmental grants................... 1,000,000

Total revenues.......................... 15,500,000

Expenditures:Current operating expenditures:General government......................... 7,500,000Public safety.............................. 2,000,000Judicial................................... 1,200,000Health and welfare......................... 1,750,000

Total current operating................. 12,450,000Capital 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 sourcesover (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

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Exercise 10

City of PegasusGeneral FundBalance SheetJune 30, 2006

Assets:Cash....................................... $75,000Taxes receivable (net of estimated uncollectible of $50,000)................. 200,000Accounts receivable (net of estimated uncollectible of $5,000).................. 35,000Due from other funds....................... 25,000Supplies................................... 8,000

Total assets............................ $343,000

Liabilities and Fund Balance:

Liabilities:Vouchers payable........................... 200,000Due to enterprise fund..................... 40,000Taxes received in advance.................. 15,000

Total liabilities....................... 255,000

Fund Balance:Reserved for encumbrances.................. 60,000Reserved for inventory..................... 8,000Unreserved................................. 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......................... $990,000Appropriations................... 785,000 1,775,000

Deduct:Expenditures..................... $750,000Encumbrances..................... 60,000Estimated revenues............... 975,000 1,785,000

Post-closing balance.................... $ 20,000

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