smn10e tif ch05 mc

Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)Chapter 5 Revenue Accounting—Governmental Funds

1. Under the modified accrual basis, revenues are considered susceptible to accrual if A. Available to finance current period expenditures.B. Objectively measurable.C. Collected during the current period.D. Both available to finance current period expenditures and objectively measurable.

(Answer: D; Difficult; LO1)

2. Under the modified accrual basis, revenues are considered available to finance current period expenditures if they are legally available andA. Earned.B. Collected during the current period.C. Collected in the current period or soon enough thereafter to be used to pay liabilities of

the current period.D. Objective measureable.

(Answer: C; Difficult; LO1)

3. Property taxes are an example of which category of nonexchange transactions?A. Derived tax revenue.B. Imposed tax revenue.C. Government mandated nonexchange revenue.D. Voluntary nonexchange revenue.

(Answer: B; Easy; LO2)

4. Sale taxes are an example of which category of nonexchange transactions?A. Derived tax revenue.B. Imposed tax revenue.C. Government mandated nonexchange revenue.D. Voluntary nonexchange revenue.

(Answer: A; Easy; LO2)

5. State reimbursement to schools for a portion of any special education costs incurred is an example of which category of nonexchange transactions?A. Derived tax revenue.B. Imposed tax revenue.C. Government mandated nonexchange revenue.D. Voluntary nonexchange revenue.

(Answer: C; Moderate; LO2)

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6. How should taxes collected in advance in fiscal year 20X3 be reported in the fiscal year 20X3 General Fund financial statements?A. As a liability on the balance sheet.B. As a deferred inflow on the balance sheet.C. As revenue on the statement of revenues, expenditures, and changes in fund balance.D. As an other financing source on the statement of revenues, expenditures, and changes in

fund balance.(Answer: B; Moderate; LO3)

7. Which of the following should be included in tax revenues for the current year?A. Taxes collected this year that have been levied for next year.B. Prior year taxes collected during the first 60 days of this year.C. Taxes levied this year but not collected until mid-year of the next year.D. Taxes levied 2 years ago and collected in first 60 days of the next year.

(Answer: D; Difficult; LO4)

8. A government has a fiscal year end of June 30, 20X6. Tax bills for each fiscal year are prepared and mailed in June prior to the beginning of the fiscal year for which they apply. Tax revenue for the fiscal year ending June 30, 20X6, would includeA. Only taxes levied in June 20X5 which came available in either June 20X5 or between

July 1, 20X5, and June 30, 20X6, as well as any taxes associated with the June 20X5 levy collected within 60 days following June 30, 20X6.

B. Only the levy as of June 20X6.C. Only the levy as of June 20X5.D. Only taxes levied in June 20X5 which came available in either June 20X5 or between

July 1, 20X5, and June 30, 20X6, as well as any taxes associated with either the June 20X5 or the June 20X6 levy collected within 60 days following June 30, 20X6.

(Answer: A; Difficult; LO4)

9. Which of the following statements regarding tax revenue recognition in the General Fund is false?A. Tax revenues may be recorded when the tax is levied.B. Governments may choose to recognize tax revenue as it becomes available, not when it is

initially levied.C. Tax revenues are generally recorded at gross amounts of the levy, regardless of expected

collections.D. Tax revenues are generally recorded net of the allowance for uncollectibles.



10. A government levies property taxes and awards discounts for timely payment. How should the government report discounts that it expects will be taken?A. Report as expenditures in the year the taxes are levied.B. Report as expenditures in the year the discounts are awarded for early payments received.C. Report as other financing uses.D. Deduct from the amount of taxes levied to determine property tax revenues.

(Answer: D; Moderate; LO4)

11. Which of the following governmental fund revenue sources are typically recorded as revenues only as they are actually received in cash?A. Property taxes.B. Interest.C. Building permit fees.D. Reimbursement grants.


12. The City of Jonesboro allows discounts on taxes. Specifically, taxpayers get a 1% discount on the total tax if it is paid within one month of the initial levy. What would the journal entry be to record the levy of $700,000 if the government anticipates there will be a 2% uncollectible rate and it is anticipated that the discounts will be $5,000?

Debit CreditA. Taxes Receivable

Allowance for Uncollectible TaxesAllowance for DiscountsRevenues

$700,000$14,000

5,000681,000

B. Taxes ReceivableRevenues

$700,000 $700,000

C. Taxes ReceivableExpenditures

Allowance for Uncollectible TaxesRevenues

$695,0005,000

$14,000686,000

D. Taxes ReceivableAllowance for Uncollectible TaxesRevenues

$700,000$14,000686,000

(Answer: A; Difficult; LO4)


13. The Town of Lily Branch anticipated that discount opportunities of up to $3,000 would be taken by their taxpayers. Which of the following statements accurately reflects the accounting for the anticipated discounts when the taxes are levied?A. Revenues are initially recorded at the entire levy amount. Discounts taken are recorded as

expenditures when they are actually taken.B. Taxes receivable are reduced by the amount of discounts anticipated. The discounts

anticipated are recorded as expenditures at the time of the levy.C. Revenues are recorded at the time of levy net of anticipated discounts. Taxes receivable

are recorded at the full levy amount.D. Revenues are recorded at gross at the time of levy. At collection, taxes receivable are

reduced by the gross amount, the discount is recognized as a miscellaneous revenue, and cash is recorded at net.


14. A government allows discounts on taxes if payments are made within two months of the levy date. How does the government account for the discounts as they are being taken?A. Allowance for discounts is debited for the amount of the discounts taken.B. Expenditures are debited for the amount of the discounts taken.C. Revenue is debited for the amount of the discounts taken. D. Allowance is credited for the discount and is recorded at the time the discount is taken.

(Answer: A; Moderate; LO4)

15. A county anticipated that $6,500 of discounts would be taken on their initial tax levy. Which of the following statements is true if discounts were less than anticipated?A. Revenues would be increased.B. Revenues would be decreased.C. Expenditures would be decreased.D. Expenditures would be increased.


16. When a tax lien is formalized, a government must record an allowance for uncollectible tax liensA. In every possible situation.B. Only if the expected salable value of the property against which the lien was established

is less than the fair value of the property.C. Only if the expected salable value of the property against which the lien was established

is less than the total amount of the liens receivable against that property.D. Only if the lien is contested in court.



17. A city levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is expected to be uncollectible. The city collects $170,000 of its taxes during the year and another $25,000 during the first two months of the following year. What amount of property tax revenues should the city report in the General Fund financial statements for the current fiscal year?A. $200,000B. $198,000C. $195,000D. $170,000.


18. A city levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is expected to be uncollectible. The city collects $170,000 of its taxes during the year and another $25,000 during the first two months of the following year. In addition, the city collected $3,000 of prior year taxes during the first two months of the current fiscal year and another $2,000 during the remainder of the current fiscal year. What amount of property tax revenues should the city report in the General Fund financial statements for the current fiscal year?A. $200,000.B. $198,000.C. $197,000.D. $195,000.


19. A city collected $750,000 of taxes levied during the current fiscal year (the total levy was $780,000), $50,000 of past due taxes levied in a previous year, and $25,000 of prepayments for next year’s taxes. The city should report tax revenue in the General Fund ofA. $750,000.B. $800,000.C. $825,000.D. $855,000.

(Answer: B; Moderate; LO5)

20. In Year 1, a county levied $1,500,000 of property taxes and collected $1,400,000 of that levy; in Year 2, the levy was $1,550,000 and the related collections totaled $1,495,000; in Year 3, the levy was $1,575,000 and the related collections totaled $1,530,000. Also, collections of past due taxes in Years 1, 2, and 3 were $15,000, $14,000, and $19,000, respectively. Assuming that the General Fund’s deferred revenue at the beginning of Year 1 was $410,000, what would deferred revenue be as of the end of Year 3? A. $362,000.B. $562,000.C. $610,000.D. $658,000.

(Answer: B; Difficult; LO5)


21. GASB Statement No.31 requires the following investments to be recorded at fair value exceptA. Participating interest-earning investment contracts.B. Equity securities with readily determinable fair values.C. Debt securities.D. Nonparticipating interest-earning investment contracts.


22. When a governmental entity is decreasing the fair market value of an investment, the appropriate debit would be toA. Investments.B. Investment income.C. Cash.D. Loss on investments.


23. Which of the following statements regarding the accounting for investments in governmental funds is false?A. Interest receivable should be accrued as it is earned.B. Interest revenue should be recognized on a cash basis.C. Interest revenue is accrued as it meets the availability criteria.D. Decreases in the fair market value of equity securities with readily determinable fair

values result in a decrease in investment income.(Answer: B; Moderate; LO6)

24. A government received $30,000 of interest on investments of its General Fund during the year. The fair value of its investments increased by $3,500 during the year. In its General Fund statement of revenues, expenditures, and changes in fund balance the government should reportA. Investment income of $30,000 as revenues and the increase in the fair value of

investments of $3,500 as an other financing source.B. Investment income of $33,500 as revenues.C. Investment income of $33,500 as an other financing source.D. Investment income of $30,000 as revenues and disclose the increase in the fair value of

investments in the notes to the financial statements.(Answer: B; Moderate; LO6)


25. All of the following are examples of intergovernmental revenues exceptA. Amounts to which a government is entitled as determined by the federal government

pursuant to an allocation formula contained in a federal statute.B. Revenues levied by a state government but shared on a predetermined basis with other

governments.C. Interest earned on investments in bonds issued by other governments.D. Cash contributions received from another government to be used for a specified purpose.


26. Pass-through grants are accounted forA. Only in Agency Funds.B. By increasing or decreasing governmental fund assets and liabilities to reflect the agency

relationship–no revenues are reported in the governmental fund.C. As revenues and expenditures or expenses in the appropriate fund of the pass-through

entity (primary recipient).D. As other financing sources and other financing uses in the appropriate fund of the pass-

through entity (primary recipient).(Answer: C; Moderate; LO7)

27. The county received a $1,500,000 restricted grant from the state government to be used to improve its public safety department's communication systems. The county has met all eligibility requirements of the grant. In the current year, the General Fund should report this grant as A. Other financing sources.B. Deferred revenues.C. Revenues.D. Unearned revenues.


28. If a city receives notification of a grant award and the actual proceeds sixty days prior to the start of the grant period, the entry to record the grant in the Special Revenue Fund would beA. A debit to grants receivable and a credit to grants revenue.B. A debit to cash and a credit to grants revenue.C. A debit to grants receivable and a credit to unearned revenue.D. A debit to cash and a credit to unearned revenue.



29. The county received a $1,500,000 restricted grant from the state government to be used to improve its public safety department's communication systems. The county will not meet all eligibility requirements of the grant until next fiscal year, when the county plans to begin incurring expenditures for this purpose. In the current year, the General Fund should report this grant as A. Other financing sources.B. Deferred revenues.C. Revenues.D. Unearned revenues.


30. The City of Ruth has been awarded a $1,000,000 federal expenditure-driven grant to improve bike trails. The federal government advanced the city $600,000 when the grant was awarded on January 10, 20X8. The city incurred $418,000 of qualifying expenditures during 20X8. How much should the city of Ruth recognize as unearned revenue for its fiscal year ending December 31, 20X8?A. $182,000.B. $418,000.C. $582,000.D. $600,000.


31. The City of Ruth has been awarded a $1,000,000 federal reimbursement grant to improve bike trails. The city has incurred $418,000 of qualifying expenditures during the current year, for which the federal government has reimbursed the city $180,000. How much should the city of Ruth recognize as revenue for the current year?A. $1,000,000B. $598,000.C. $418,000.D. $180,000.


32. The City of Ruth has been awarded a $1,000,000 federal reimbursement grant to improve bike trails. The city has incurred $418,000 of qualifying expenditures to date, for which the federal government has reimbursed the city $180,000. How much should the city of Ruth show as due from the federal government?A. $820,000.B. $582,000.C. $418,000.D. $238,000.



33. Clark County was hired by Catlett City, the largest city in the county, to maintain some of its roads. Clark County billed Catlett City for its cost of maintaining the roads. The amount of the billing was $60,000. Clark County should report the $60,000 asA. An other financing source.B. A revenue.C. A reduction of expenditures.D. A gain on work performed for other governments.


34. The Ruby Falls Independent School District receives significant payments in lieu of taxes from the federal government to reimburse the district for lost revenues because a military base, which is not subject to property tax, is within the district's boundaries. These payments should be reported asA. Other financing sources — transfer.B. Revenue.C. An extraordinary item.D. A special item.


35. Inactive bank accounts that revert to the state after a period of time should beA. Reported at their full fair value as liabilities of the government.B. Recognized as revenue–net of any amounts expected to be claimed by heirs.C. Reported as unearned revenue.D. Reported in a special revenue fund.


36. The county received $75,000 from the annual sale of surplus general government property. The proceeds are deposited in the General Fund. The General Fund should report the proceeds as A. Other financing sources.B. Due to other funds.C. Revenues.D. Special item.


37. The county received a $75,000 payment in lieu of taxes from the water Enterprise Fund. The Enterprise Fund receives no service from the county for this payment. The General Fund should report the payment in A. Other financing sources — transfer.B. Interfund charges.C. Revenues.D. Special item.



38. Assume that a general capital asset was sold for $2,500. The asset was originally purchased for $10,000 and has been in use for 3 years. It has an estimated life of 5 years. What entry would be made in the General Fund to reflect this sale?

Debit CreditA. Cash

General Capital Assets$2,500

$2,500B. Cash

Accumulated DepreciationLoss on Sale of Capital Assets

General Capital Assets

$2,5006,0001,500

10,000C. Cash

Other Financing Sources$2,500

$2,500D. Cash

Loss on Sale of Capital AssetsGeneral Capital Assets, net

$2,5001,500

$4,000(Answer: C; Moderate; LO8)

39. If an expenditure was inadvertently charged to the General Fund instead of the appropriate Special Revenue Fund, what effect would the correction of this error later in the same fiscal year have on the General Fund?A. An entry would be made directly to the General Fund's fund balance to correct the error.B. Revenues would be increased.C. Expenditures would be decreased.D. Transfers in would be increased.


40. Assume the following transactions occurred in a school district General Fund during the year: Charges for services collected - $25,000 Taxes levied - $2,450,000 Taxes collected from current year levy and prior year tax levies - $2,320,000 Tax prepayments received - $10,000 Grants earned and received during the year - $300,000 Grants awarded but not yet available - $250,000The amount of revenues recorded in the General Fund for the year would beA. $2,895,000.B. $2,655,000.C. $2,645,000.D. $2,450,000.



smn10e tif ch05 mc

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