Test bank with answers for advanced accounting 3e by jeter chapter 17

The two basic statements prepared for expendable fund entities are a balance sheet and an a.. Debit reserve for encumbrances and credit fund balance.. 17-2 On December 31, 2011, the foll

Chapter 17 Introduction to Fund Accounting

Multiple Choice

1 Governmental units include all of the following except

a counties

b school districts

c industrial development districts

d voluntary health and welfare organizations

2 Which type of fund entities are used to account for the activities of nonbusiness organizations that

are similar to those of business enterprises?

a Expendable fund entities

b Proprietary fund entities

c Budgetary fund entities

d Restricted fund entities

3 When budgeted expenditures are enacted into law, they are referred to as

a estimated expenditures

b encumbrances

c appropriations

d expenditures

4 The term used to describe the application of accounting to expendable fund entities is the

a accrual method

b cash method

c modified cash method

d modified accrual method

5 The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to

a Appropriations

b Expenditures

c Encumbrances

d both Appropriations and Encumbrances

6 The entry to record the receipt of office equipment previously encumbered includes a debit to

a Office Equipment

b Encumbrances

c Reserve for Encumbrances

d both Office Equipment and Reserve for Encumbrances

7 In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory"

account is used under

a the consumption method

b the purchase method

c both the consumption and purchase methods

d none of these

8 The two basic statements prepared for expendable fund entities are a balance sheet and a(n)

a income statement

b statement of revenue

c statement of expenditures and encumbrances

d none of these

9 If a credit was made to the fund balance in the process of recording a budget for a governmental

unit, it can be assumed that

a estimated expenses exceed actual revenues

b actual expenses exceed estimated expenses

c estimated revenues exceed appropriations

d appropriations exceed estimated revenues

10 The "reserve for encumbrances—prior year" account represents amounts recorded by a

governmental unit for

a anticipated expenditures in the next year

b expenditures for which purchase orders were made in the prior year but disbursement will be in the current year

c excess expenditures in the prior year that will be offset against the current-year budgeted

amounts

d unanticipated expenditures of the prior year that become evident in the current year

11 Which of the following requires the use of the encumbrance system?

a Capital projects fund

b Debt service fund

c Internal service fund

d Enterprise fund

12 The following related entries were recorded in sequence in the general fund of a municipality:

The sequence of entries indicates that

a an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was cancelled and a liability for the item was acknowledged

b an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350 for which a liability was acknowledged upon receipt

c encumbrances were anticipated but later failed to materialize and were reversed A liability of

$15,350 was incurred

d the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged

13 The reserve for encumbrances account is properly considered to be a

a current liability if payable within a year; otherwise, long-term debt

b fixed liability

c floating debt

d reservation of the fund's equity

14 Customers' meter deposits which cannot be spent for normal operating purposes would be classified

as restricted cash in the balance sheet of which fund?

a Internal Service

b Trust

c Agency

d Enterprise

15 What journal entry should be made at the end of the fiscal year to close out encumbrances for which

goods and services have not been received?

a Debit reserve for encumbrance and credit encumbrances

b Debit reserve for encumbrances and credit fund balance

c Debit fund balance and credit encumbrances

d Debit encumbrances and credit reserve for encumbrances

16 The GASB has the responsibility for establishing financial accounting standards for all of the

following entities except:

a state and local government entities

b veterans hospitals

c school districts

d civic organizations

17 The expendable fund entity’s measurement focus is on:

a the flow of current financial resources

b the flow of economic resources

c the flow of revenue, expenses, and net income

d none of the above

18 Under GASB Statement No 34, a government-wide financial statement should include a:

a statement of revenues & expenses

b statement of activities

c statement of financial position

d notes to the financial statements

19 In accounting for expendable fund entities, revenue is ordinarily not recognized until:

a it can be objectively measured and it is available to finance expenditures of the current period

b a transaction has taken place and the earnings process is complete

c it has been received in cash

d none of the above

20 The Expenditures account of a governmental unit is debited when:

a the budget is recorded

b supplies are ordered

c supplies encumbered are received

d the supplies invoice is paid

Problems

17-1 During 2011, the City of Paola was involved in the following transactions:

1 A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of

$1,550,000 was approved by the city council

2 Statements of property tax assessments totaling $1,100,000 were mailed to property owners Experience indicates that 2% of assessed taxes will be uncollectible

3 Equipment costing $85,000 was purchased, and old equipment was sold for $15,000 at the end

of its estimated useful life

4 The city manager signed a contract to purchase a machine costing $25,000

5 The city received a statement from the state indicating that the city's portion of the state sales tax is $50,000

6 The machine ordered in (4) above is delivered and accepted The invoice in the amount of

$26,000 was approved for payment

Required:

Prepare the journal entries needed to account for the preceding transactions

17-2 On December 31, 2011, the following account balances, among others, were included in the

preclosing trial balance of the General Fund of the City of Ottawa

Reserve for Supplies Inventory (2) 600,000

(1) The balance in this account was $270,000 on January 1, 2011 Purchase orders outstanding on December 2011 total $530,000

(2) Supplies on hand on December 31, 2011, amount to $380,000

Required:

1 What was the balance in the Unreserved Fund Balance account on December 31, 2010?

What was the total Fund Balance on December 31, 2010?

2 Prepare the necessary adjusting and closing entries for the year ended December 31, 2011

Ottawa uses the purchase method to account for supplies

17-3 The trial balance for the General Fund of the City of Girard as of December 31, 2010, is presented

below:

CITY OF GIRARD The General Fund Adjusted Trial Balance December 31, 2010

$288,000 $288,000 Transactions for the year ended December 31, 2011 are summarized as follows:

1 The City Council adopted a budget for the year with estimated revenue of $720,000 and

appropriations of $710,000

2 Property taxes in the amount of $495,000 were levied for the current year It is estimated that

$20,000 of the taxes levied will prove to be uncollectible

3 Proceeds from the sale of equipment in the amount of $32,000 were received by the General Fund The equipment was purchased four years ago with resources of the General Fund at a cost

of $200,000 On the date it was purchased, it was estimated that the equipment had a useful life

of six years

4 Licenses and fees in the amount of $90,000 were collected

5 The total amount of encumbrances against fund resources for the year was $595,000

6 Vouchers in the amount of $445,000 were authorized for payment This was $11,000 less than the amount originally encumbered for these purchases

7 An invoice in the amount of $19,000 was received for goods ordered in 2010 The invoice was approved for payment

8 Property taxes in the amount of $425,000 were collected

9 Vouchers in the amount of $385,000 were paid

10 Forty-one thousand dollars was transferred to the General Fund from the Trust Fund

11 The City Council authorized the write-off of $15,000 in uncollected property taxes

Required:

1 Prepare entries, in general journal form, to record the transactions for the year ended

December 31, 2011

2 Prepare the necessary closing entries for the year ending December 31, 2011

17-4 The following information regarding the fiscal year ended June 30, 2011, was drawn from the

accounts and records of the Chase County general fund:

Revenues and other asset inflows:

Collection of interfund advance to other fund 80,000

Expenditures and other asset outflows:

Payment to debt service fund to cover future debt

service on general government bonds 570,000

Total fund balance, July 1, 2010 $1,200,000

Required:

Prepare a statement of revenues, expenditures, and changes in fund balance for the Chase County general fund for the year ended June 30, 2011

17-5 The unadjusted trial balance for the general fund of the City of Iola at June 30, 2011, is as follows:

Debits

Credits

Supplies on hand at June 30, 2011, totaled $8,000 The $120,000 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 Iola at June 30, 2011

17-6 At the beginning of 2011, the City of Wichita reported an Unreserved Fund Balance of $890,000 and

a supplies inventory balance of $280,000 During the year, Wichita purchased $360,000 in supplies and used $350,000 worth The city will report a reserve for supplies inventory

Required:

a Prepare the journal entries needed to account for the supplies under the consumption

method

b Prepare the necessary journal entries under the purchases method

c What would the December 31, 2011, balance in the Unreserved Fund Balance be under the

consumption method, assuming that the only transactions of the fund are those involving the supplies?

17-7 The following account balances, among others, were included in the preclosing trial balance of the General Fund of the City of Baxter on December 31, 2011

Required:

a Prepare the necessary closing entries on December 31, 2011

b Calculate the amount of both the unreserved fund balance and the total fund balance in the

balance sheet (1) on December 31, 2010, and (2) on December 31, 2011

Short Answer

1 Fund entities may be classified as expendable fund entities, fiduciary fund entities, and proprietary fund entities Distinguish among expendable, fiduciary, and proprietary fund entities

2 Expendable fund entities prepare closing entries at the end of each period just as business

enterprises do Describe the necessary closing entries for expendable funds

Short Answer Questions from the Textbook

1 What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?

2 Define a fund as the term is applied in accounting for the activities of governmental units and other nonbusiness organizations

3 What is the significance of the ―unreserved fundbalance‖ of an expendable fund entity?

4 What are the major classifications of increases and decreases in expendable fund resources?

5 What are the revenue-recognition criteria for expendable fund entities? How do these criteria differ from revenue-recognition criteria for profit-oriented enterprises?

6 Expenditures may be classified by function, activity, object, or organizational unit Give an ex-ample of each classification for a municipality Which classification is the most appropriate for external financial reporting?

7 Distinguish between an appropriation, an en-cumbrance, an expenditure, and a disbursement

8 Distinguish between an expense and an expenditure

9 Explain and justify the difference between the treatment of estimated uncollectible taxes in fund accounting and the treatment of estimated bad debts in commercial accounting

10 Explain the purposes of encumbrance accounting Might encumbrance accounting be used by commercial enterprises?

11 Is the year-end balance in the Reserve for En-cumbrances account a liability? Explain

12 What columns would you suggest for a subsidiary ledger account in order that it might be a

subsidiary not only to the ―appropriations‖ control account but also the ―encumbrances‖ and the

―expenditures‖ control accounts?

13 Why is depreciation on fixed assets not recorded in the records of expendable fund entities?

14 How does the adoption of a budget for a general fund entity differ from the adoption of a budget by

a commercial unit?

15 Describe the principal financial statements used to report on the activities and status of expendable fund entities

16 Why may it be difficult or impossible for a governmental unit to determine the total cost of

performing a particular activity or function?

Business Ethics Question from the Textbook

At State College, where football has long reigned asking and fans are near fanatical in their attendance, the frenzy for football tickets has recently reached an all-time high With requests for home game tickets at an unprecedented level, prices on everything from parking passes to hotel rooms to home rentals have soared beyond belief Parking passes were going for $500 on eBay, and hotel rates have doubled—and in some cases nearly tripled—reaching as high as $650 per night at some hotels

1 What are the moral or ethical issues in charging what people will pay for rooms and tickets to at-tend a State College football game?

2 Why not let the economic forces of supply and demand determine prices in our capitalistic

system?

ANSWER KEY

Multiple Choice

1 d

2 b

3 c

4 d

5 a

6 c

7 b

8 d

9 c

10 b

11 a

12 b

13 d

14 d

15 c

16 d

17 a

18 b

19 a

20 c

Problems

17-2 1 Unreserved fund balance per trial balance $ 300,000

Unreserved fund balance as of December 31, 2010 $ 190,000

Unreserved fund balance as of December 31, 2010 $ 190,000

2 Adjusting and Closing Entries

Reserve for Supplies Inventory 220,000

17-3 1 Journal Entries

6 Expenditures 445,000

11 Estimated Uncollectible Taxes 15,000

2 Closing Entries

2 Reserve for Encumbrances – 2010 20,000

17-4

Chase County

General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance

For the Year Ended June 30, 2011 Revenues:

Expenditures:

Other financing sources (uses):

Operating transfers out-debt service fund (570,000)

Special items:

Proceeds from sale of equipment 40,000