Test bank with answers for advanced accounting 3e by jeter chapter 18

All of the following are Governmental Expendable Fund Entities except the aa. When a truck is received by a governmental unit, it should be recorded in the General Fund as an a.. Which o

Chapter 18 Introduction to Accounting for State and Local Governmental Units

Multiple Choice

1 The highest level of priority of pronouncements that a government entity should look to for

accounting and reporting guidance is

a GASB Technical Bulletins

b GASB Concepts Statements

c AICPA Industry Accounting Guides

d GASB Statements

2 Which of the following funds would account for operations that are financed and operated in a

manner similar to private business enterprises?

a Debt Service Fund

b Enterprise Fund

c Internal Service Fund

d Special Revenue Fund

3 All of the following are Governmental (Expendable) Fund Entities except the

a Capital Projects Fund

b Debt Service Fund

c Internal Service Fund

d Special Revenue Fund

4 The activities of a municipal airport should be accounted for in the

a General Fund

b Internal Service Fund

c Special Revenue Fund

d both governmental and expendable funds

6 The liability for general obligation long-term debt is reported in the

a Debt Service Fund

b Capital Projects Fund

8 Internal Service Fund billings to government departments for services rendered is an example of

c Special revenue fund

d Capital projects fund

14 A city should record depreciation as an expense in its

a general fund and enterprise fund

b internal service fund and general fund

c enterprise fund and internal service fund

d enterprise fund and capital projects fund

15 Part of the general obligation bond proceeds from a new issuance was used to pay for the cost of a

new city hall as soon as construction was completed The remainder of the proceeds was transferred

to repay the debt Entries are needed to record these transactions in the

a general fund and capital projects fund

b general fund and debt-service fund

c trust fund and debt-service fund

d debt-service fund and capital projects fund

16 One of the differences between accounting for a governmental unit and a commercial unit is that a

governmental unit should

a not record depreciation expense in any of its funds

b always establish and maintain complete self-balancing accounts for each fund

c use only the cash basis of accounting

d use only the modified accrual basis of accounting

17 When a truck is received by a governmental unit, it should be recorded in the General Fund as a(n)

a appropriation

b encumbrance

c expenditure

d fixed asset

18 Which of the following should be accrued as revenues by the general fund of a local government?

a Sales tax held by the state which will be remitted to the local government

b Parking meter revenues

c Sales tax collected by merchants

d Income taxes currently due

19 Which of the following funds of a governmental unit recognizes revenues and expenditures under

the same basis of accounting as the general fund?

a Debt service

b Enterprise

c Internal service

d Nonexpendable trust

20 Repayments from the funds responsible for a particular expenditure to the funds that initially paid

for them are interfund

a loans

b services provided and used

c transfers

d reimbursements

21 It is proper to recognize revenues or expenditures resulting from which of the following

classifications of interfund activity?

a Interfund loans and interfund transfers

b Interfund services provided/used and interfund reimbursements

c Interfund reimbursements and interfund loans

d Interfund services provided/used and interfund transfers

22 Revenues of a special revenue fund of a governmental unit should be recognized in the period in

which the

a revenues become available and measurable

b revenues become available and appropriated

c revenues are billable

d cash is received

23 What is the underlying reason a governmental unit uses separate funds to account for its

transactions?

a Governmental units are so large that it would be unduly cumbersome to account for all

transactions as a single unit

b Because of the diverse nature of the services offered and legal provisions regarding activities of

a governmental unit, it is necessary to segregate activities by functional nature

c Generally accepted accounting principles require that nonbusiness entities report on a funds basis

d Many activities carried on by governmental units are shortlived and their inclusion in a general set of accounts could cause undue probability of error and omission

24 Which of the following is not a budgetary account?

a Appropriations

b Estimated Revenues

c Encumbrances

d Reserve for Encumbrances

25 An interfund transfer should be reported in a governmental fund operating statement as a(n):

a due from (to) other funds

b other financing source (use)

c revenue or expenditure

d none of the above

Problems

18-1 During 2010, the City of Lebo started a street paving project The project is being financed by the

proceeds from the issue of five-year, 6% special assessment bonds payable at a face value of

$3,000,000 The bonds were issued July 1, 2010 at their par value One-fifth of the principal plus interest is payable on June 30 of each year beginning June 30, 2011 Property owners are assessed to provide the funds to pay the principal and interest on the debt

The following transactions occurred during 2010 and 2011:

1 The bonds for the paving of the streets were issued

2 The street paving was completed at a cost of $3,000,000

3 Property owners were assessed and billed for the first installment of principal and interest on the special assessment debt

4 Assessments for the first installment of principal and interest on the special assessment debt were collected The June 30, 2011, payment of principal and interest was made

B The City of Lebo has made a commitment to the holders of the special assessment bonds to

assure the full payment of principal and interest on the due dates

18-2 The following activities and transactions are typical of those which may affect the various funds

used by a municipal government

3 Kansas City sold a general obligation term bond issue for $1,000,000 at 104 to a major

brokerage firm The stated interest rate is 10% Construction of a new Municipal Courts Building will be financed by the bond issue proceeds

4 The premium on bond sale in (3) above is transferred to the Debt Service Fund

5 At the end of fiscal year, the Zola City Council approves the write-off of $55,000 of uncollected taxes because of inability to locate the property owners

6 The Kansas City Municipal Courts Building (3 above) is completed Contracts and expenses total $1,190,000, and all have been paid and recorded in the Capital Projects Fund Prepare entries to close this project and record the completion of the project in all other funds and/or account groups affected Any balance in the Capital Projects Fund is to be applied to payment

of interest and principal of the bond issue

7 On March 1, Webb City issued 10% serial bonds at par to finance streetlights in an area recently incorporated in the city limits The face amount of the bonds is $900,000; interest is payable annually, and bonds are to be retired in equal amounts over 6 years from collections from assessments against property affected In case of default by the property owners, the bond principal will be paid by the city

a Record the issuance of the bonds on March 1 of the current year

b Record the payment to bondholders on March 1 of the next year

8 The street lighting project in (7) above was completed on September 30 at a total cost of

$840,000 Record summary entries for expenditure transactions from March 1 - September 30, and on completion of the project

18-3 Prepare entries, in general journal form, to record the following transactions in the proper fund(s)

and/or account group(s) Designate the fund or account group in which each entry is recorded

1 Bond proceeds of $2,000,000 were received to be used in constructing a new City Jail An equal amount is contributed from general revenues

2 Serial bonds in the amount of $300,000 matured Interest of $75,000 was paid on these and other serial bonds outstanding

3 Insurance proceeds amounting to $19,000 were received as a result of the accidental destruction

of a garbage truck costing $33,000 Accumulated depreciation on the truck was $21,000

4 The City Parks Endowment Fund transferred $160,000 in expendable funds to the City Parks Special Revenue Fund

5 Proceeds of $21,000 were received from the sale of equipment which had been purchased from general revenues at a cost of $100,000 Accumulated depreciation on the equipment was

$75,000

6 The City Power Company (an enterprise fund) issued a bill for $400,000 for electricity provided

to municipal government buildings

7 The City Power Company transferred excess funds of $90,000 to the General Fund

8 A central data processing center was established by a contribution of $400,000 from the General Fund, a long-term loan of $130,000 from the City Parks Special Revenue Fund, and general obligation bond proceeds of $180,000

9 The Data Processing Fund billed the General Fund $20,000 and the City Parks Special Revenue Fund $8,500 for data processing services

10 The City Power Company received $7,000 as customer deposits during the year The monies are to be held in trust until customers request that their services be discontinued and final bills are collected

11 In order to retire general obligation term bonds when they become due, it is determined that the Debt Service Fund will require annual contributions of $40,000 and earnings in the current year

of $3,000

18-4 The general fund trial balance for Shawnee City held the following balances at June 30, 2011, just

before closing entries were made:

Reserve for Encumbrances – Prior Year 1,500

Required:

Prepare the necessary closing entries

18-5 The following schedule of capital assets was prepared for Pratt County

All capital asset acquisitions were made in the capital projects fund and paid in cash An asset was sold by the general fund for $40,000 cash

Required:

Determine how the above information will be reflected on each of the following statements for the year 2011

A The governmental funds’ statement of revenues, expenditures, and changes in fund

balances List the governmental fund and then list the dollar amount within the appropriate heading on the statement (such as Revenues, Expenditures, or Other Financing Sources (Uses))

B The government-wide statement of net assets

C The government-wide statement of activities

18-6 The following events take place:

1 Interest payments in the amount of $20,000 that are the responsibility of the Debt Service Fund are paid by the General Fund

2 The Internal Service Fund bills the Special Revenue Fund $25,000 for services performed

3 The Special Revenue Fund transfers $10,000 to the Internal Service Fund as a temporary loan

4 The General Fund transfers $150,000 to start an Internal Service Fund

Required:

Identify the interfund activity as a loan, services provided and used, interfund transfer, or interfund reimbursement and prepare entries in general journal form to record the transactions on the records

of the fund involved

18-7 The following transactions take place:

1 On January 1, the city issued 9% general obligation bonds with a face value of $4,000,000 payable in 10 years to finance the construction of city offices Total proceeds were

$4,500,000

2 On December 20, construction was completed and occupancy taken of the city offices The full cost of $3,900,000 was paid to the contractor, and appropriate closing entries were made with regard to the project

3 The General Fund repaid the Special Revenue Fund a loan of $15,000 plus $900 in interest on the loan

Required:

Prepare entries in general journal form to record these transactions in the proper fund(s) Designate the fund in which each entry is recorded

Short Answer

1 There are eleven categories of government fund entities that fall under three subheadings Describe

the subheadings of government fund entities

2 GASB Statement No 34 specifies how governments report capital assets and long-term obligations

Describe where capital assets and long-term obligations are reported in government financial

statements

Short Answer Questions from the Textbook

1 Eleven funds are recommended to account for the various activities and resources of a mental unit Identify these funds by title and type and briefly state (in two sentences or less) the basic purpose of each fund

govern-2 Why are governments required to prepare financial statements on a government-wide basis using full accrual accounting?

3 What is the difference between a governmental fund and a proprietary fund?

4 Are fiduciary funds governmental funds or proprietary funds? Explain

5 A disbursement by the general fund to another fund may be recorded as a receivable, an

expenditure, or a fund transfer Explain the circum-stances that would result in each of these

different treatments

6 In what funds would you expect bonds payable to be included?

7 In what funds might property and other non financial resources be recorded?

8 Why are budgeted revenues and expenditures formally recorded in the records of the general fund but not in the records of a capital projects fund?

9 Are all major capital facilities acquisitions ac-counted for in a capital projects fund? Explain

10 What exception to the normal expenditure recognition criteria is associated with debt ser-vice funds and what is the justification for this exception?

11 Identify and describe four types of interfund activities

12 The following funds and account groups are recommended for use in accounting for state and municipal governmental financial operations:

A General Fund

B Special Revenue Fund

C Debt Service Fund

D Capital Projects Fund

E Agency Fund

F Enterprise Fund

G Internal Service Fund

H Trust Fund

I Government-wide Statement of Activities

J Government-wide Statement of Net Assets

Identify, by the letters given above, the funds and account groups in which each of the ac-count titles below might properly appear

(6) Property Taxes Receivable

(7) Construction Work in Progress

government-Business Ethics Question from the Textbook

GASB 45requires that the expected future costs of retiree health costs be recognized in the current period Prior to this, governments used a pay-as-you-go plan in which only the current year’s actual payments

affected the financial statements Suppose you are working for a government prior to the issuance of GASB

45 As part of the collective bar-gaining agreement, the government offers employees increased health benefits

1 Prior to the issuance of GASB 45, what would be the impact on the government’s financial statements?

2 Under GASB 45, what are the financial statement implications?

3 Why might the current governmental leaders agree to offer such a benefit?4.What are the ethical issues involved in this decision?

2 Capital Projects Fund

B

1 Capital Projects Fund

2 Capital Projects Fund

3 Debt Service Fund

[(3,000,000/5) + (3,000,000 × 06)]