Exam Item 19-1 (True or False)
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 citys 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.
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, revenues
b.general, revenues
c.general, other financing sources
d.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.
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.
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 flows
II. 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.
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.
LO1
Exercise 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.
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.
LO1
Exercise 3Prepare 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.
LO1
Exercise 4The 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$750
Unreserved fund balance5,000
Estimated revenues20,000
Revenues18,950
Appropriations19,000
Expenditures - current year16,800
Expenditures - prior year2,500
Encumbrances1,200
Operating transfers in4,000
Reserve for encumbrances1,200
Reserve for encumbrances - prior year2,500
Required
Prepare the necessary closing entries.
LO1
Exercise 5The 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$2,700
Unreserved fund balance51,000
Estimated revenues208,000
Revenues198,900
Appropriations196,500
Expenditures - current year193,800
Expenditures - prior year4,500
Encumbrances3,200
Operating transfers in6,000
Reserve for encumbrances3,200
Reserve for encumbrances - prior year4,500
Required
Prepare the necessary closing entries.
LO1&2
Exercise 6El 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.
LO1&2Exercise 7Johnson 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.
LO3Exercise 8Address 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$3,000,000
Proceeds of debt issue1,000,000
Interfund transfers from debt service750,000
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 $750,000
Expected collections in first 60 days of 2007 200,000
Expected collections during the remainder of 2007 50,000
Expected collections during January 2008 30,000
Estimated 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$7,000,000
Expenditures5,500,000
Other financing sources1,000,000
Other financing uses3,000,000
Revenues
9,000,000
At what amount will Dodge City's total fund balance increase (decrease) in 2006?
LO4Exercise 9The 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$12,000,000
Licenses and permits2,500,000
Intergovernmental grants1,000,000
Proceeds of short-term note issuances1,200,000
Collection of interfund advance to other fund800,000
Receipt of net assets of terminated fund1,800,000
Expenditures and other asset outflows:
General government expenditures7,500,000
Public safety expenditures2,000,000
Judicial system expenditures1,200,000
Health and welfare expenditures1,750,000
Equipment purchases750,000
Payment to debt service fund to cover future debt
service on general government bonds500,000
Total fund balance, October 1, 2005$3,000,000
Required
Prepare a statement of revenues, expenditures, and changes in fund balance for the Jaspar County general fund for the year ended September 30, 2006.
LO4
Exercise 10The unadjusted trial balance for the general fund of the City of Pegasus at June 30, 2006 is as follows:
Debits
Accounts receivable$40,000
Cash75,000
Due from agency fund25,000
Encumbrances60,000
Estimated revenues975,000
Expenditures750,000
Taxes receivable250,000
Credits
Allowance for doubtful accounts5,000
Allowance for uncollectible taxes50,000
Appropriations785,000
Due to utility fund40,000
Unreserved fund balance30,000
Reserve for encumbrances60,000
Revenues990,000
Taxes received in advance15,000
Vouchers payable200,000
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.
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
Exercise 11.
CPF
Cash
2,560,000
Other financing sources-bond proceeds
2,560,000
Other financing uses-operating
transfers out
60,000
Cash
60,000
DSF
Cash
60,000
Other financing sources-operating
transfers in
60,000
2.
CPF
Encumbrances
2,425,000
Reserve for encumbrances
2,425,000
3.
CPF
Reserve for encumbrances
2,425,000
Encumbrances
2,425,000
Expenditures-capital outlay
2,445,000
Cash
2,445,000
4.
CPF
Residual equity transfers out
55,000
Cash
55,000
DSF
Cash
55,000
Residual equity transfers in
55,000
Exercise 2
1.
DSF
Cash
6,000,000
Other financing sources-refunding
bond proceeds
6,000,000
2.
GF
Other financing uses-operating
transfers out
3,700,000
Cash
3,700,000
DSF
Cash
3,700,000
Other financing sources-operating
transfers in
3,700,000
3.
DSF
Expenditures-payment to refunded bond
escrow agent
3,700,000
Other financing uses-payment to
refunded bond escrow agent
6,000,000
Cash
9,700,000
Exercise 31.No entry
2.Expenditures
1,600,000
Cash
1,600,000
Cash
1,600,000
Other financing sources-
reciprocal transfer from GF
1,600,000
Accounts receivable-grant
1,600,000
Grant revenue
1,600,000
3.Cash
4,500,000
Deferred grant revenue
4,500,000
4.Expenditures
3,000,000
Cash
3,000,000
Deferred grant revenue
3,000,000
Grant revenue
3,000,000
Exercise 4
Appropriations
19,000
Unreserved fund balance
1,000
Estimated revenues
20,000
Revenues
18,950
Operating transfers in
4,000
Expenditures
16,800
Encumbrances
1,200
Unreserved fund balance
4,950
Reserve for encumbrances-prior year
2,500
Expenditures-prior year
2,500
Exercise 5
Appropriations
196,500
Unreserved fund balance
11,500
Estimated revenues
208,000
Revenues
198,900
Operating transfers in
6,000
Expenditures
193,800
Encumbrances
3,200
Unreserved fund balance
7,900
Reserve for encumbrances-prior year
4,500
Expenditures-prior year
4,500
Exercise 6
1.
PF
Investments-marketable securities
200,000
Revenues-additions to permanent endowments 200,000
2.
GF
Encumbrances
48,000
Reserve for encumbrances
48,000
3.
GF
Reserve for encumbrances
48,000
Encumbrances
48,000
Expenditures-capital outlay
47,750
Cash
42,000
Vouchers payable
5,750
4.
GF
Cash
3,300
Other financing sources-proceeds from
sale of general fixed assets
3,300
5.
GF
Expenditures-capital outlay
120,000
Cash
10,000
Other financing sources-increase in
capital lease liabilities
110,000
Exercise 71.
GF
Cash
4,960,000
Other financing sources-bond proceeds
4,960,000
Encumbrances
4,975,000
Reserve for encumbrances
4,975,000
2.
AF
Taxes receivable
10,000,000
Liability to municipalities
6,000,000
Liability to county
4,000,000
Cash
8,500,000
Taxes receivable
8,500,000
Liability to county
3,400,000
Liability 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
3,400,000
Taxes receivable
3,400,000
3.
GF
Reserve for encumbrances
4,975,000
Encumbrances
4,975,000
Expenditures-capital outlay
4,975,000
Cash
4,975,000
4.
DSF
Expenditures
200,000
Cash
200,000
Exercise 8
1.Center Township$3,000,000
2.Pacific City$500,000
3.Palm Lake City
Collections during 2006$750,000
Expected collections in first 60 days of 2007200,000
2006 property tax revenue$950,000
4.Dodge City
Revenues$9,000,000
Long-term debt proceeds1,000,000
Expenditures(5,500,000)
Operating transfer out(3,000,000)
Fund balance increase$1,500,000
Exercise 9Jasper County
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended September 30, 2006Revenues:
Taxes
$12,000,000
Licenses and permits
2,500,000
Intergovernmental grants
1,000,000
Total revenues
15,500,000Expenditures:
Current operating expenditures:
General government
7,500,000
Public safety
2,000,000
Judicial
1,200,000
Health and welfare
1,750,000
Total current operating
12,450,000
Capital 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 sources
over (under) expenditures and other
financing uses
1,800,000
Fund Balance, October 1, 2005
3,000,000
Residual equity transfer in
1,800,000Fund Balance, September 30, 2006
$6,600,000
Exercise 10City of PegasusGeneral Fund
Balance Sheet
June 30, 2006Assets:
Cash
$75,000
Taxes receivable (net of estimated
uncollectible of $50,000)
200,000
Accounts receivable (net of estimated
uncollectible of $5,000)
35,000
Due from other funds
25,000
Supplies
8,000
Total assets
$343,000
Liabilities and Fund Balance:
Liabilities:
Vouchers payable
200,000
Due to enterprise fund
40,000
Taxes received in advance
15,000
Total liabilities
255,000
Fund Balance:
Reserved for encumbrances
60,000
Reserved for inventory
8,000
Unreserved
20,000
Total fund balance
88,000
Total liabilities and fund balance
$343,000Computation of Unreserved Fund Balance:
Pre-closing balance
$ 30,000
Add:
Revenues
$990,000
Appropriations
785,0001,775,000
Deduct:
Expenditures
$750,000
Encumbrances
60,000
Estimated revenues
975,000 1,785,000
Post-closing balance
$ 20,000
2009 Pearson Education, Inc. publishing as Prentice Hall
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