Deck 9: Business-Type Activities and Internal Services

Question 1

Which of the following is NOT a rationale/justification for reporting the business-type activities of a government in a separate fund?

A)Legally restricted resources should be reported apart from those that are unrestricted.
B)Separate funds facilitate budgeting, planning, and controlling.
C)Separate funds facilitate the assessment of performance of the activity.
D)Separate funds facilitate the assessment of fiscal status of the activity.

Answer 1

A

Question 2

In both the fund statements and the government-wide statements, business-type activities and internal services are on a full accrual basis, and their measurement focus is on all economic resources.

Answer 2

True

Question 3

The FASB mandates entities report their cash flows from operations using the direct method.

Answer 3

False

Question 4

The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

Question 5

In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to "fund" the costs during the landfill's useful life; it merely has to report both an expense and a liability for them.

Question 6

The proprietary fund statements do not include a total column for all proprietary funds.

Question 7

GASB Statement No.34 mandates that governments report their cash flows from operations using the indirect method.

Question 8

The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets.

Question 9

The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund At the date of issue, the appropriate entry in the proprietary fund is a $ 2 million debit to cash and a $2 million credit to

A)Bonds Payable.
B)Contribution Capital (Revenues).
C)Contributed Capital (Revenues)AND show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.
D)No entry in the proprietary fund.Show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.

Question 10

The appropriate entry in the proprietary fund is a debit to cash for $500,000 and a credit for $500,000 to

A)Operating transfer in.
B)Nonreciprocal Transfer In.
C)Capital Contribution (Revenues).
D)Investment provided by the General Fund.

Question 11

The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

Question 12

Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?

A)Appropriation budget.
B)Cash budget.
C)Capital budget.
D)Flexible budget.

Question 13

Which of the following is NOT a valid reason for governmental entities to engage in business-type activities?

A)The activities provide resources that would otherwise have to be raised in other ways.
B)The entity can provide the services more cheaply or efficiently than can a private firm.
C)The entity wants to subsidize the activity.
D)All of the above are valid reasons for governments to engage in business-type activities.

Question 14

The appropriate entry in the General Fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to

A)Operating Transfer Out.
B)Nonreciprocal Transfer Out.
C)Expenditures.
D)Investment in Internal Service Fund.

Question 15

Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

Question 16

The appropriate basis of accounting for the proprietary funds of a governmental entity is

A)Cash basis.
B)Modified accrual.
C)Full accrual.
D)None of the above.

Question 17

The appropriate measurement focus for the business-type activities of the City of Rockford is

A)Current financial resources.
B)Economic resources.
C)Both (a)and (b).
D)None of the above.

Question 18

A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet.Which of the following best describes where and how those assets will generally be displayed?

A)In a separate restricted asset category on the balance sheet.
B)Intermingled with other assets on the balance sheet.
C)Intermingled with other assets on the balance sheet but footnoted.
D)In a separate restricted fund.
Use the following information to answer #7 and #8.
The City of Brockton voted to establish an internal service fund to account for its printing services.The City transferred $500,000 cash from the General Fund to the newly created internal service fund.

Question 19

Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds.

Question 20

Which of the following is not a proprietary fund?

A)City Water Enterprise Fund.
B)City Motor Pool Internal Service Fund.
C)City Hall Capital Project Fund.
D)None of the above.They are all proprietary funds.

Question 21

Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements

A)Should not be presented on the government-wide financial statements.
B)In the internal service fund column.
C)In the governmental activities column.
D)In the business-type activities column.

Question 22

Which of the following are required basic statements of a proprietary fund?

A)Balance Sheet, Income Statement, Statement of Cash Flows.
B)Balance Sheet, Statement of Revenues, Expenses, and Changes in Equity, and a Statement of Cash Flows.
C)Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets.
D)Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets, and Statement of Cash Flows.

Question 23

Washington County has designated the general fund as the single fund to account for its self-insurance activities.What is the maximum amount that can be charged to expenditure in the general fund related to the self-insurance activities?

A)The amount of 'premium' charged to the other funds.
B)The amount of actual claims expenditures.
C)The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
D)The amount transferred from other funds and activities to the general fund for self-insurance purposes.

Question 24

When a governmental enterprise fund has restricted assets on its balance sheet which of the following is a true statement?

A)The total of the restricted assets in the asset section will be equal to the "Restricted Net Assets" amount in the equity section.
B)The total of the restricted assets will be offset by a liability of an equal amount.
C)The total of the restricted assets less related liabilities will be equal to the "Restricted Net Assets" amount in the equity section.
D)None of the above statements is true.

Question 25

Which of the following is NOT true about internal service funds as reported in the fund financial statements?

A)Costs reported by internal service funds are reported twice within the same set of financial statements.
B)Billing rates must be set to cover the full cost of providing the goods or services.
C)Depreciation can be charged to governmental funds through the billing rates established by the internal service fund.
D)Deficits or surpluses in the general fund can be transferred to the internal service fund by adjusting the billing rates.

Question 26

The amount the City Self-Insurance Fund can recognize as revenue is

A)$310,000
B)$300,000.
C)$270,000.
D)$250,000.

Question 27

In which of the following circumstances must an enterprise fund be used to account for the activity?

A)A newly created electric utility fund will finance its operations by a charge to users based on kilowatt hours used.
B)To finance the acquisition of plant facilities a newly created electric utility issues general obligation debt.
C)To finance the acquisition of plant facilities a newly created electric utility issues revenue bonds which will be repaid from operations of the electric utility.
D)To acquire needed plant facilities a newly created electric utility enters into long-term lease agreements.

Question 28

On the fund financial statements, internal service activities should be presented

A)In the Propriety Fund statements, net of interfund eliminations.
B)In the Governmental Fund statements, net of interfund eliminations.
C)In the Proprietary fund statements, without any interfund eliminations.
D)In the Governmental Fund statements, without any interfund eliminations.

Question 29

Marsh Lake County operates a solid waste landfill that is accounted for in a governmental fund.The County calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $600,000.The entry to record this cost should be

A)Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000.
B)Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000 AND include $600,000 as an addition on the Schedule of Changes in Long-Term Obligations.
C)No entry in the fund; include $600,000 on the Schedule of Changes in Long-Term Obligations.
D)No entry in any fund or Schedule.

Question 30

Cash flows from Operating Activities does NOT include which of the following as cash inflows?

A)Cash collection of receivable for sale of services.
B)Grants for operating activities.
C)Interest and dividends earned.
D)Receipts for services performed for other funds.

Question 31

In the Statement of Net Assets, the net assets of a proprietary fund should be displayed in which of the following categories?

A)Unrestricted Fund Balance, Restricted Fund Balance, Invested in Capital Assets.
B)Unrestricted Net Assets, Restricted Net Assets, Invested in Capital Assets Net of Related Debt.
C)Unrestricted Net Assets, Restricted Net Assets, Net Assets Available for Use.
D)Net Assets Available for Use.

Question 32

A Statement of Revenues, Expenses, and Changes in Fund Net Assets should include which of the following in addition to operating revenues and operating expenses and ending Net Assets?

A)Nonoperating revenues and expenses.
B)Nonoperating revenues and expenses, and Other changes in Net Assets.
C)Nonoperating revenues and expenses, Capital Contribution and Other changes in Net Assets, and Beginning Net Assets.
D)None of the above.

Question 33

The amount the City General Fund can recognize as expenditure is

A)$310,000.
B)$300,000.
C)$270,000.
D)$250,000.

Question 34

Lehi City has designated an internal service fund as the single fund to account for its self-insurance activities.Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund.What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities?

A)The amount of 'premium' charged to the General Fund by the internal service fund.
B)The amount of actual losses incurred by the insurance activity.
C)The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
D)The amount transferred from the General Fund to the internal service fund for self-insurance purposes.
Use the following information to answer questions #21 and #22.
During the year the City's Self-Insurance Internal Service Fund billed the General Fund $300,000 for 'premiums,' of which $30,000 was for catastrophic losses and the balance was the premium computed on an actuarially-determined basis.During the year the City incurred $250,000 in claims losses.The total amount transferred to the Self-Insurance Fund by the General Fund was $310,000.

Question 35

Franklin County operates a solid waste landfill that is accounted for in an enterprise fund.The County calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $300,000.The entry(ies)to record this cost should be

A)Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000.
B)Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000 AND include an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
C)Show only an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
D)No entry in any fund; No entry in the Schedule of Changes in Long-Term Liabilities.

Question 36

Over the long run, governmental internal service funds are intended to

A)Generate revenues sufficient to cover the full costs of providing services.
B)Generate revenues sufficient to cover the full costs of providing services and to earn a profit.
C)Generate revenues sufficient to cover the current operating costs of providing services.
D)Generate revenues sufficient to cover the current operating costs of providing services and to earn an operating profit.