Deck 7: Capital Projects Funds

Question 1

Which of the following statements is true concerning accounting and financial reporting practices related to capital asset acquisitions?

A) Routine capital purchases such as vehicles and equipment often may be financed and accounted for in a General Fund.
B) Most capital lease transactions related to governmental funds are accounted for in either the General Fund or a Debt Service Fund.
C) Capital Project Funds may be used only for acquisition or construction of major capital facilities.
D) Most capital projects last only for on fiscal year.

Answer 1

A

Question 2

A government had $7,000,000 of 5%, six month bond anticipation notes outstanding at the end of the fiscal year. As of this date, the government has completed all legal procedures and the notes will be re-financed to a term of ten years the following month. The BAN liability reported in the Capital Projects Fund as of the end of the fiscal year should be

A) $0.
B) $350,000.
C) $3,500,000.
D) $7,000,000.

Answer 2

A

Question 3

SEQ CHAPTER \h \r 1Which of the following expenditures is not capitalized as part of the cost of a capital asset acquired through a Capital Projects Fund?

A) The retained percentage to insure proper completion of the construction by the contractor.
B) Direct materials and labor that are used or consumed in the construction process.
C) Interest expenditures on bond anticipation notes.
D) Reimbursable overhead expenditures related to the construction project.

Answer 3

C

Question 4

Which of the following is true?

A) A government is required to record each major general government capital project in a separate Capital Projects Fund.
B) Acquisition or construction of general government capital assets must always be accounted for through a Capital Projects Fund.
C) A Capital Projects Fund is not required unless a project is financed by issuing bonds.
D) A Capital Projects Fund may be used to acquire vehicles and equipment.

Question 5

Which of the following transactions would not be reported as an expenditure in a Capital Projects Fund?

A) Payment of construction costs.
B) Bond issue costs.
C) Bond discounts.
D) Insurance on short-term debt issued to finance capital project.

Question 6

Which of the following capital asset-related transactions would most likely be accounted for through a Capital Projects Fund?

A) A major general government capital lease transaction.
B) Purchase of multiple computers for general government departments.
C) Construction of a general government office building.
D) Maintenance of general government fixed assets.

Question 7

A governmental entity issued bond anticipation notes BANs during the year for a major capital project. The BANs were refinanced with long-term general obligation bonds before the end of the fiscal year. The journal entry to record the retirement of the BANs in the Capital Projects Fund the governmental entity should include

A) Other financing sources.
B) A fund liability.
C) Revenues.
D) Other financing uses.

Question 8

Moore County is developing a new all-sports county park. The estimated cost of the project is $15,000 all amounts are in thousands of dollars. Funding is being provided for the project based on the following schedule:
General Obligation Bonds, 8%, 30-year serial bonds 9,000
State capital grant expenditure driven 4,500
County resources transfers from the General Fund 1,500
Total resources 15,000
Transactions:
1. The bonds were issued at 104 and with $20 in bond issue costs.
2. The funding from the General Fund was received.
3. The county purchased land for the project paying $2,000 in cash.
4. A contract for construction of the required facilities 12,000.
5. During the year, the county was billed $8,000 for the project. It was projected that this billing is for 75% of the construction project. The county paid all but 10% of the amount. The balance will be paid when the contract is completed.
6. Near the end of the fiscal year, the state paid the amount owed, less 20% that is in question. This amount will be paid no earlier than 90 days into the following fiscal year.
Requirements:
1. Prepare all the entries required in the Park Capital Projects Fund for Moore County for these transactions and events. No explanations are required. If not entry is required, state "No entry required" and state why. All amounts are in thousands of dollars.
2. Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put "NE" in the appropriate box.

Question 9

Retirement of the principal of a bond anticipation notes that is recorded as a liability in a Capital Projects Fund should be reported in the Capital Projects Fund statement of revenues, expenditures, and changes in fund balance as

A) Expenditures.
B) Other financing uses.
C) Special item.
D) Reduction of a liability.

Question 10

If a governmental entity issued a six-month, $400,000 note payable at 6% interest three months prior to the fiscal year end to help finance a new fire station, Capital Projects Fund interest payable should be accrued as of the end of the fiscal year in the amount of

A) $0.
B) $6,000.
C) $12,000.
D) $24,000.

Question 11

The City of Bamberg, which has a fiscal year end of December 31, issued a nine month $1,000,000 bond anticipation note on July 1. The city is planning to renew or re-issue the bond anticipation notes for another six month period when they mature. What would the Capital Projects Fund liability for the note be on December 31?

A) $0.
B) $500,000.
C) $1,000,000.
D) $2,000,000.

Question 12

There are 4 separate scenarios for bond issuances below. For each scenario, prepare the journal entry or entries for the transaction for the Capital Projects Fund and indicate the effects of each scenario on the Capital Projects Fund balance sheet equation and the General Capital Assets and General Long-Term Liabilities accounts.
Scenarios:
A. $3,000 in 6%, 15-year serial bonds are issued at par in a private placement.
B. $4,000 in 5%, 20-year serial bonds are issued at par. Bond issue costs were $100.
C. $5,000 in 4%, 25-year serial bonds are issued at 104. Bond issue costs were $150.
D. $6,000 in 4%, 30-year bonds were issued at 97. Bond issue costs were $200.

Question 13

A county government secured a six-month, $600,000 loan at 5% interest from a local lending institution to finance a project at a county-owned park. The loan transaction took place one month prior to the end of the fiscal year, at which time 50% of the project was completed for $300,000. As of the end of the fiscal year, the county should report capital outlay expenditures in the amount of

A) $15,000.
B) $30,000.
C) $150,000.
D) $300,000.

Question 14

A government issued bond anticipation notes to provide initial financing for a general government capital project. The bond anticipation note

A) Proceeds are always reported as an other financing source in the Capital Projects Fund.
B) Payable should be reported as a liability of the Capital Projects Fund except when the original term of the notes exceeds one year.
C) Payable is usually repaid by the Capital Projects Fund.
D) Interest on the bond anticipation note should be capitalized as part of the cost of the capital asset.

Question 15

Bond anticipation notes are

A) Always short-term liabilities of the fund until the bonds are issued.
B) Always general long-term liabilities.
C) Sometimes treated as fund liabilities even if they have a long-term maturity.
D) Sometimes treated as general long-term liabilities even if they have a term of one year or less.

Question 16

A government issued short-term bond anticipation notes for a capital project. The notes are to be repaid from bond proceeds if the voters approve the bonds. The bond anticipation notes

A) Must be reported as debt of the Capital Projects Fund.
B) Must be reported as debt of the Capital Projects Fund if it is probable that the bond referendum will not pass.
C) Must be reported as debt of the Capital Projects Fund unless it is probable that the bond referendum will pass.
D) Must be reported as general long-term debt.

Question 17

The General Fund is partially funding the construction of a new police station. 80% of the project is being financed; the General Funds' share of the project is $1,000,000. The Capital Project Fund would report the General funds' share as a

A) $1,000,000 other financing source.
B) $1,000,000 revenue.
C) $1,000,000 nonoperating revenue.
D) $1,000,000 other financing use.

Question 18

Green Mountain County had the following transactions related to the issuance of its bond anticipation notes. All amounts are in thousands of dollars.
Transactions:
1. The county issued $5,000 of 6-month, 6% bond anticipation notes BANs on March 1, 20X5. The proceeds will be used to begin construction of a major courthouse addition and improvement.
2. Prepare any entries required at December 31, 20X5, the fiscal year end.
3. The county issued $9,000 of courthouse bonds at par on August 15, 20X5. The bond issuance costs were $100.
4. The BANs were repaid on the due date, September 30, 20X5.
Requirements:
A. 1 Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes do not qualify for long-term debt treatment. If no entry is required, state "No entry required" and explain why.
2 Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put "NE" in the appropriate box.
B. 1 Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes qualify for long-term debt treatment. If no entry is required, state "No entry required" and explain why.
2 Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put "NE" in the appropriate box.

Question 19

Requirements:
1. Prepare all the entries required in the Jail Addition Capital Projects Fund for Franklin County for the following transactions and events. No explanations are required. If no entry is required, state "No entry required" and state why. Assume that the bond anticipation notes meet the criteria for being treated as long-term debt. June 30 is the fiscal year end for Franklin County. All amounts are in thousands of dollars.
2. Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put "NE" in the appropriate box.
Transactions:
1. The county issued $2,500 of 8-month, 9% bond anticipation notes on August 1, 20X3. The proceeds are to be used to begin construction of a recently approved addition to the county jail.
2. On July 10, the county signed a contract for $5,000,000 for construction of the addition.
3. On November 30, the contractor billed the county for 40% of the work on the jail addition. The actual cost of the work was $2,200. The county paid all but 10% of the amount billed. The balance is to be paid upon completion and approval of the project.
4. The county issued $5,000 of 10-year, 8% bonds at par on March 31, 20X4. Bond issue costs of $50 were withheld from the proceeds. Interest and one-tenth of the principal are payable annually on the bonds. The bond proceeds are to be used to repay the bond anticipation notes and to finance construction of the jail addition.
5. On March 31, the county transferred $200 from the General Fund to the Jail Addition Capital Projects Fund to provide additional funding for the project. The BANs and interest also were paid on that date.
6. In May the contractor billed the county $2,800 for the remainder of the work on the jail. The county approved the facility and paid the contractor all amounts owed.

Question 20

Which of the following statements is false?

A) Capital leases are not commonly reported in a Capital Projects Fund.
B) A governmental entity may report a Capital Project Fund in one year but not the next.
C) Budgetary entries are commonly made in a Capital Projects Fund.
D) Debt service payments on capital-related debt are paid from a Capital Projects Fund.

Question 21

A Capital Project Fund received a $300,000 transfer from the General Fund and a $500,000 federal grant for a highway project. The grant is being paid in two phases-$200,000 for Year 1 expenditures and $300,000 when the project is completed which is anticipated to be at the end of Year 2. Capital Project Fund revenues reported at the end of Year 1 should be

A) $0.
B) $200,000.
C) $300,000.
D) $800,000.

Question 22

The city is installing curbs and sidewalks in a subdivision as part of a special assessment capital improvement project. The capital improvements are being financed by an $800,000 eight year, 10%, special assessment note payable issued for cash at the Last National Bank at the beginning of the project earlier this year. The note and interest are to be repaid from special assessments levied against the property owners of the subdivision. The total amount of special assessments is $840,000 and will be collected evenly over eight years. The city spent $600,000 to install curbs and sidewalks during the year. For the year, the city should report what change in fund balance for the Capital Projects Fund?

A) $600,000.
B) $200,000.
C) $240,000.
D) $840,000.

Question 23

If a governmental entity issued $3,000,000 in bonds, received a $500,000 federal capital grant , and transferred $750,000 to a Capital Projects Fund from the General Fund, the Capital Projects Fund financial statements should report Other Financing Sources OFS of

A) $500,000.
B) $750,000.
C) $3,750,000.
D) $4,250,000.

Question 24

A city was awarded a $600,000 federal grant to help finance a bridge construction project that is expected to take two years to complete. The grant will be paid in two installments: 1 60% nonrefundable at the beginning of the project in Year 1, and 2 40% when the project is completed. Capital Projects Fund revenue should be recognized in Year 1 in the amount of

A) $600,000.
B) $360,000.
C) $240,000.
D) $0.

Question 25

General obligation bonds were issued to finance a particular governmental capital project fund. This resource, in the context of its impact on fund balance, would be classified as

A) A nonspendable resource.
B) A restricted resource.
C) A committed resource.
D) An assigned resource.

Question 26

SEQ CHAPTER \h \r 1Which of the following is are reported on the Balance Sheet for in a Capital Projects Fund?

A) Construction in progress.
B) Bonds payable issued to finance a project.
C) Bonds issue costs to finance a project.
D) Cash and investments to be used to finance construction of a major GCA.

Question 27

If a government earns and collects interest on Capital Projects Fund investments in the same fiscal year, the fund financial statements should report

A) A transfer to the General Fund.
B) A revenue.
C) An unearned revenue.
D) An other financing source.

Question 28

On October 1, the county issued a six-month, 6%, $200,000 bond anticipation note to provide temporary financing for a police station. The voters have approved the issuance of bonds to finance the project and the bonds are issued early in the following year. The county government was billed $150,000 during the year on its capital project and $125,000 was paid. The government should report Capital Projects Fund expenditures for the current year ending December 31 equal to

A) $125,000.
B) $150,000.
C) $153,000.
D) $162,000.

Question 29

The county issued a six-month, 6%, $200,000 bond anticipation note on October 1, 20X7, to provide temporary financing for a police station construction project. The voters have not approved the bonds, but approval is expected before year-end. The county government was billed $150,000 during the year for construction costs on its capital project and $125,000 was paid. The government should report Capital Projects Fund expenditures for the year ended December 31, 20X7 of

A) $125,000.
B) $150,000.
C) $153,000.
D) $162,000.

Question 30

Ledford County issued $2,000,000 of general obligation bonds for the construction of a new recreation center. The bonds were sold at a 1% discount and the county incurred $150,000 in underwriter's fees, both of which were withheld from the settlement proceeds. The journal entry required in the Capital Projects Fund for the issuance of the bonds would be $\begin{array}{|c|l|c|c|}\hline & & \text { Debit } & \text { Credit } \\\hline \text { A } &\text { Cash } & \$ 2,000,000 \\&\text { Other Financing Sources }&& \$ 2,000,000 \\\hline \text {B} & \text { Cash }& \$ 1,830,000 \\&\text { Other Financing Sources }&& \$ 1,830,000 \\\hline \text { C. } & \text { Cash } &\$ 1,850,000\\&\text { Expenditures }&150,000 \\&\text { Other Financing Sources - Bonds }&&\$ 1,980,000 \\&\text { Other Financing Sources - Discount }&&20,000\\\hline \text { D. } &\text { Cash } &\$ 1,830,000 \\&\text { Expenditures - Underwriter Fees } &150,000 \\&\text { Other Financing Uses - Discount } &20,000\\&\text { Other Financing Sources - Bonds }&& \$ 2,000,000\\\hline\end{array}$

Question 31

Government A secured a $400,000 short-term loan from a local bank for interim financing for a governmental capital project. What would the journal entry be in the Capital Projects Fund to account for this transaction? $\begin{array}{|l|l|r|r|}\hline&&\text { Debit } & \text { Credit }\\\hline \text { A } &\text { Cash } & \$ 400,000 \\&\text { Other Financing Sources }&& \$ 400,000 \\\hline \text { B. } &\text { Cash } & \$ 400,000 \\&\text { Notes Payable }&& \$ 400,000 \\\hline \text { C. } &\text { Construction in Progress }& \$ 4000,0000 \\&\text { Other Financing Sources }&& \$ 4000,0000\\\hline \text { D. } &\text { Cash } & \$ 400,000 \\&\text { Revenues }&& \$ 400,000\\\hline\end{array}$

Question 32

A county was awarded a $900,000 expenditure-driven grant in year 1 for a capital project that is expected to take three years to complete. As of the end of Year 1 the county had incurred expenditures of approximately $50,000. The county should recognize Capital Projects Fund revenue at the end of Year 1 in the amount of

A) $0.
B) $50,000.
C) $300,000.
D) $900,000.

Question 33

Issuance of a short-term bond anticipation note-to provide temporary financing for a general government capital project-that does not meet the requirements for treatment as long-term debt:

A) does not increase fund balance of the Capital Projects Fund CPF.
B) increases fund balance of the CPF because they are issued in anticipation of issuing long-term debt.
C) would affect the General Long-Term Liabilities GLTL list.
D) would normally be repaid from a Debt Service Fund DSF.

Question 34

A Capital Projects Fund may report a positive amount in each of the following fund balance classifications except

A) Restricted.
B) Committed.
C) Assigned.
D) Unassigned.

Question 35

As of the end of the fiscal year, a Capital Projects Fund has material balances of supplies inventory. Which fund balance classification would reflect the inventory of supplies?

A) Nonspendable.
B) Restricted.
C) Committed.
D) Assigned.

Question 36

The Board of Commissioners took formal action to dedicate resources for a particular project in the Capital Projects Fund. Those resources cannot be redirected for another use unless an equivalent formal action is taken. As of the end of the fiscal year, a portion of these resources remain in fund balance. The proper fund balance classification for these resources would be

A) Nonspendable.
B) Restricted.
C) Committed.
D) Assigned.

Question 37

A governmental entity issued general obligation bonds with a face value of $10,000,000 and at a premium that totaled $100,000 for a governmental capital project. The General Long-Term Liability accounts would report total liabilities as of the end of the year of issuance of

A) $0.
B) $100,000.
C) $10,000,000.
D) $10,100,000.

Question 38

SEQ CHAPTER \h \r 1Arbitrage is:

A) a means of settling payroll disputes between professional athletes and their respective teams.
B) the difference between the amount of interest paid on long-term debt and the amount of interest received when investing the proceeds of that long-term debt.
C) the amount of tax plus interest paid by governments on the total of the excess of revenues and other financing sources over expenditures and other financing uses in the governmental funds and operating income in the proprietary funds.
D) a payment in lieu of tax from the federal government to a local government for some services provided to the federal government by the local government.

Question 39

Assume that a government received a $5,000,000 expenditure-driven grant in Year 1 for a project that was expected to take three years to complete. Further assume that qualifying expenditures for the project, which actually took four years to complete, were as follows: Year 1 - $1,000,000; Year 2 - $2,500,000; Year 3 - $1,000,000; Year 4 - $400,000. The government should report grant revenues in Year 2 in the amount of

A) $1,000,000.
B) $2,500,000.
C) $3,500,000.
D) $5,000,000.

Question 40

The city is installing curbs and sidewalks in a subdivision as part of a special assessment capital improvement project. The capital improvements are being financed by an $800,000 eight year, 10%, special assessment note payable. The note and interest are to be repaid from special assessments levied against the property owners of the subdivision. The total amount of special assessments is $840,000 and will be collected evenly over eight years. The government should report Capital Projects Fund revenues for the current year equal to

A) $0.
B) $105,000.
C) $800,000.
D) $840,000.

Question 41

A deficit unassigned fund balance was reported in a city Capital Projects Fund balance sheet. Which of the following explanations for the deficit is not plausible?

A) The city financed a substantial portion of the project in the previous year.
B) The city financed current year expenditures by issuing bond anticipation notes that are not general long-term liabilities.
C) The city entered into a two-year construction contract. Transfers from the General Fund will be made each year to cover actual expenditures.
D) The city had a large assigned fund balance.

Question 42

Which of the following should not be reported as other financing sources uses in a Capital Projects Fund?

A) Face value of general obligation bonds issued to finance a general government capital project.
B) Premium on general obligation bonds issued to finance a general government capital project.
C) Proceeds from special assessments levied against property owners to finance construction of a general government capital project initially financed with long-term debt.
D) Transfer from General Fund.

Question 43

Which of the following accounts would appear in a Capital Projects Fund?

A) Contracts payable-retained percentage.
B) Bonds payable issued to finance a project.
C) Construction in progress.
D) Buildings.

Question 44

Which of the following accounts would not appear in a Capital Projects Fund?

A) Other financing sources-bond proceeds.
B) Bond anticipation note payable.
C) Bonds payable.
D) Other financing sources-bond premium.

Question 45

A Capital Projects Fund has outstanding encumbrances of $75,000 as of the end of the fiscal year. Assume that all resources in the Capital Projects Fund are considered to be restricted. How should these encumbrances be reported in the year-end external financial statements?

A) As a specific identifiable component of restricted fund balance.
B) As a specific identifiable component of committed fund balance.
C) As a specific identifiable component of assigned fund balance.
D) The encumbrances would only be reported in the note disclosures.

Question 46

Which of the following should not be reported as other financing sources uses in a Capital Projects Fund?

A) Face value of general obligation bonds issued to finance a general government capital project.
B) Premium on general obligation bonds issued to finance a general government capital project.
C) Payment of construction costs.
D) Transfers.

Question 47

A government was billed $3,000,000 during the year on its capital project, of which $2,700,000 was paid. The total contracted cost is $5,200,000. The government does not plan to pay the $300,000 balance currently owed to the contractor until the project has been completed and approved. The government should report Capital Projects Fund expenditures for the current year equal to

A) $2,700,000.
B) $3,000,000.
C) $4,900,000.
D) $5,200,000.

Question 48

Construction in Progress would be reported as an asset in

A) A Capital Projects Fund.
B) The General Fund.
C) The General Capital Asset accounts.
D) Construction in Project is not an asset in governmental accounting.

Question 49

The city's Capital Projects Fund had an excess of expenditures over revenues for the current year. Which of the following explanations for the excess is not plausible?

A) The city financed a substantial portion of the project in the previous year.
B) The city financed a significant portion of the project by issuing long-term bonds during the year
C) The city financed a significant portion of the project from transfers from the General Fund.
D) All of the above are plausible explanations.

Question 50

Assume a Capital Projects Fund of Henry County is holding investments as of the end of the fiscal year. Which of the following statements is true related to the interest earned on the investments?

A) Henry County would report accrued interest receivable and interest revenue in the Capital Projects Fund as of the end of the fiscal year.
B) Henry County would only report interest revenue when the investment matured.
C) Henry County may choose to report interest revenue on the modified accrual basis or on the cash basis.
D) The interest earned would be reported in the General Fund since it cannot be used to finance a capital project.

Question 51

The external financial statements for its Capital Projects Funds of a governmental entity may include the following except

A) A budget-to-actual statement of revenues, expenditures, and changes in fund balance.
B) A statement of revenues, expenditures, and changes in fund balance.
C) A statement of cash flows.
D) Balance Sheet.

Question 52

A governmental entity is funding a capital project with the issuance of general obligation bonds, as well as a federal grant. The grant would be reported on the operating statement as

A) An other financing source.
B) A revenue.
C) A nonoperating revenue.
D) An other financing use.