Deck 6: Proprietary Funds

Question 1

Proprietary funds use the economic resources measurement focus and modified accrual basis of accounting.

Answer 1

False

Question 2

Long term liabilities of an enterprise fund are not reported in the proprietary fund statements, but are reported in government-wide statements.

Answer 2

False

Question 3

When estimating uncollectible accounts, an enterprise fund will record a debit to Bad Debt Expense and a credit to Accumulated Provision for Uncollectible Accounts.

Answer 3

False

Question 4

Impact fees charged to real estate developers are recorded in an enterprise fund as capital contributions, a nominal account that will increase Net Assets, but is reported separately in the statement of Revenues, Expenses and Changes in Fund Net Assets.

Question 5

Investment pools are an example of an activity that may be accounted for in an internal service fund.

Question 6

Internal Service Funds account for activities that produce goods or services to be provided to outside customers on a cost reimbursement basis

Question 7

Internal service funds account for services provided to citizens and others on a user charge basis

Question 8

Capital projects constructed by an internal service fund are recorded in a capital projects fund.

Question 9

Proprietary funds use the accrual basis of accounting because these funds engage in activities similar to those of profit-seeking businesses.

Question 10

The four categories on the Statement of Cash Flows for a proprietary fund are operating, non-capital financing activities, capital and related financing activities, investing activities.

Question 11

GASB requires that the reconciliation of income and cash flows from operations starts with operating income.

Question 12

Cash flow statements of proprietary funds must use the direct method for recording cash flows from operations.

Question 13

Municipal solid waste landfills, when accounted for as proprietary funds, record a liability for closure and post-closure care costs; recording expenses on a units of production basis.

Question 14

FASB requires that the reconciliation of income and cash flows from operations starts with net income.

Question 15

Financial statements prepared for proprietary funds include the Statement of Net Assets, Statement of Revenues, Expenses and Changes in Fund Net Assets and the Statement of Cash Flows.

Question 16

The term "proprietary funds" includes enterprise and internal service funds.

Question 17

Proprietary funds record capital assets, depreciation on those capital assets and long-term debt.

Question 18

The Proprietary Fund Statement of Net Assets must classify assets and liabilities between current and long-term.

Question 19

The Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets must include a performance indicator, such as operating income

Question 20

Postclosure costs are recorded in a solid waste landfill enterprise fund at the present value of estimated future costs.

Question 21

An enterprise fund should be used when the government has a policy to establish fees to cover the costs of providing services for an activity.

Question 22

An enterprise fund should be used when a legal requirement exists that the cost of providing services are to be recovered through fees or charges.

Question 23

An Enterprise Fund has an indefinite life.

Question 24

The reconciliation on the statement of cash flows for a proprietary fund under GASB requirements is between operating income and cash flows from operating activities

Question 25

According to GASB 34, restricted net assets include those that are the results of constraints imposed by law through constitutional provisions or enabling legislation.

Question 26

Proprietary funds are required to have a Statement of Revenues, Expenses and Change in Net Assets, a Statement of Net Assets and a Statement of Cash Flows.

Question 27

Unlike internal service funds, it is frequently desirable for enterprise funds to operate at a profit.

Question 28

Enterprise Funds and Internal Service Funds are part of the larger category of Proprietary Funds.

Question 29

Proprietary Funds use the modified accrual basis of accounting

Question 30

An enterprise fund should be used when debt is back solely by fees and charges

Question 31

According to GASB 34, restricted net assets include those that are the results of constraints imposed by creditors, grantors, contributors or laws or regulations of other governments.

Question 32

GASB requires the indirect method to determine cash flows.

Question 33

Long term debt serviced from proprietary funds is recorded in the Long Term Debt Account Group.

Question 34

Proprietary funds report using the current financial resources measurement focus and the modified accrual basis of accounting

Question 35

Proprietary funds use the economic resources measurement focus and accrual basis of accounting.

Question 36

GASB Cash Flow Statements requires four classifications of cash flows instead of the 3 required by FASB.

Question 37

Long term debt serviced from proprietary funds are recorded in the proprietary fund.

Question 38

Budgetary comparison schedules are required for proprietary funds

Question 39

The Balance Sheet and the Statement of Revenues, Expenditures and Changes in Fund Balances are required for Proprietary funds.

Question 40

The users of goods or services provided by proprietary funds are charged based on their consumption of the goods or services.

Question 41

Revenue bonds sold by a water utility fund, upon sale, would be recorded in an enterprise fund as:

A) Other Financing Sources-Proceeds of Bonds
B) A liability
C) A direct addition to Net Assets
D) Nonoperating Revenues-Proceeds of Bonds

Question 42

Which of the following is true regarding the recording of long term debt in an enterprise fund?

A) When revenue bonds are sold at par, Cash is debited and Bonds Payable is credited
B) The bonds would be reported in an enterprise fund and in the government-wide statements
C) Both of the above
D) Neither of the above

Question 43

Which of the following is false regarding proprietary fund accounting?.

A) The economic resources measurement focus and accrual accounting are used
B) Capital assets are recorded in the accounts and depreciated
C) The Statement of Net Assets must be in a classified format, with current assets separated from noncurrent assets and current liabilities separated from noncurrent liabilities
D) In the Statement of Net Assets, the net assets are reported as reserved and unreserved

Question 44

Proprietary funds utilize what basis of accounting?

A) Modified accrual
B) Accrual
C) Cash
D) Budgetary

Question 45

Activities that produce goods or services to be provided to other departments or other governmental units would be reported in which fund?.

A) Enterprise fund
B) Internal service fund
C) Agency fund
D) Advance fund

Question 46

The estimated costs of closure of solid waste landfills are measured using:.

A) Actual future costs
B) Actual closure costs
C) Historical costs
D) Current costs

Question 47

Governmental units use which fund type to account for services provided to the general public on a user-charge basis?.

A) General fund
B) Enterprise fund
C) Permanent fund
D) Internal service fund

Question 48

An internal service fund provided services to a General Fund department. At the time of billing, the credit entry in the internal service fund would be:

A) Other Financing Sources-Transfers In
B) Expenditures
C) Operating Revenues-Charges for Services
D) Due from General Fund

Question 49

Impact fees imposed on commercial developers by an enterprise fund and not associated with specific projects or improvements are recorded as:.

A) Transfers from the enterprise fund to a capital projects fund
B) Operating revenues to the enterprise fund
C) Capital contributions to the enterprise fund
D) Unearned revenue to the enterprise fund

Question 50

Solid waste landfills are required to estimate the cost of closure which include:

A) Cost of equipment used
B) Cost of landfill cover
C) Cost of caring for the site for 30 years
D) All of the above

Question 51

Norton County operated a landfill and accounted for it as an enterprise fund. The closure and postclosure care costs are estimated to be $15,000,000. It is estimated that the capacity of the landfill is 3 million tons of waste and that waste will be accepted for 10 years. During 2009, 500,000 tons of waste was accepted by the landfill. The charge for closure and postclosure care costs for 2009 would be:

A) $0
B) $1,500,000
C) $2,500,000
D) Impossible to determine from the information given

Question 52

The City of Sinasonville operated a motor pool fund as an internal service fund. A loan of $500,000 was made from an enterprise fund, to be repaid over 10 years with no interest. Capital assets were purchased as follows: land, $200,000; buildings (40 year life), $800,000; equipment (10 year life), $300,000; automobiles (4 year life, $1,200,000. In addition, fuel costs were expected to be $100,000 and salaries were expected to be $200,000. A budget is prepared to breakeven, using full accrual accounting, plus pay back one year's principal on the loan. It is anticipated that cars will be driven 2,000,000 miles. The cost per mile would be:

A) $0.30
B) $0.31
C) $0.35
D) $0.36

Question 53

Which of the following is false regarding proprietary funds financial statements?

A) Major enterprise and internal service funds are reported
B) Discretely presented component units that are business-type in nature are not reported; those units would be in the government-wide statements only
C) A classified approach must be used when preparing the Statement of Net Assets where current assets are displayed separately from long-term assets and current liabilities are displayed separately from long-term liabilities
D) With respect to the Statement of Net Assets, the net assets are displayed in the same three categories as in the government-wide statements

Question 54

Which of the following is true regarding the cash flow statements of a proprietary fund?

A) A reconciliation is required between the Statement of Revenues, Expenses and Changes in Fund Net Assets and the cash flows from operating activities section of the Cash Flow Statement
B) Interest receipts are reported as increases in cash flows from either capital and related financing or noncapital financing activities, whichever is appropriate
C) The gain from the sale of equipment would be reported in the investing section
D) None of the above

Question 55

GASB requires the ____________ method to report cash flows from operating activities in the Statement of Cash Flows.

A) Indirect
B) Direct
C) Modified direct
D) modified indirect

Question 56

Funds that are used to account for activities similar to those often engaged in by profit-seeking businesses are:

A) Proprietary funds
B) Special revenue funds
C) Capital project funds
D) Agency funds

Question 57

The County of Woodale operates a landfill as an enterprise fund. The closure and postclosure care costs are estimated to be $24 million. It is estimated that the capacity of the landfill is 8 million tons of waste and that waste will be accepted for 4 years. During 2009, 2.2 million tons of waste was accepted. The charge for closure and postclosure care costs for 2009 would be:

A) $2 million
B) $2.2 million
C) $6 million
D) $6.6 million

Question 58

A portion of the estimated cost of closure of solid waste landfills should be charged as an expense and a liability of the landfill operation each year on a:.

A) Actual cost method
B) Units-of-production method
C) Estimated cost method
D) None of the above

Question 59

In the Statement of Net Assets for proprietary funds, GASB requires a classified format where current assets, noncurrent assets, current liabilities and noncurrent liabilities are presented:.

A) Separately
B) Combined
C) Intermingled
D) Not at all

Question 60

Which of the following are best described as proprietary funds? I. Internal Service funds
II) Pension funds
III) Enterprise funds

A) I only
B) I and II
C) I and III
D) I, II and III

Question 61

Capital assets of an enterprise fund should be reported in the:.

A) Government-Wide Statement of Net Assets only
B) Proprietary Fund Statement of Net Assets only
C) General Fixed Asset Account Group only
D) Government-Wide Statement of Net Assets and Proprietary Funds Statement of Net Assets

Question 62

Which of the following would generally be included in the Statement of Net Assets of an Enterprise Fund? $\begin{array} { | l | c | c | } \hline & \text { Reserve for } & \text { Revenue Bonds } \\& \text { Encumbrances } & \text { Payable } \\\hline \text { A) } & \text { No } & \text { No } \\\hline \text { B) } & \text { No } & \text { Yes } \\\hline \text { C) } & \text { Yes } & \text { Yes } \\\hline \text { D) } & \text { Yes } & \text { No } \\\hline\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 63

An internal service fund provided services to a General Fund department. At the time of billing, the debit entry in the General Fund would be:

A) Other Financing Sources-Transfers Out
B) Expenditures
C) Operating Revenues-Charges for Services
D) Expenses

Question 64

Capital assets for internal service funds should be reported:

A) In the internal service funds only
B) In the government-wide statements only
C) In both the internal service funds and the government-wide statements
D) None of the above, they are not reported

Question 65

Which of the funds listed below would include capital assets in its Statement of Net Assets?

A) Internal Service
B) General
C) Special Revenue
D) None of the above; no funds in governmental accounting have capital asset accounts

Question 66

Which of the following is not true regarding enterprise funds?

A) Enterprise funds record long-term debt directly in the fund accounts
B) Enterprise funds record capital assets directly in the fund accounts
C) Enterprise funds report a Statement of Cash Flows
D) The difference between assets and liabilities of enterprise funds is called "Fund Balance."

Question 67

An example of an activity that would not normally be accounted for in an internal service fund would be:

A) Motor pool
B) Garbage collection
C) Print shop
D) Central storeroom

Question 68

The City of X had the following debt outstanding: General obligation bonds to be paid from a debt service fund $2,000,000
General obligation bonds to be paid from utility revenues $3,000,000
Revenue bonds to be paid from utility revenues $4,000,000
The amount that should be shown as debt in the utility (enterprise) fund would be:

A) $4,000,000
B) $6,000,000
C) $7,000,000
D) $9,000,000

Question 69

Under GASB Statement 34, enterprise funds must be used in which of the following circumstances?

A) When debt is backed solely by fees and charges
B) When services are provided to other governmental units for a fee
C) When the activities are expected to make a profit to be used to fund other government programs
D) None of the above; enterprise funds are optional

Question 70

The General Fund of the City of Parkersburg made a permanent contribution of $100,000 to an internal service fund in 2009. Also, during the year, the internal service fund had revenues of $500,000, expenses of $450,000 and a transfer out of $30,000. Assuming this was the first year of operations for the internal service fund, the ending net assets balance, after closing entries, would be:

A) $120,000
B) $100,000
C) $ 20,000
D) $ 80,000

Question 71

If a government decides to account for its risk management activities in a single fund, it must use:.

A) An internal service fund
B) The General Fund
C) A Special Revenue Fund
D) Either the General Fund or an Internal Service fund

Question 72

Revenue bonds sold by a water utility fund, upon sale, would be recorded:

A) In an enterprise fund as "Proceeds of Bonds."
B) In an enterprise fund as an addition to net assets
C) In the general long-term debt accounts as a liability
D) In an enterprise fund as a liability

Question 73

Which of the following is true regarding internal service funds?

A) Internal service funds provide services primarily to external users on a user charge basis
B) Internal service funds normally record the annual budget in the accounts
C) Internal service funds use full accrual accounting
D) Internal service funds' capital assets are not accounted for in the accounts

Question 74

Which of the following is not true regarding the Statement of Cash Flows required by the GASB for proprietary funds?

A) Either the direct or indirect method may be used
B) Interest payments would be recorded as financing activities
C) Acquisition of capital assets with bond proceeds would be a decrease in cash provided by capital and related financing activities
D) Four categories of activities are used instead of the three required by the FASB

Question 75

Customer's meter deposits which cannot be spent for normal operating purposes would be classified as restricted cash in the Statement of Net Assets of which fund?

A) Internal Service
B) Nonexpendable Trust
C) Special Revenue
D) Enterprise

Question 76

An example of an activity that would not normally be accounted for in an enterprise fund would be:

A) Swimming pool
B) Motor pool
C) Airport
D) Lottery

Question 77

Indicate which of the following would not be an example of an internal service fund:

A) City Self-Insurance Fund
B) City Print Shop
C) City Data Processing Service Center
D) City Airport

Question 78

Which of the following is not true regarding proprietary funds?

A) Full accrual accounting and the economic resource measurement focus are used
B) Statements required are the Balance Sheet, the Statement of Revenues, Expenditures and Changes in Fund Balances and the Statement of Cash Flows
C) Long Term debt is recorded directly in the accounts
D) Proprietary funds financial reports include the Statement of Net Assets, Statement of Revenues, Expenses and Changes in Fund Net Assets and Statement of Cash Flows

Question 79

The General Fund of a city made a permanent transfer of $100,000 to an enterprise fund. At year-end, the balance sheet accounts that would reflect the $100,000 in the enterprise fund would be cash and:

A) Contributed Capital
B) Equity Transfer In
C) Net Assets
D) Other Financing Sources

Question 80

Long-term liabilities of an enterprise fund should be reported in the: $\begin{array} { | l | c | c | } \hline & \text { Proprietary Fund } & \text { Government-Wide } \\&\text { Statements }&\text { Statements }\\\hline \text { A) } & \text { No } & \text { No} \\\hline \text { B) } & \text { No } &\text { Yes } \\\hline \text { C) } & \text { Yes } & \text { Yes } \\\hline \text { D) } & \text { Yes } & \text { No } \\\hline\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D