Deck 4: Accounting for Governmental Operating Activitiesillustrative Transactions and Financial Statements

Question 1

To properly account for the receipt of goods or services ordered in a prior fiscal year,it is necessary to know which appropriations were affected when the encumbrance documents were issued.

Answer 1

True
Explanation: The appropriations of the year in which encumbrance documents were issued were charged for the estimated liability at the time the encumbrances were issued. In most jurisdictions the encumbered portion of the appropriation does not lapse at fiscal year-end and may properly be expended in the subsequent years when goods and services are received.

Question 2

Vehicles used by the Parks and Recreation Department should be accounted for in the General Fund.

Answer 2

False
Explanation: GASB standards provide that capital assets should not be accounted for in a governmental fund since those funds account for financial resources only. General capital assets, such as those used by the Parks and Recreation Department should be accounted for in the governmental activities section of the government-wide statements.

Question 3

Under the modified accrual basis of accounting applicable to governmental fund types,revenue from sources such as fines and forfeits is accrued and recorded at net realizable value.

Answer 3

False
Explanation: Fines and forfeits, and many other sources of revenue of the General Fund and special revenue funds, are generally recognized when cash is received because there is no practicable way of measuring the revenue before collection.

Question 4

An interim schedule comparing the detail of appropriations,expenditures,and encumbrances should be prepared on an appropriate periodic basis to determine whether appropriations are being expended at the expected rate for the period and for the budget year to date.

Question 5

Interfund transactions that would result in the recognition of revenues,expenditures,or expenses,if one of the parties were external to the government,should be reported as fund revenues,expenditures,or expenses.

Question 6

Under GASB standards,Revenues must be credited for the total amount of the property tax levy.

Question 7

Governments,unlike business organizations,generally do not incur expenditures/expenses for the employer's share of FICA taxes and for contributions to other retirement plans established by law.

Question 8

The Governmental Activities column of the government-wide statement of net assets differs from the General Fund balance sheet in that it reports both current and noncurrent assets and liabilities,reports financial information for all governmental funds,not just the General Fund,and reports net assets rather than fund balances.

Question 9

Whenever a tax or other significant revenue source is authorized by a legislative body to be used for a specified purpose only,a special revenue fund should be established.

Question 10

An interim schedule comparing the detailed budgeted revenues with actual revenues should be prepared on an appropriate periodic basis to determine whether budgeted revenues are being realized as expected so that timely corrective action can be taken if necessary.

Question 11

A government that uses the encumbrance method for purchases of goods and services is not required to use encumbrance accounting for its payrolls.

Question 12

If the actual liability for goods or services ordered in the current year differs from the estimated liability,the Encumbrances account should be credited in the amount of the estimated liability when the goods or services were ordered.

Question 13

Governments that are temporarily short of cash but that have levied taxes expected to be collectible during the fiscal year are generally able to borrow on short-term notes known as "tax anticipation notes payable".

Question 14

The government-wide statement of net assets uses the same measurement focus and basis of accounting used by the General Fund balance sheet.

Question 15

Under current GASB standards the revenue from property taxes should be recorded in the amounts collected during the current period.

Question 16

Under the dual-track accounting approach used in this text,recording the annual budget for the General Fund requires journal entries in the general journals of both the General Fund and governmental activities at the government-wide level.

Question 17

If property taxes are not collected by the date specified by law,additional revenue is generally earned by the fund of the government for which the taxes were levied.

Question 18

Assuming all legal requirements have been met,the revenues budget total should be debited to the Estimated Revenues control account; the appropriations budget total should be credited to Appropriations and the difference should be debited or credited to Budgetary Fund Balance.

Question 19

When an activity accounted for by the General Fund issues purchase orders or contracts for goods or services a record must be kept,but no journal entries in the General Fund are necessary.

Question 20

The payment of liabilities by the General Fund requires the expenditure of an appropriation.

Question 21

The General Fund recorded a liability to the city-owned electric utility (an enterprise fund of the city)for electricity used during the prior month.The journal entry for the General Fund will include

A)A debit to Encumbrances.
B)A debit to Expenditures.
C)A debit to Interfund Transfers Out.
D)A debit to Due to Other Funds.

Question 22

Which of the following would properly be reported in the operating statement of a governmental fund?

A)Interest on a tax anticipation note issued and repaid during the period.
B)Amortization expense.
C)Depreciation expense.
D)A grant that is intended to finance activities of the following period.

Question 23

A transfer of General Fund assets to create an internal service fund that is not expected to repay the assets is an example of an interfund transfer.

Question 24

Under the dual-track accounting approach used in the text,which of the following transactions or events would be recorded in the general journal for governmental activities at the government-wide level?

A)Recording the annual budget,property tax levy,and payroll.
B)Recording the property tax levy,issuance of tax anticipation notes,and accrual of interest on long-term debt at year-end.
C)Recording the property tax levy,payroll,and encumbrances for purchase orders.
D)Recording the property tax levy,encumbrances for purchase orders,and payment of interest on long-term debt.

Question 25

Interfund loans and amounts due to or from other funds should be eliminated from the accounts of the affected funds so that the annual financial statements of the government will show only receivables from and payables to external individuals or organizations.

Question 26

Although a governmentally owned utility may receive police and fire protection and other services from governmental departments financed by "governmental" funds,such a utility is exempt from taxes and should not pay the General Fund anything for services received.

Question 27

A payment made by a city-owned utility to the General Fund of the city in lieu of taxes is an example of an "internal exchange transaction."

Question 28

Which of the following would be considered an internal exchange transaction?

A)The General Fund transfers $200,000 to establish a Central Supplies Fund; this amount will not be repaid.
B)The General Fund transfers $125,000 to the Debt Service Fund for payment of currently due bond interest payments.
C)The General Fund orders and receives supplies from the Central Supplies Fund in the amount of $9,000.
D)The Capital Projects Fund completes a library building project and transfers the remaining cash to the Debt Service Fund.

Question 29

Regular periodic transfers of resources raised by one fund to another fund that is to use the resources are classified as "interfund transfers."

Question 30

As a general rule,revenues,expenditures,and expenses should be reported as such only once in the funds of a government.

Question 31

Using the information below,what amount should be accounted for in a special revenue fund or funds?

A)$1,800,000.
B)$2,100,000.
C)$3,300,000.
D)$5,350,000.

Question 32

Which of the following should not be reported as a liability of the General Fund?

A)General obligation bonds payable (due in 10 years).
B)Vouchers payable.
C)Tax anticipation notes payable.
D)Due to federal government.

Question 33

The General Fund has transferred cash to the appropriate fund for eventual retirement of term bonds maturing in 10 years.Which funds would record this transaction?

A)General Fund: Yes; Capital Projects Fund: No; Debt Service Fund: Yes
B)General Fund: No; Capital Projects Fund: No; Debt Service Fund: Yes
C)General Fund: Yes; Capital Projects Fund: No; Debt Service Fund: No
D)General Fund: Yes; Capital Projects Fund: Yes; Debt Service Fund: Yes

Question 34

Which of the following financial statement(s)reports both current and noncurrent assets and liabilities?

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

Question 35

When a computer is ordered by a department of the government,the purchase order should be recorded in the General Fund as a debit to

A)Appropriations.
B)Equipment.
C)Encumbrances.
D)Expenditures.

Question 36

The Revenues account of a government is debited when

A)The budget is recorded at the beginning of the year.
B)Property taxes are recorded.
C)The account is closed to fund balance at the end of the year.
D)Property taxes are collected.

Question 37

The Town of Ashland levied property taxes in the amount of $800,000.The town estimates that 1 percent will be uncollectible.The journal entry to record the tax levy will include

A)A debit to cash for $792,000.
B)A credit to revenues for $792,000.
C)A debit to estimated uncollectible current taxes for $8,000.
D)A debit to estimated revenues for $800,000.

Question 38

The City of Newton purchased a vehicle for the police department.If the operations of the police department are financed by general revenues,the purchase would be recorded in which funds and/or activities?

A)General Fund: Yes; Governmental Activities: No
B)General Fund: No; Governmental Activities: No
C)General Fund: No,Governmental Activities: Yes
D)General Fund: Yes; Governmental Activities: Yes

Question 39

If one fund is both a debtor and creditor of a second fund,both funds must report the full amounts receivable and payable in their year-end balance sheets.

Question 40

An interfund transfer should be reported in a governmental fund operating statement as a(an)

A)Revenue or expenditure.
B)Due from or due to other funds.
C)Change in fund balance.
D)Other financing source or use.

Question 41

The Reserve for Encumbrances account is properly termed a

A)Long-term liability.
B)Reservation of fund balance.
C)Budgetary account.
D)Current liability if paid within a year; otherwise,long-term debt.

Question 42

Cartier Village's capital expenditures during the year ended December 31 included: What amounts should have been recorded in the General Fund and enterprise fund for the increase in equipment during the year ended December 31,assuming the electric utility is accounted for in an enterprise fund?

A)General Fund: $0; Enterprise Fund: $0
B)General Fund: $0; Enterprise Fund: $60,000
C)General Fund: $40,000; Enterprise Fund: $60,000
D)General Fund: $100,000; Enterprise Fund: $0

Question 43

If state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by GAAP,then the budgetary comparison schedule or statements should

A)Not be included as part of the basic financial statements.
B)Be included with the actual figures presented on the budget basis and then reconciled to the GAAP basis.
C)Be included with budget figures adjusted to the GAAP basis and presented only as part of the basic financial statements.
D)Be included as part of management's discussion and analysis (MD&A).

Question 44

Liabilities incurred,such as for accrued payroll,but still unpaid at year-end,should be recorded in the General Fund by a debit to which of the following accounts?

A)Appropriations.
B)Encumbrances.
C)Expenses.
D)Expenditures.

Question 45

Which of the following items would properly be reported on the year-end balance sheet of the General Fund?

A)Reserve for encumbrances.
B)Revenues.
C)Encumbrances.
D)Appropriations.

Question 46

The fund balance of the General Fund will be increased by the closing entry when

A)The sum of expenditures and other financing uses is less than the sum of revenues and other financing sources.
B)Expenditures are less than revenues plus/minus net other financing sources and uses.
C)Appropriations are less than expenditures and encumbrances.
D)Estimated revenues are less than revenues.

Question 47

Which of the following will require a debit to Fund Balance of a governmental fund when operating statement accounts are closed at the end of the year,assuming there are no other financing sources or uses?

A)Revenues are less than expenditures.
B)Revenues are more than expenditures.
C)Estimated revenues exceed revenues.
D)Expenditures and encumbrances exceed appropriations.

Question 48

Which of the following transactions is classified as an exchange transaction rather than a nonexchange transaction?

A)Property taxes.
B)Fees charged by a municipal airport.
C)Bequest left to the city by a wealthy citizen.
D)State grant to conduct an after school program for children.

Question 49

The City of Tipton received 100 acres of land located in the city limits as a gift from a local property owner for use as a city park.The debit for the entry to record this event in the General Fund should be to

A)General capital assets.
B)Land.
C)Expenditures.
D)No entry is required in General Fund.

Question 50

Which of the following accounts would not be closed at the end of each fiscal year?

A)Fund balance.
B)Estimated revenues.
C)Interfund transfers out.
D)Expenditures.

Question 51

On July 1,the first day of its fiscal year,the Town of Eldon levied a $1,000,000 property tax which is payable in full on December 1 of the same year.On September 15,the town decided to borrow $200,000 in 90-day tax anticipation notes to cover operating expenditures until the tax revenues are collected.The journal entry on September 15 to record the issuance of tax anticipation notes will include

A)A credit to Proceeds of Tax Anticipation Notes.
B)A credit to Tax Anticipation Revenue.
C)A credit to Tax Anticipation Notes Payable.
D)A credit to Estimated Uncollectible Current Taxes.

Question 52

Which of the following journal entries should be made to close the Encumbrances account at the end of the fiscal year?

A)Debit Reserve for Encumbrances and credit Encumbrances.
B)Debit Encumbrances and credit Reserve for Encumbrances.
C)Debit Encumbrances and credit Fund Balance.
D)Debit Fund Balance and credit Encumbrances.

Question 53

In fiscal year 2011 the "Expenditures-2010" account represents

A)Excess expenditures in 2010 that will be offset against appropriations for 2011.
B)Goods or services received in 2010 which the government has no record of ordering.
C)Amount of expenditures for goods ordered in 2010 that were received in 2011 and chargeable to appropriations of 2010.
D)The amounts of purchase orders issued in 2010 that were intended to be paid in full from appropriations for 2011.

Question 54

On May 1,Vacca City was notified of approval of a $300,000 federal operating grant,payable on a reimbursement basis as the city expends resources for the intended purpose of the grant.As of May 1,no expenditures had been made for grant purposes.The journal entry to record approval of this grant will include

A)A credit to Revenues in the amount of $300,000.
B)A credit to Deferred Revenues in the amount of $300,000.
C)A debit to Grants Receivable in the amount of $300,000.
D)No journal entry will be made until eligibility requirements are met by expending resources for the authorized purpose(s).

Question 55

The General Fund received $200,000 in lieu of taxes from the city owned water utility,an enterprise fund.This is an example of a(an)

A)Interfund transfer.
B)Interfund loan.
C)Internal exchange transaction.
D)Reimbursement.

Question 56

Which of the following best describes the proper treatment for uncollectible amounts of tax revenue?

A)Report as bad debt expense.
B)Report revenues net of uncollectible amounts.
C)Report as bad debt expenditures.
D)Report as deferred revenue.

Question 57

When a fire truck purchased from General Fund revenues is received,what account,if any,should have been credited in the General Fund?

A)No journal entry should be made in the General Fund.
B)Expenditures.
C)Encumbrances.
D)Capital Assets.

Question 58

The city of Grand Marais' fiscal year ends on June 30.Grand Marais uses encumbrance accounting.On May 6,a purchase order was approved and issued for supplies in the amount of $6,000.Grand Marais received these supplies on June 2,and the $6,000 invoice was approved for payment.What General Fund journal entry or entries should Grand Marais make on June 2,upon receipt of the supplies and approval of the invoice?

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

Question 59

During January 2011 General Fund supplies ordered in the previous fiscal year and encumbered at an estimated amount of $2,000 were received at an actual cost of $2,200.The entry to record this transaction will require a debit to

A)Expenditures-2011 in the amount of $2,200.
B)Expenditures-2010 in the amount of $200.
C)Expenditures-2011 in the amount of $200.
D)Expenditures-2010 in the amount of $2,200.

Question 60

The city of Grand Marais' fiscal year ends on June 30.Grand Marais uses encumbrance accounting.On May 6,a purchase order was approved and issued for supplies in the amount of $6,000.Grand Marais received these supplies on June 2,and the $6,000 invoice was approved for payment.What General Fund journal entry should Grand Marais make on May 6,to record the approved purchase order?

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

Question 61

Equipment acquired several years ago by a capital projects fund and reported in the governmental activities statement of net assets at a net book value of $2,000 was sold for $1,000 cash.Journal entries are necessary in the general journals of the

A)General Fund,capital projects fund,and governmental activities.
B)General Fund and governmental activities.
C)General Fund,capital projects fund,and enterprise fund.
D)Capital projects fund and governmental activities.

Question 62

When an enterprise fund pays the General Fund an amount in lieu of taxes,the account to be credited in the General Fund is

A)Cash.
B)Operating Transfer in.
C)Revenues.
D)Fund Balance.

Question 63

Which of the following transactions is classified as an exchange transaction rather than a nonexchange transaction?

A)Fees charged for use of an athletic field at a city park.
B)State grant to conduct a smoking cessation program for middle school-aged youth.
C)Bequest left to the city by a former mayor.
D)Personal property taxes.

Question 64

If a government issues debt to finance capital acquisition,how should the related long-term debt be reported by the governmental fund that receives the proceeds of the debt?

A)Long-term liability.
B)Revenue.
C)Other financing source.
D)Not reported by the governmental fund; only reported at the government-wide level.

Question 65

In which fund would a government most likely account for the assets confiscated in drug arrests and legally required to be used for drug prevention education?

A)General Fund.
B)Permanent fund.
C)Special revenue fund.
D)Enterprise fund.

Question 66

Which of the following are reported in the functions/programs section of the statement of activities at the government-wide level where they reduce the net expense of each function or produce a net revenue?

A)Indirect revenues.
B)Program revenues.
C)General revenues.
D)Nonexchange revenues.

Question 67

Which of the following funds are governmental funds?

A)General Fund,special revenue funds,capital projects funds,debt service funds,and permanent funds.
B)General Fund,special revenue funds,capital projects funds,debt service funds,and private-purpose trust funds.
C)General Fund,special revenue funds,capital projects funds,debt service funds,and internal service funds.
D)General Fund,special revenue funds,public-purpose trust funds.

Question 68

The General Fund is used to account for:

A)Revenues and expenditures legally restricted to a specific purpose.
B)The accumulation of resources to pay for principal and interest on the current portion of long-term debt.
C)Construction of major capital assets.
D)General administration of the government.

Question 69

The following are key terms in Chapter 4 that relate to exchange and nonexchange transactions:
A.Derived tax revenues
B.Exchange-like transactions
C.Nonexchange transactions
D.Nonexchange revenue
E.Voluntary nonexchange transactions
F.Imposed nonexchange revenue
G.Exchange transactions
H.Time restrictions
I.Purpose restrictions
J.Eligibility requirements
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Question 70

Under the modified accrual basis of accounting,revenues should be recognized when

A)Received in cash.
B)Earned.
C)Available.
D)Spent.

Question 71

Revenue from nonexchange transactions may be recognized in all of these circumstances,except

A)When the underlying transaction has occurred and the resources are available.
B)In the period for which property taxes are levied.
C)When all eligibility requirements have been met.
D)A purpose restriction imposed by a grantor has been met.

Question 72

Which of the following is properly reported as an other financing source by the General Fund?

A)Sales taxes.
B)Interfund transfers in.
C)Parking fines.
D)Sale of zoning maps.

Question 73

How many general funds may a government have?

A)One.
B)Two.
C)As many as necessary to record its projects and activities.
D)None,this is not a fund type used by governments under GASBS 34.

Question 74

Which of the following types of nonexchange transactions recognize revenue when all the eligibility requirements are met?

A)Voluntary nonexchange transactions.
B)Imposed nonexchange transactions.
C)Derived tax revenues.
D)Property tax revenues.

Question 75

Which of the following journal entries should a government use to record $475,000 for police department salaries and wages during a particular month?

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

Question 76

Revenues that are legally restricted to be expended for specified operating purposes should be accounted for in special revenue funds,including

A)Endowment where the investment earnings are to be used for public purposes.
B)Pension trust fund revenues.
C)Accumulation of resources for payment of general long-term debt principal and interest.
D)Gasoline taxes to finance road repairs.

Question 77

Which of the following assets would appropriately be reported on the governmental funds balance sheet?

A)Capital assets.
B)Inventories.
C)Deferred charges for debt issuance costs.
D)Goodwill.

Question 78

Which of the following would be reported on the operating statement of a governmental fund?

A)Incurrence of a liability for the annual contribution to the employee retirement plan.
B)Depreciation expense.
C)Amortization expense.
D)Revenue related to prior periods.

Question 79

The governmental funds operating statement presents all of the following except

A)Expenditures.
B)Other financing sources.
C)Revenues.
D)Expenses.

Question 80

Proceeds from general obligation bonds for capital construction should generally be recorded in the

A)Enterprise fund.
B)General Fund.
C)Capital projects funds.
D)Debt service funds.