Question 1

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment. The city has a policy that employees must take their vacation days during the year following the year in which they are earned. If they do not take vacation in the allotted period, they forfeit the vacation pay benefit. Traditionally, employees have taken 80 percent of the vacation days earned. During the current year, city employees earned $600,000 in vacation pay. Assuming the city maintains its books and records in a manner to facilitate the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?

Accepted Answer

A)  Debit Expenditures $600,000; credit Vacation payable $600,000. 
B)  Debit Expenses $600,000; credit Vacation payable $600,000. 
C)  Debit Expenses $480,000; credit Vacation payable $480,000. 
D)  No entry required.

Question 2

Which of the following is not an accepted modification of the accrual basis concerning the recognition of expenditures in governmental funds?

Accepted Answer

A)  Vacations and sick leave should never be accrued. 
B)  Capital assets should be reported as expenditures when the assets are acquired. 
C)  Inventory and the costs of using supplies may be accounted for using the consumption method. 
D)  Claims and judgments should be reported as expenditures only insofar as they will be paid out of current financial resources.

Question 3

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment. The city has a policy that employees must take their vacation days during the year following the year in which they are earned. If they do not take vacation in the allotted period, they forfeit the vacation pay benefit. Traditionally, employees have taken 80 percent of the vacation days earned. During the current year, city employees earned $600,000 in vacation pay. Assuming the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, which of the following entries should be made in the general fund to record the vacation pay earned during the current period?

Accepted Answer

A)  Debit Expenditures $600,000; credit Vacation pay payable $600,000. 
B)  Debit Expenses $600,000; credit Vacation pay payable $600,000. 
C)  Debit Expenditures $480,000; credit Vacation pay payable $480,000. 
D)  No entry required.

Question 4

Capital assets acquired are recorded as an expenditure of their total value in the year that they are purchased.

Accepted Answer

A) True 
 B)False

Question 5

Per GASB standards, governments must report general capital assets or depreciation in governmental funds.

Accepted Answer

A) True 
 B)False

Question 6

The City of Jonesboro engaged in the following transactions during the fiscal year ended September 30, 2018.
REQUIRED: Record the following transactions related to interfund transfers. Be sure to indicate in which fund the entry is being made.
a. The city transferred $400,000 from the general fund to a debt service fund to make the interest payments due during the fiscal year. The payments due during the fiscal year were paid. The city also transferred $200,000 from the general fund to a debt service fund to advance-fund the $200,000 interest payment due October 15, 2019.
b. The city transferred $75,000 from the Air Operations Special Revenue Fund to the general fund to close out the operations of that fund.
c. The city transferred $150,000 from the general fund to the city's Electric Utility Enterprise Fund to pay for the utilities used by the general and administrative offices during the year.
d. The city transferred the required pension contribution of $2 million from the general fund to the city's pension trust fund.
e. The city deposited into the general fund the proceeds of a $5.5 million dollar bond issue. The bonds were sold for $5.7 million.

Accepted Answer

The answer of The City of Jonesboro engaged in the...

Question 7

State Community College, a public college, grants faculty members a one-year sabbatical leave after each seven years of service. There are no requirements for research, study, or service during the compensated sabbatical leave. A particular faculty member earns $40,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of government-wide financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical?

Accepted Answer

A)  Debit Expenses $40,000; Credit Cash $40,000. 
B)  Debit Sabbatical leave payable $40,000; Credit Cash $40,000. 
C)  Debit Expenditures $40,000; Credit Cash $40,000. 
D)  No entry required.

Question 8

A transfer of cash from the general fund to a debt service fund to pay interest on debt should be recorded in the general fund as a nonreciprocal transfer-out.

Accepted Answer

A) True 
 B)False

Question 9

State University, a public university, has a policy of granting faculty members a one-year paid sabbatical leave after a period of seven years continuous employment. The leave is for further study, research, or public service. A particular faculty member earns $90,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of fund financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical leave?

Accepted Answer

A)  Debit Expenditures $90,000; Credit Cash $90,000. 
B)  Debit Expenses $90,000; Credit Cash $90,000. 
C)  Debit Sabbatical leave payable $90,000; Credit Cash $90,000. 
D)  No entry required.

Question 10

When accounting for inventory items in a governmental fund, a reclassification of the appropriate portion of fund balance as nonspendable is always required when the consumption method is used.

Accepted Answer

A) True 
 B)False

Question 11

On July 1, Gilbert County bought computer equipment for use in the administrative offices of the county. The equipment has an estimated useful life of three years and salvage of $10,000. The county has a 6/30 fiscal year-end. Assuming that the county maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, the $85,000 cost of this equipment would require which of the following entries?

Accepted Answer

A)  Debit Expenditures $85,000; Credit Cash $85,000. 
B)  Debit Equipment $85,000; Credit Cash $85,000. 
C)  Debit Expenses $85,000; Credit Cash $85,000. 
D)  No entry is required.

Question 12

The City of Holbrook transferred $100,000 from the general fund to a debt service fund for payment of interest. The appropriate entry in the debt service fund to record this transfer would be

Accepted Answer

A)  Debit Cash $100,000; Credit Revenue $100,000. 
B)  Debit Cash $100,000; Credit Reciprocal transfer-in $100,000. 
C)  Debit Cash $100,000; Credit Fund balance $100,000. 
D)  Debit Cash $100,000; Credit Nonreciprocal transfer-in $100,000.

Question 13

Proceeds of debt intended to finance general capital assets should be reported in the fund financial statements as a fund liability.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its fund financial statements. The city pays its employees bi-weekly on Friday. The fiscal year ended on Wednesday, June 30. Employees had been paid on Friday, June 25. The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). What entry, if any, should be made in the city's general fund on June 30?

Accepted Answer

A)  Debit Expenditures $90,000; credit Accrued wages and salary $90,000. 
B)  Debit Expenses $90,000; credit Accrued wages and salary $90,000. 
C)  Debit Expenditures $90,000; credit Encumbrances $90,000. 
D)  Debit Expenses $90,000; credit Encumbrances $90,000.

Question 15

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
-The amount of sick leave expenditures that should appear on the general fund financial statements for the fiscal year ended 6/30/18 is

Accepted Answer

A)  $1.4 million. 
B)  $1.3 million. 
C)  $0.6 million. 
D)  $1.0million.

Question 16

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
-The amount of sick leave liability that should appear on the government-wide financial statements at 6/30/18 is

Accepted Answer

A)  $1.2 million. 
B)  $0.4 million. 
C)  $0.2 million. 
D)  No liability should appear.

Question 17

Several years ago, Durham City issued $1 million in zero coupon bonds due and payable in 2026. The bonds were sold at an amount to yield investors 6 percent over the life of the bonds. During the current year, how much in interest expenditures should Durham City recognize related to these bonds?

Accepted Answer

A)  Difference between the present value of the bonds at the beginning of the period and the present value of the bonds at the end of the period. 
B)  Face amounts of bonds times 6 percent. 
C)  Book value of bonds times 6 percent. 
D)  None.

Question 18

The purchases method is consistent with full accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 19

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its government-wide financial statements. The city pays its employees bi-weekly on Friday. The fiscal year ended on Wednesday, June 30. Employees had been paid on Friday, June 25. The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). They will earn $60,000 on Thursday and Friday (July 1 and 2). What entry, if any, should be made on the government-wide financial statements?

Accepted Answer

A)  Debit Expenditures $90,000; credit Accrued wages and salary $90,000. 
B)  Debit Expenses $90,000; credit Accrued wages and salary $90,000. 
C)  Debit Expenditures $90,000; credit Encumbrances $90,000. 
D)  Debit Expenses $90,000; credit Encumbrances $90,000.

Question 20

Culver City recognizes as revenues/expenditures those amounts collected/paid during the year or within 60 days of fiscal year-end. The city offers a pension benefit to its employees who meet certain age and years of employment criteria. The city participates in the State Pension Plan. Per its contractual arrangement, the city's required contribution to the State Pension Plan for the fiscal year ended 6/30/18 is $5 million. Due to cash inflow shortages the city, which budgeted $5 million for pension contributions, paid only $4 million in the fiscal year ended 6/30/18. The city paid the remaining amount on September 30, 2018. Assuming the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, how should the city record the pension contribution and any associated liability for the year ended 6/10/18?

Accepted Answer

A)  Debit Expenditures $5 million; Credit Cash $4 million and Pension contribution payable $1 million. 
B)  Debit Expenses $5 million; Credit Cash $4 million and Pension contribution payable $1 million. 
C)  Debit Expenditures $4 million; Credit Cash $4 million. 
D)  Debit Expenses $4 million; Credit Cash $4 million.

Exam 5: Recognizing Expenditures in Governmental Funds

Which of the following is not an accepted modification of the accrual basis concerning the recognition of expenditures in governmental funds?

Capital assets acquired are recorded as an expenditure of their total value in the year that they are purchased.

Per GASB standards, governments must report general capital assets or depreciation in governmental funds.

A transfer of cash from the general fund to a debt service fund to pay interest on debt should be recorded in the general fund as a nonreciprocal transfer-out.

When accounting for inventory items in a governmental fund, a reclassification of the appropriate portion of fund balance as nonspendable is always required when the consumption method is used.

The City of Holbrook transferred $100,000 from the general fund to a debt service fund for payment of interest. The appropriate entry in the debt service fund to record this transfer would be

Proceeds of debt intended to finance general capital assets should be reported in the fund financial statements as a fund liability.

Several years ago, Durham City issued $1 million in zero coupon bonds due and payable in 2026. The bonds were sold at an amount to yield investors 6 percent over the life of the bonds. During the current year, how much in interest expenditures should Durham City recognize related to these bonds?

The purchases method is consistent with full accrual basis of accounting.