Deck 9: Reporting Principles and Preparation of Fund Financial Statements

Question 1

The GASB considers accountability as an important objective of financial reporting.

Answer 1

True

Question 2

Basic financial statements consist of government-wide financial statements and fund financial statements for governmental funds, proprietary funds, and fiduciary funds.

Answer 2

True

Question 3

Minimum financial reporting requirements for general purpose external financial reports consist of an introductory section, government-wide financial statements, fund financial statements, and notes to the financial statements.

Answer 3

False

Question 4

An example of a state's ability to impose its will on the operations of a legally separate toll road is its ability to approve the road's proposed increases in toll rates

Question 5

The relationships between two primary governments and a third organization may be such that the third organization can be a component unit of both primary governments.

Question 6

Only general-purpose governments, like states, cities, counties, towns, and villages can be primary governments. Special purpose governmental entities, like school districts and hospitals, can never be primary governments.

Question 7

Management's Discussion & Analysis, one of several items of required supplementary information, requires a government's financial managers to provide an objective analysis of the government's financial activities and financial position.

Question 8

An important part of management's discussion and analysis is management's forecast and projections regarding what could occur in the future if certain current unknown, but plausible, events occur.

Question 9

Governments should prepare financial statements by major funds in both governmental and proprietary funds.

Question 10

When preparing governmental fund financial statements for a city, the General Fund is considered a major fund.

Question 11

Financial information for each major fund is presented in a separate column of the fund financial statements.

Question 12

Financial statements for fiduciary funds require major fiduciary funds to be reported in separate columns and all nonmajor funds to be reported aggregately in one column.

Question 13

The amounts reported for assets and liabilities in the total column for the combining balance sheet for nonmajor governmental funds are also reported in the other governmental funds column of the governmental funds balance sheet.

Question 14

Notes are an integral part of the financial statements because they contain information needed for fair presentation of the basic financial statements that is not displayed on the face of the statements.

Question 15

A discussion of accounting policies regarding individual assets and liabilities is included in the significant accounting policies section of the notes to the financial statements.

Question 16

Required supplementary information for a state or local government may include budgetary comparisons, pension and other employee benefit information, and combining fund financial statements.

Question 17

Budgetary comparison schedules for the General Fund and each Special Revenue Fund that has a legally adopted budget must be presented as required supplementary information.

Question 18

The statistical section of the CAFR includes information about five categories of data: financial trends, revenue capacity, debt capacity, demographic and economic information, and operating data.

Question 19

Which of the following is not listed by the GASB as an objective of governmental financial reporting?

A) Assist users in assessing government's duty to be publicly accountable
B) Assist users in evaluating a government's operating results
C) Assist users in assessing a government's internal controls over financial reporting
D) Assist users in assessing the level of services that a government can provide

Question 20

In Management's Discussion and Analysis (MD&A), what is the basic purpose of analyzing the government's overall financial position and results of operations?

A) To help users assess the government's financial position and results in relation to other governments
B) To review the government's financial position and results over the past 10 years
C) To help users assess whether and why the government's financial position improved or deteriorated as a result of the year's operations
D) To help users understand how the government's component units influenced its financial position

Question 21

To what extent should matters affecting the government's future financial position and operating results be discussed in MD&A?

A) Matters affecting the future should not be discussed in MD&A.
B) Facts, decisions, or conditions known to management as of end of the reporting period that are expected to significantly affect the government's financial position or operating results should be discussed in MD&A.
C) Facts, decisions, or conditions known to management as of the date of the audit report that are expected to significantly affect the government's financial position or operating results should be discussed in MD&A.
D) Facts, decisions, or conditions known to management as of the end of the reporting period should be discussed in MD&A if management is certain that the government's financial position or operating results will be significantly affected.

Question 22

How is the financial information for individual nonmajor funds displayed in the fund financial statements?

A) It is aggregated and displayed in a single column in the fund statements; combining statements for nonmajor funds are not required but may be presented as supplementary information.
B) It is not displayed anywhere in the fund financial statements.
C) It is not displayed anywhere in the fund financial statements, but may be reported in the combining statements
D) Individual nonmajor governmental funds are aggregated and presented in a single column in the fund statements, but nonmajor proprietary funds are not.

Question 23

How are prepaid items and inventory reported in the fund balance section of governmental funds balance sheets?

A) Nonspendable
B) Unassigned
C) Unrestricted
D) Restricted

Question 24

Which of the following major captions are not found in the proprietary funds statement of revenues, expenses, and changes in fund net position?

A) Operating revenues
B) Nonoperating revenues (expenses)
C) Operating expenses
D) Investing revenues (expenses)

Question 25

What is the meaning of the net position component called "net investment in capital assets" (which appears in proprietary fund financial statements)?

A) Total of capital assets of the proprietary funds less accumulated depreciation
B) Total of capital assets of the proprietary funds
C) Total of investments that are dedicated to purchase capital assets
D) Total of capital assets of the proprietary fund less accumulated depreciation less outstanding balances of bonds, notes, or other borrowings, issued to acquire, construct, or improve the capital assets.

Question 26

The GASB requires certain note disclosures regarding cash deposits. Under what circumstances are a government's deposits with financial institutions considered to be exposed to custodial credit risk?

A) More than 85% of the deposits are with a single institution
B) The deposits are not collateralized
C) The deposits are not insured
D) The deposits are not insured and the deposits are either not collateralized, collateralized with securities held by the financial institution, or collateralized with securities held by the institution's trust department or agent, but not in the government's name

Question 27

Which of the following is a required note disclosure regarding interfund transfers?

A) A general description of the principal purposes of interfund transfers must be disclosed.
B) Interfund transfers do not need to be described provided the total amount of the transfers is clearly reported on the face of the operating statement.
C) Interfund transfers do not need to be described provided the balances due on the transfers are made within two years.
D) Each interfund transfer, regardless of size, is required to be described

Question 28

Which of the following is a required note disclosure regarding long-term debt?

A) A schedule listing each issue of long-term debt sold for governmental activities, showing the amounts originally issued and the range of interest rates to maturity
B) A schedule showing debt service requirements to maturity, including principal and interest, for each of the 5 subsequent years, and in 5-year increments thereafter
C) A schedule showing the purposes of each issue of outstanding long-term governmental activity debt
D) A schedule showing the amounts outstanding on each issue of outstanding long-term debt sold for both governmental and business-type activities

Question 29

Where in the financial report should required supplementary information (RSI) other than Management's Discussion and Analysis be presented?

A) Immediately after the statistical section
B) Immediately after the financial statements
C) Immediately after the notes to the financial statements
D) Immediately after the combining financial statements

Question 30

Which of the following items (where applicable) is required to be reported as required supplementary information (RSI)?

A) Combining financial statements
B) A ten-year schedule showing the details of the changes in the net pension liability as well as the funded status of the pension plan
C) A discussion of accounting policies regarding individual revenues and expenditures
D) A schedule showing year-to-year changes in the book value of capital assets

Question 31

In the debt capacity section of the Statistical tables, which of the following ratios is not considered a valid measure of the ability of the taxpayers to finance the government's outstanding debt?

A) Debt as a percentage of personal income
B) Debt as a percentage of property value
C) Debt as a percentage of governmental revenues
D) Debt per capita

Question 32

What are the GASB's requirements concerning the preparation of a statistical section of a financial report?

A) It is part of the minimum external financial reporting requirements.
B) It has the same status as the notes to the financial statements.
C) It must be prepared if the government seeks to obtain an auditor's opinion.
D) The GASB does not require a statistical section to be prepared as part of the basic financial statements; it is prepared by governments that choose to issue a CAFR

Question 33

For each item listed in the left hand column of the table below, choose the letters associated with the financial statement(s) that should be prepared for that item. (Note that the letters may be used more than once.)

a. Statement of Revenues, Expenditures, and Changes in Fund Balance
b. Statement of Net Position
c. Statement of Fiduciary Net Position
d. Statement of Activities
e. Statement of Cash Flows
f. Balance Sheet
g. Statement of Changes in Fiduciary Net Position
h. Statement of Revenues, Expenses, and Changes in Fund Net Position

Question 34

Which of the following are attributes of a special purpose government that is considered a primary government?

-Another primary government appoints a majority of the special government's board.

Question 35

Which of the following are attributes of a special purpose government that is considered a primary government?

-Separately elected governing body

Question 36

Which of the following are attributes of a special purpose government that is considered a primary government?

-Legally separate

Question 37

Which of the following are attributes of a special purpose government that is considered a primary government?

-Fiscally dependent on another state or local government

Question 38

Which of the following are attributes of a special purpose government that is considered a primary government?

-Independent authority to approve its own budget

Question 39

Which of the following are attributes of a special purpose government that is considered a primary government?

-Authority to issue its own bonded debt

Question 40

Which of the following are attributes of a special purpose government that is considered a primary government?

-Able to levy taxes if approved by another government

Question 41

Martin Township decides to construct a new city hall. Based on the following data, prepare a statement of revenues, expenditures, and changes in fund balance for Martin Township's Capital Projects Fund. All transactions occur within the calendar year 2020.
a. The Fund starts and ends the year with a zero fund balance.
b. The Fund's financing sources for the city hall project were: long-term bond proceeds - $5 million; operating transfer from the General Fund - $2 million; state grant - $1 million; interest from the temporary investment of cash - $70,000.
c. Total outlays for constructing the new city hall were: construction costs - $7,200,000; design and construction supervision fees - $600,000.
d. City laws require that, whenever bonds are used, any remaining difference between total financing sources and construction costs must be transferred to the Debt Service Fund. Therefore, $270,000 was transferred to the Debt Service Fund.

Question 42

Information related to a government's financial statements, financial position, results of operations, and even financial condition may be located in Management's Discussion and Analysis (MD&A), notes to the financial statements (Notes), required supplementary information (RSI), and in the statistical section of a CAFR (Statistical). State where in a government's financial report (MD&A, Notes, RSI, or Statistical) each of the following types of information may be found.
1) Description of the component units of a reporting entity, including the criteria for including them in the reporting entity, and their relationship to the primary government
2) Comparison of the original appropriated budget, final appropriated budget, and actual inflows, outflows and balances for the year on the budgetary basis of accounting
3) 10-year schedules of data relevant to a government's revenue capacity, such as taxable assessed value and estimated actual value of taxable real property
4) Description of pension plans, including types of benefits and major elements of the pension formulas, number of employees covered, and contribution requirements
5) 10-year schedules showing the trends in the status of a government's pension plans, as well as the details of the changes in the net pension liability
6) Discussion of significant variances between a government's original budget, final budget, and actual results on a budgetary basis for the General Fund; also, discussion of currently known reason for variations they might significantly affect future services or liquidity
7) Disclosure of significant violations of finance-related legal and contractual provisions and actions taken to address such violations
8) 10-year schedules of changes in net position, showing expenses by function and revenues by source, and shown separately for governmental and business-type activities
9) Description of facts, decisions, or conditions known to management as of the date of the audit report that are expected to significantly affect the government's financial position
10) Description of risks related to cash deposits with institutions and investments

Question 43

Following is the trial balance of City of Peachville's General Fund at December 31, 2019. Prepare: (a) closing entries; (b) a post-closing trial balance; (c) a statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 2019; and (d) a balance sheet at December 31, 2019.
$\begin{array}{lrr}&\text {Debits}&\text {Credits}\\\text { Cash } & \$ 20,000 & \\\text { Property taxes receivable } & 30,000 & \\\text { Due from other funds } & 10,000 & \\\text { Vouchers payable } & & \$ 15,000 \\\text { Unassigned fund balance, January } 1,2019 && 25,000 \\\text { Revenues-property taxes } && 325,000 \\\text { Revenues-other } & &35,000\\ \text { Expenditures-salaries } & 280,000 \\ \text { Expenditures-materials } & 20,000 \\\text { Transfer out to Debt Service Fund } & 40,000 \\ \text { Encumbrances-materials } & 4,000 \\ \text { Budgetary fund balance reserved for encumbrances } &&4,000 \\ \text { stimated revenues--property taxes } & 325,000 \\ \text { Estimated revenues-other } & 40,000 \\ \text { Appropriations-salaries } &&290,000 \\\text { Appropriations-materials } &&25,000 \\\text { Appropriations-transfer out to Debt Service Fund } & & 40,000 \\\text { Budgetary fund balance } &\underline{\quad\quad}& \underline{10,000} \\\text { Totals } & \underline{ \$ 769,000 }& \underline{ \$ 769,000}\end{array}$

Question 44

Prepare entries to record the following selected transactions. Identify the fund affected by the transaction. If a transaction affects more than one fund, prepare entries for all affected funds. Use these abbreviations for the funds:

a. The city's utility fund sends an invoice for $10,000 to the General Fund for electricity provided to the city's agencies, and the General Fund receives the invoice.
b. The General Fund sends its annual $150,000 cash subsidy to the water enterprise fund.
c. To undertake a major capital project, the city issues $950,000 of 10-year serial bonds. The bonds are sold at a discount, so the city realizes bond proceeds of $935,000.
d. A wealthy citizen donates $500,000 to the city. In a formal trust agreement, the citizen requires that the funds be held intact in perpetuity, but that any income from the funds must be used to buy books for the city library. The city invests the $500,000. The fund earns revenue of $23,000 from investing the donation and sends the cash to the Library Special Revenue Fund.
e. To provide retirement benefits for its employees, the city makes a cash payment of $400,000 to its pension fund. The pension fund immediately invests the cash. At year-end, the pension fund investments have a fair value of $420,000.
f. The city receives a $300,000 invoice from a construction contractor. The invoice is approved, after deducting 10 percent retainage.
g. General Fund property taxes receivable at year-end were $100,000. The entity's allowance for uncollectible property taxes has a zero balance. Year-end adjusting entries are needed: (a) to report the receivables as delinquent; and (b) to record the fact that, of the $100,000, it is expected that $65,000 will be collected in the first 60 days of the next year, $30,000 will trickle in during the rest of the year, and $5,000 will probably need to be written off as uncollectible.
h. The law requires park entrance fees to be used only for park maintenance. Record the budget, which provides for estimated fees of $45,000 and a maintenance appropriation for $40,000. Also, record a budgetary amendment increasing the appropriation to $42,000.
i. The General Fund pays an electric bill for $12,000. It sends an invoice for $1,000 to the fund that provides central printing services to city agencies for that fund's share of the bill.
j. The General Fund had previously ordered supplies amounting to $24,000. The supplier ships half the order and sends an invoice for $12,500. The supplier also advises the city that it plans to ship the rest of the order in 60 days and will charge the city $12,500 for that portion as well. The city approves the first invoice and agrees to the price on the rest of the order.

Question 45

Prepare entries to record the following transactions, showing which funds are affected. If a transaction affects more than one fund, prepare entries for all affected funds.
a. The county adopts the following budget for its General Fund on January 1, 2020.
b. The county sends property tax invoices to all property owners. To raise the needed $520,000, the county sends tax bills for $525,000, anticipating that some will not pay.
c. Property owners pay taxes amounting to $500,000. The county writes off $5,000 in taxes as uncollectible. The remaining taxpayers are declared delinquent, and the county adds interest and penalties of $1,000 to their tax bills. The county believes that all delinquent taxpayers will pay their bills between April 1 and June 30, 2021.
d. The county issues a purchase order for $22,000 to acquire a police sedan. It charges the General Fund appropriation for "supplies and other."
e. The police sedan arrives in good order, together with an invoice for $21,000. The supplier says he got a good deal on the price, so he is passing to reduced cost on to the county. The county approves the invoice for payment.
f. Debt service of $50,000 (interest of $20,000 and bond principal of $30,000) comes due. The debt service will be paid out of the Debt Service Fund.
g. The General Fund transfers $50,000 cash to the Debt Service Fund, and the Debt Service Fund immediately makes payment of the debt service.
h. The county needs two sanitation trucks. It decides to finance the trucks by issuing 10-year bonds. The bond proceeds, amounting to $200,000, are deposited in the Capital Projects Fund.