Deck 7: The Governmental Accounting Cycle

Question 1

In what way do Internal Service Funds differ from Enterprise Funds?

A)in the basis of accounting that they use
B)in the nature of the entities to which they supply goods or services
C)in the measurement focus that they use
D)in the kinds of financial statements that they prepare

Answer 1

B

Question 2

The General Fund transfers $500,000 to a Printing Internal Service Fund,which the Internal Service Fund uses to acquire machinery.How should the Internal Service Fund account for the cost of acquiring and using the equipment?

A)record the acquisition cost as an expenditure and ignore any depreciation
B)record the acquisition cost as an asset and depreciate it over its estimated useful life
C)record the acquisition cost as an asset,credit investment in capital assets,do not depreciate the asset,and write off the entire asset when it is disposed of
D)record the acquisition cost as an expenditure of the General Fund

Answer 2

B

Question 3

To achieve the pricing objective of an Internal Service Fund,which measurement focus and basis of accounting must be used?

A)cash measurement focus and cash basis of accounting
B)current financial resources measurement focus and full accrual basis of accounting
C)economic resources measurement focus and modified accrual basis of accounting
D)economic resources measurement focus and full accrual basis of accounting

Answer 3

D

Question 4

When an Internal Service Fund sends a bill to the General Fund,which account should the Internal Service Fund debit?

A)expenditures - vehicle usage
B)transfer out to the general fund
C)revenues - vehicle charges
D)due from general fund

Question 5

An Internal Service Fund (ISF)sends bills for motor vehicle services to various departments that receive appropriations from the General Fund.When it sends the bills out,which account should the ISF credit?

A)due from general fund
B)other financing sources - motor vehicle services
C)revenues - motor vehicle services
D)expenditures - motor vehicle costs

Question 6

Which of the following accounts properly would not appear in a proprietary-type statement of net position (balance sheet)?

A)accumulated depreciation
B)retained earnings
C)net position,unrestricted
D)inventory

Question 7

Which of the following statements is true about the source of Enterprise Fund revenues?

A)enterprise fund revenues may include revenues from sales to governmental agencies
B)enterprise fund revenues always come from sales to individuals and organizations other than governmental organizations
C)enterprise funds never receive governmental subsidies
D)enterprise funds record proceeds from revenue bonds as revenues

Question 8

Which of the following accounts properly would not appear in the operating statement of a proprietary-type fund?

A)transfer in from the general fund
B)depreciation expense
C)expenditures--capital outlay
D)revenues--charges for services

Question 9

In Proprietary Fund accounting,which of the following statements are true?

A)materials and supplies are recognized as expenditures when purchased
B)materials and supplies are recognized as expenses when consumed
C)capital assets are considered as expenditures when they are acquired
D)capital assets are not recorded in proprietary funds

Question 10

A city's Water and Sewer Enterprise Fund should include which of the following components in its statement of net position?

A)only assets,liabilities,and net position
B)assets,deferred outflows,liabilities,deferred inflows,and net position
C)assets,deferred outflows,liabilities,deferred inflows,and retained earnings
D)assets,liabilities,and retained earnings

Question 11

Which of the following accounts would be least likely to appear in an Enterprise Fund statement of net position (balance sheet)?

A)cash and cash equivalents
B)general obligation bonds payable
C)net investment in capital assets
D)equipment acquired under capital leases

Question 12

You are computing an hourly billing rate for the Print Shop Internal Service Fund.Which of the following items should become part of the rate?

A)salaries paid to maintenance staff
B)materials consumed during the year
C)depreciation
D)all of the above

Question 13

Which of the following activities is most likely to be accounted for in an Internal Service Fund?

A)operation of the municipal parks and cultural centers
B)sale of printing services to all departments in the municipality
C)sale of electricity services to the municipality's residents
D)accumulation of resources to pay pension benefits to municipal employees

Question 14

A proprietary fund statement of net position report assets and liabilities in what format?

A)relative order of liquidity
B)classified (current/noncurrent)
C)by asset/liability type
D)separating capital assets and related debt for other assets and liabilities

Question 15

Under which of the following circumstances must an Enterprise Fund be used?

A)when its activities are partially financed with advances from the general fund
B)when its activities are financed with debt that is secured solely by the full faith and credit of the related primary government
C)when its activities are financed with debt that is secured solely by a pledge of the net revenues from the charges made by the activity
D)when its activities are financed in such a way that all costs except capital costs are covered.

Question 16

A school district wants to establish a separate fund to acquire,store,and sell school supplies to individual schools within the district.What type of fund should it use?

A)enterprise fund
B)agency fund
C)internal service fund
D)public-purpose trust fund

Question 17

Which of the following would least likely be accounted for in an Enterprise Fund?

A)a local government's mass transit operation
B)a public swimming pool for which the government charges admission fees
C)a municipal golf course
D)a fire department

Question 18

A city's General Fund makes a contribution of $800,000 to an Internal Service Fund (ISF)so that the ISF can operate.How should the ISF report the contribution?

A)as operating revenue
B)as nonoperating revenue
C)as a transfer after operating income but before change in net position
D)as a direct addition to fund net position

Question 19

Which basis of accounting is used by Enterprise Funds?

A)full accrual
B)modified accrual
C)cash
D)modified cash

Question 20

In establishing prices for its services,which of the following practices is the least appropriate for an Internal Service Fund?

A)price at less than cost
B)price at cost only
C)price at cost plus an amount for anticipated inflation of equipment costs
D)price at cost plus an amount for depreciation of equipment purchased with a transfer of cash from the General Fund

Question 21

The Village of Catlett provides electricity to its residents through an Enterprise Fund (EF).The EF's fiscal year ends June 30.Its last payroll period starts June 26 and ends July 7.For financial reporting purposes,how should the EF handle the salaries earned by its employees June 26-30?

A)Nothing should be done,because nothing needs to be reported for the period June 26-30
B)The EF should report salary expense and a liability for salaries earned by employees during June 26-30
C)The EF should report a liability for salaries earned and expected to be earned from June 26 to July 7
D)The EF should disclose the salaries earned,but not paid,in a note to the financial statements

Question 22

Enterprise funds report capital contributions separate from operating and nonoperating revenues and expenses.When does an inflow of resources constitute a capital contribution?

A)when the inflows must be used to purchase capital assets or consist of capital assets
B)when the inflows are grants restricted to use on capital projects
C)when the contributions are from property owners
D)when the inflow consists of donated capital assets

Question 23

(Conceptual problem regarding the use of Proprietary Funds)
State whether the following are true or false.For the false items,explain why they are false.
a.Enterprise Funds are used only when all services are provided to non-governmental entities,and Internal Service Funds are used only when all services are provided to governmental agencies that are a part of the reporting government.
b.Enterprise Funds use the economic resources measurement focus and full accrual basis of accounting only when they want to compute the costs of services;otherwise,they use the current financial resources measurement focus and modified accrual basis of accounting.
c.The primary activities of the State Office of General Services and the State Parks Department are financed from General Fund appropriations.The former department also operates a governmental motor pool and the latter operates a public swimming pool.Because their primary activities are financed from the General Fund,they may not under any circumstances account for other activities in proprietary funds.
d.An Enterprise Fund must be used whenever a government charges fees to external users for goods or services.

Question 24

Proprietary funds sometimes report special assessment revenues.What are special assessments?

A)a means of financing services that benefit one group of citizens more than the general public
B)an additional assessment made so that an internal service or enterprise fund can cover all of its costs each year
C)a fee charged to cover the cost of creating new service capacity
D)revenues reported as direct additions to net investment in capital assets

Question 25

A city accounts for its hospital in an Enterprise Fund.An individual brings a malpractice suit against the hospital in 2013.City lawyers are concerned about losing the case if it goes to court,but estimate that it is probable they can settle it out of court for $50,000.In any event,the city does not expect any cash outflows on the claim for several years.How should the Enterprise Fund report this item in its statements for the year ended December 31,2013?

A)no reporting is necessary
B)the situation should be reported only by means of note disclosure
C)the enterprise fund should report a claims expense and a current liability of $50,000
D)the enterprise fund should report a claims expense and a noncurrent liability of $50,000

Question 26

A Water Enterprise Fund (EF)issues $4 million of 5% revenue bonds on October 1,2013.The EF will make its first payment of interest on March 31,2014,together with a principal payment of $200,000.What amount,if any,should the EF report in its fund statement of revenues,expenses,and changes in net position for the year ended December 31,2013?

A)zero
B)interest expense of $100,000
C)interest expense of $50,000 and principal expense of $100,000
D)interest expense of $50,000

Question 27

The GASB statement of cash flows is different from that required in the private sector in which of these ways?

A)It excludes permanently restricted cash flows
B)It excludes investing cash flows
C)It requires reporting operating cash flows using the direct method
D)It is not required unless the reporting entity issues debt.

Question 28

At December 31,2013,a Water Enterprise Fund has outstanding revenue bonds payable of $1 million,of which $40,000 is due to be paid on February 15,2014,and $50,000 is due to be paid on August 15,2014.How should it report this liability in its fund statement of net position as of December 31,2013?

A)It should report $40,000 as a current liability and disclose $960,000 in a note
B)It should report $40,000 as a current liability and $960,000 as a noncurrent liability
C)It should report $90,000 as a current liability and $910,000 as a noncurrent liability
D)It should report no liability for this obligation on the fund statement of net position

Question 29

(Computation of net investment in capital assets)
The following information is taken from the financial statements of Corwin Water District 2,an Enterprise Fund.The revenue bonds were issued to construct water mains.Based on these data,compute the amount that the Fund should report on its statement of net position,as net investment in capital assets.

Question 30

For fund-level financial reporting,a statement of cash flows is required for

Question 31

City Parks Department activities are accounted for in the General Fund.The Parks Department receives two invoices,one from the Lighting Enterprise Fund (EF)and one from the Printing Internal Service Fund (ISF).On receiving the invoices,which accounts should the department debit?

A)due to lighting EF and due to printing ISF
B)expenditures (for lighting services)and expenditures (for printing services)
C)expenditures (for lighting services)and transfers (for printing services)
D)transfers (for lighting services)and expenditures (for printing services)

Question 32

Proprietary fund net position must be reported in which three elements?

A)nonexpendable,restricted,and unrestricted
B)net investment in capital assets,restricted,and unrestricted
C)restricted,committed and unrestricted
D)additional- paid-in-capital,restricted,and unrestricted
E)restricted,committed,assigned

Question 33

Governments control their Enterprise Fund revenues and expenses in what way?

A)by using encumbrance accounting
B)by recording flexible budget amounts in the accounts
C)by controlling and approving the rates they can charge for services
D)by ensuring there is a competitive market for its services

Question 34

Enterprise Fund accounting and reporting is required when an activity is financed with debt secured solely by a pledge of the net revenue from fees and charges.This type of debt typically takes the form of what?

A)revenue bonds
B)general obligation revenue bonds
C)revenue anticipation notes
D)private placements

Question 35

An Enterprise Fund issued bonds in the amount of $100,000 and immediately acquired capital assets from the bond proceeds at a cost of $100,000.As of December 31,2013,accumulated depreciation on the assets was $10,000.Also,as of December 31,2013,the Enterprise Fund had paid back $15,000 of the debt principal.In its December 31,2013,statement of net position,how much should the Fund report as its net investment in capital assets?

A)$90,000
B)$85,000
C)$15,000
D)$5,000

Question 36

Many Utility Enterprise Fund activities charge tap fees to their customers.Which of the following is most descriptive of those fees?

A)tap fees are assessed based on the amount of water a utility customer uses
B)tap fees replace capital grants
C)tap fees can only be used to purchase or construct capital assets
D)tap fees provide financing when a utility needs to expand its operating plant for new customers

Question 37

Where should Internal Service Funds be presented on the face of proprietary fund financial statements?

A)they should be presented with governmental funds,not proprietary funds
B)in a separate column to the right of Enterprise Funds
C)in a separate set of financial statements
D)major Internal Service Funds should be reported in separate columns