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Flashcards in Government Funds Deck (13):
1

The basis of accounting for a Capital Projects Fund is the:
A. Cash basis.
B. Accrual basis.
C. Modified cash basis.
D. Modified accrual basis.

D. Modified accrual basis.

A Capital Projects Fund is a type of Governmental Fund. All Governmental Funds and Expendable Trust Funds use a modified accrual basis of accounting.

2

Revenues that are legally restricted to expenditures for specified purposes should be accounted for in Special Revenue Funds, including:
A. Accumulation of resources for payment of general long-term debt principal and interest.
B. Pension Trust Fund Revenues.
C. Gasoline taxes to finance road repairs.
D. Proprietary Fund revenues.

C. Gasoline taxes to finance road repairs.

A Special Revenue Fund should be used to account for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes.
Since the gasoline taxes are levied to finance road repairs, they should be accounted for in a Special Revenue Fund.

3

Excel City has $1,000,000 of 8%, 10 year general obligation bonds outstanding. The bonds were issue on October 1, 20x8 to finance construction of city park improvements. Interest is payable semiannually on October 1 and April 1. The bonds also require an annual principal payment of $100,000 each April 1. What amount of debt service expenditures should the government report in its Debt Service Fund for the year ended December 31, 20x9?

A.
$76,000

B.
$80,000

C.
$174,000

D.
$176,000

D.$176,000

Time line issue.

After the downpayment made in April. It reduces the amount of interest expense required for Oct.

Both Interest Expenditures and Principal Expenditures are recognized in the Debt Service Fund. Debt Service Expenditures are usually not accrued at year-end but are recorded as Expenditures when due and payable. In 20x9 the Debt Service Fund paid a total of $176,000-$ $40,000 interest and $100,000 principal on April 1 (both Expenditures of the fund) and $36,000 interest on October 1.

4

On December 31, 2005, Elm Village paid a contractor $4,500,000 for the total cost of a new Village Hall built in 2005 on Village-owned land.
Financing for the capital project was provided by a $3,000,000 general obligation bond issue sold at face value on December 31, 2005, with the remaining $1,500,000 transferred from the General Fund.
What account and amount should be reported in Elm's 2005 financial statements for the General Fund?

A.
Other Financing Sources control
$4,500,000.
B.
Expenditures control
$4,500,000
C.
Other Financing Sources control
$3,000,000
D.
Other financing uses control
$1,500,000

D.
Other financing uses control
$1,500,000

This answer is correct because the General Fund should report only the $1,500,000 in the Other Financing Uses Control account as an Operating Transfer. The $3,000,000 in bonds proceeds should be reported in the Capital Projects Fund in the Other Financing Sources Control account.

5

Rock County has acquired equipment through a noncancelable lease-purchase agreement dated December 31, 2004.
This agreement requires no down payment and the following minimum lease payments:
December 31 Principal Interest Total
2005 $50,000 $15,000 $65,000
2006 50,000 10,000 60,000
2007 50,000 5,000 55,000
If the lease payments are required to be made from a Debt Service Fund, what account or accounts should be debited in the Debt Service Fund for the December 31, 2005 lease payment of $65,000?

A. Expenditures Control $65,000.
B. Other Financing Sources Control $50,000
Expenditures Control 15,000
C. Amount to be Provided for Lease Payments $50,000
Expenditures Control 15,000
D. Expenditures Control $50,000
Amount to be provided for lease payments 15,000.

A. Expenditures Control $65,000.

A Debt Service Fund accounts for the accumulation of resources for, and the payment of, general long-term debt principal and interest.
The entire $65,000 of principal ($50,000) and interest ($15,000) should be debited to Expenditures Control when the payment is made.

6

Cal City maintains several major fund types. The following were among Cal's cash receipts during 2005:
Unrestricted state grant $1,000,000
Interest on bank accounts held for employees' pension plan 200,000
What amount of these cash receipts should be accounted for in Cal's General Fund?

A. $1,200,000
B. $1,000,000
C. $200,000
D. $0

B. $1,000,000

The General Fund should account for the $1,000,000 unrestricted state grant because it accounts for all financial resources except those required to be accounted for in another fund.
The $200,000 interest results from the assets of the employee pension plan, therefore the Pension Trust Fund should account for it.

7

Tott City's serial bonds are serviced through a Debt Service Fund with cash provided by the General Fund. In a Debt Service Fund's statements, how are cash receipts and cash payments reported?
Cash receipts Cash payments
Revenues Expenditures
Revenues Operating Transfers
Operating Transfers Expenditures
Operating Transfers Operating Transfers

Cash receipts Cash payments
Operating Transfers Expenditures

The General Fund records the original receipt of cash as Revenues, then transfers the cash to the Debt Service Fund.

The Debt Service Fund records this receipt of cash as an operating transfer.

The cash payments are recognized as Expenditures by the Debt Service Fund.

8

Excel City received a donation of $400,000. The donor stipulated that the money be permanently invested with the investment proceeds being used to provide funding for the community swimming pools. Which of the following best describes the reporting options for this transaction?

A.
The city should record $400,000 as a capital contribution in a Permanent Fund.

B.
The city should record $400,000 as revenue in a Permanent Fund.

C.
The city should record $400,000 as another financing source in a Permanent Fund.

D.
The city should record $400,000 as revenue in the General Fund.

B.
The city should record $400,000 as revenue in a Permanent Fund.

Permanent Funds account for the receipt of the endowment principal that is donated to a government and is to be held in trust for the benefit of the government (or of its citizenry as a whole) as revenue.

9

In Soan County's General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances, which of the following has an effect on the excess of revenues over expenditures?
A. Purchase of fixed assets.
B. Payment to a Debt-Service Fund.
C. Special items.
D. Proceeds from the sale of capital assets.

A. Purchase of fixed assets.

Under the modified accrual basis of accounting, the purchase of fixed assets are classified as Capital Expenditures and is one of the expenditure types included in determining the excess (deficiency) of revenues over expenditures.

The other three answers are items that appear in different sections of the Statement of Revenues, Expenditures, and Changes in Fund Balance.

The payment to a debt service (i.e., a transfer out) is in the Other Financing Sources and Uses section of the statement. Special items include proceeds from the sale of capital assets, which appear below the section for Other Financing Sources and Uses of the statement.

10

Should a Special Revenue Fund with a legally adopted budget maintain its accounts on an accrual basis and integrate budgetary accounts into its accounting system?
Maintain on accrual basis Integrate budgetary accounts
Yes Yes
Yes No
No Yes
No No

Maintain on accrual basis Integrate budgetary accounts
No Yes

A Special Revenue Fund is a Governmental Fund, therefore it maintains its accounts on the modified accrual basis of accounting, not on the accrual basis.

A Special Revenue Fund, like all Governmental Funds, can integrate its budgetary accounts into its accounting system. Integration is essential in general, special revenue, and other annually budgeted Governmental Funds that have numerous types of revenues, expenditures, and transfers.

11

Kew City received a $15,000,000 federal grant to finance the construction of a center for the rehabilitation of drug addicts. The proceeds of this grant should be accounted for in the:
A. Special Revenue Funds.
B. General Fund.
C. Capital Projects Funds.
D. Trust funds.

C. Capital Projects Funds.

A Capital Projects Fund should be used to account for financial resources, $15,000,000 federal grant, to be used for the construction or acquisition of major capital facilities, other than those financed by Proprietary Funds and Trust Funds.

12

Brandon County's General Fund had the following transactions during the year:
Transfer to a Debt Service Fund $100,000
Payment to a Pension Trust Fund 500,000
Purchase of equipment 300,000
What amount should Brandon County report for the General Fund as other financing uses in its Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances?

A. $100,000
B. $400,000
C. $800,000
D. $900,000


A. $100,000

Transfers between funds are classified as Other Financing Sources and Uses. The payment to the Pension Trust Fund pertains to employee and employer contributions to the pension plan and is part expenditure (employer share) and liability reduction (employee share that was due to the Pension Trust Fund). Under the modified accrual basis of accounting used by the General Fund, the purchase of the equipment is an expenditure.

13

The City of Minton recorded the following transactions in its Special Revenue Fund:
Transfer from the General Fund of $400,000 to help finance a fire safety improvement project
Transfer of $5,000 from a Capital Projects Fund to pay for office supplies, which the Special Revenue Fund initially paid for in error
Federal grant proceeds of $300,000, which can only be used to pay for salary increases for public safety workers
Which of the following is correct regarding the recognition of Revenue and Other Financing Source in the Special Revenue Fund?

Revenue Other Financing Sources
$305,000 $400,000
$300,000 $405,000
$300,000 $400,000
$0 $405,000

Revenue Other Financing Sources
$300,000 $400,000

The $5,000 transferred from the Capital Projects Fund is recognized as an Expenditure Reimbursement (a credit to an expenditure account) rather than a Revenue.
The $400,000 transferred from the General Fund is recorded as an Other Financing Source - Transfer-in.

The federal grant is recognized as revenue immediately (e.g., the existence of a purpose restriction does not delay revenue recognition).