Section 4A - Pt 2

Question 1

Wood City, which is legally obligated to maintain a debt service fund, issued the following general obligation bonds on July 1, 20X1:

• Term of bonds 10 years
• Face amount $1,000,000
• Issue price 101
• Stated interest rate 6%

Interest is payable January 1 and July 1. What amount of bond premium should be amortized in Wood’s debt service fund for the year ended December 31, 20X1?

$500

$0

$250

$1,000

Answer 1

$0

Since the measurement focus is sources and uses of financial resources, bond premium/discount is not amortized in its governmental funds, including the debt service fund.

A debt service fund is a governmental fund used to account for the accumulation of resources for the payment of general long-term debt principal and interest.

As a governmental fund, the modified accrual basis of accounting is used. (Amortization is an allocation system used in the accrual basis of accounting to determine interest expense.

Amortization does not change the financial resources of a governmental-type fund or the amount paid out or “expended” for interest, and is thus not recorded in governmental-type funds.)

The amount of premium amortized is $0.

Question 2

Texas A&M University, a publicly held institution, is required to report under the standards of which of the following bodies?

Primarily APB

None of the answer choices are correct.

Primarily FASB

Primarily GASB

Answer 2

Primarily GASB

Question 3

GASB 1600.103 requires governmental entities to issue which two sets of financial statements?

The statement of net position and the statement of activities

The income statement and the statement of cash flows

The statement of net position and the statement of cash flows

The balance sheet and the statement of owner’s equity

Answer 3

The statement of net position and the statement of activities

The GASB requires the issuance of two financial statements:

1. The balance sheet or statement of net position
2. The statement of revenue and expenses or statement of activities

Question 4

The GASB requires the issuance of two financial statements:

The balance sheet or___

The statement of revenue and expenses or___

Answer 4

statement of net position

statement of activities

Question 5

Powell City purchased a piece of equipment to be used by a department financed by the general fund. How should Powell report the acquisition in the general fund?

Capitalize, depreciation is not permitted

As an expenditure

Capitalize, depreciation is required

Capitalize, depreciation is optional

Answer 5

As an expenditure

The acquisition of capital assets with general fund financial resources should be recorded as a general fund expenditure.

The capital asset itself is not recorded in the general fund (or any other governmental fund).

Because the general fund uses the current financial resources measurement focus, long-lived assets are not recorded or capitalized.

Because the general fund recognizes expenditures when a fund liability occurs, depreciation is not recorded.

Question 6

Park City uses modified accrual and encumbrance accounting and formally integrates its budget into the general fund’s accounting records. For the year ending July 31, 20X1, the following budget was adopted:

• Estimated revenues $30,000,000
• Appropriations 27,000,000
• Estimated transfer to debt service fund 900,000

Park incurred salaries and wages of $800,000 for the month of April 20X1. What account should Park debit to record this $800,000?

Expenditures control

Operating funds control

Encumbrances control

Salaries and wages expense control

Answer 6

Expenditures control

The general fund records expenditures rather than expenses. The entry to record the salaries and wages must, therefore, be made to expenditures control. Salaries and wages are generally not encumbered. Since they are controlled by civil service boards and payroll procedures, the amounts and timing are predictable.

Expenditures control 800,000
Salaries and wages payable 800,000

Question 7

Community College, a public institution, had the following encumbrances at December 31, 20X1:

Outstanding purchase orders $12,000
Commitments for services not received 50,000

What amount of these encumbrances should be reported as liabilities in Community’s balance sheet at December 31, 20X1?

$50,000

$0

$12,000

$62,000

Answer 7

$0

Encumbrances resulting from the issuance of purchase orders or approval of contracts are not reported as liabilities since neither the goods nor services have been received.

A liability is recorded on the books only when the goods/services are received.

However, depending on the legal restrictions observed by the Community College, the encumbrances may be shown as committed or assigned fund balance.

As a public institution, Community College engages in governmental and business-type activities and follows the full governmental model.

Question 8

Park City uses encumbrance accounting and formally integrates its budget into the general fund’s accounting records. For the current year ending July 31, the following budget was adopted:

• Estimated revenues $30,000,000
• Appropriations 27,000,000
• Estimated transfer to debt service fund 900,000

Park should record budgeted appropriations by a:

credit to appropriations control, $27,000,000.

credit to appropriations control, $27,900,000.

debit to estimated expenditures, $27,000,000.

debit to estimated expenditures, $27,900,000.

Answer 8

credit to appropriations control, $27,000,000.

The balances of budget accounts are generally the opposite of the companion accounts.

For instance, the Revenues account ordinarily has a credit balance, but Estimated Revenues is opened with a debit balance while Estimated Expenditures (recorded as Appropriations) has a debit balance.

Estimated transfers of resources between and among funds are reported in the governmental fund operating statement as Other Financing Sources or Uses, as appropriated, and NOT combined with Appropriations.

A typical journal entry to record the budget is as follows:

Estimated Revenues xxx
Appropriations xxx
Budgetary Fund Balance xx

Question 9

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of property taxes collected in advance?

Debit deferred revenues

Credit deferred revenues

Credit other financing sources

Credit budgetary fund balance—unreserved

Answer 9

Credit deferred revenues

In order to prevent property taxes collected in advance from increasing the fund balance in a period before the related assets can legally be expended, a deferred revenue account (a liability like Unearned Revenue) is credited (with corresponding debit to cash).

Question 10

Several years ago, Old Town received a bequest with instructions to keep the principal invested and use the earnings for salaries for recreation department workers. Where would the city report the use of the earnings for fund and government-wide financial reporting?

1. Statement of revenues, expenditures and changes in fund balance—special revenue fund, and general revenues in the government-wide statement of activities.
2. Statement of revenues, expenditures and changes in fund balance—special revenue fund, and program revenues in the government-wide statement of activities.
3. Statement of revenues, expenditures and changes in fund balance—general fund, and program revenues in the government-wide statement of activities.
4. Statement of revenues, expenditures and changes in fund balance—general fund, and general revenues in the government-wide statement of activities.

Answer 10

Statement of revenues, expenditures and changes in fund balance—special revenue fund, and program revenues in the government-wide statement of activities.

• The principal of the bequest will be accounted for in a permanent fund for the fund statements and as part of the net position of governmental activities for the government-wide statements.
• The use of investment earnings is specified for a particular purpose, so the use would be reported in a special revenue fund for the fund-based statements.
• Both the permanent fund and the special revenue fund are governmental funds.
• As the use is specified for a particular program, recreation, rather than for optional governmental use, it would be displayed in the government-wide statement of activities as program revenues.

Question 11

The fiduciary funds of a government should include:

pension trust funds.

pension trust funds, custodial funds, and permanent funds.

custodial funds.

pension trust funds and custodial funds.

Answer 11

pension trust funds and custodial funds.

Four types of fiduciary funds are used in governmental accounting systems: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Permanent funds are a type of governmental fund.

Question 12

By definition, a fund is:

a single entity reporting on all government activities.

interchangeable and interdependent with the general fund.

composed of a self-balancing set of accounts.

a “government-type” entity through which all governmental functions are financed.

Answer 12

composed of a self-balancing set of accounts.

Under fund accounting, each fund is a separate “fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.” (GASB 1100.102)

Question 13

Which of the following accounts would never be included in the statements prepared for a fiduciary fund?

Additions

Net position

Fund balance

Cash

Answer 13

Fund balance

• Fiduciary funds use the economic resource measurement focus and the accrual basis of accounting. Revenues and expenses are not reported.
• The difference between assets plus deferred outflows and liabilities plus deferred inflows is referred to as “net position.”
• A change in net position is calculated as the difference between additions and deductions.

Fiduciary funds do not report fund balance.

Question 14

When Rolan County adopted its budget for the current year ending June 30, $20,000,000 was recorded for estimated revenues control. Actual revenues for the fiscal year amounted to $17,000,000. In closing the budgetary accounts at June 30:

Estimated Revenues Control should be debited for $3,000,000.

Revenues Control should be credited for $20,000,000.

Revenues Control should be debited for $3,000,000.

Estimated Revenues Control should be credited for $20,000,000.

Answer 14

Estimated Revenues Control should be credited for $20,000,000.

• As the amounts were estimated in the beginning, it is proper to reverse the estimate and to record the actual revenue.
• The estimated revenue control acts as a contra account to the estimated revenues actually credited.
• To reverse the control account, a revenue contra account, would be to credit the account for the full balance and then properly record the correct actual amount.

Question 15

The GASB is to establish accounting and reporting standards for activities and transactions of state and local governmental entities. These include:

states, counties, cities, towns, and independent school districts.

state and local government educational institutions (colleges and universities).

hospitals and other health care organizations, and charitable and other not-for-profit organizations that are government organizations.

All of the answer choices are correct.

Answer 15

All of the answer choices are correct.

When the Financial Accounting Foundation (FAF) established the GASB in a brother-sister relationship with the FASB, the FAF established the following jurisdiction policy:

The GASB is to establish accounting and reporting standards for activities and transactions of state and local governmental entities, which include states, counties, cities, and towns; independent school districts; state and local government educational institutions (colleges and universities); hospitals and other health care organizations; and charitable and other not-for-profit organizations that are government organizations.

The FASB is to establish accounting and reporting standards for activities and transactions of all other entities.

Question 16

How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its statement of revenues, expenses, and changes in net position?

Nonoperating revenues

Operating revenues

Other financing sources

Capital contributions

Answer 16

Nonoperating revenues

Revenues from state appropriations for other than capital-asset-related purposes are recorded as nonoperating revenues. Capital contributions and other financing sources are reported in other revenues, expenses, and transfers.

Question 17

GASB I60, Investments—Securities Lending, states that a government that (1) loans securities to a broker-dealer and (2) receives collateral in the form of other securities that the government cannot pledge or sell without borrower default should report:

1. the securities lent as assets.
2. the collateral received as assets.
3. a liability for the government’s obligation to return the collateral securities.

I only

I and III

II and III

I, II, and III

Answer 17

I only

The GASB Codification (Section I60.103) states: “Governmental entities should report securities lent (the underlying securities) as assets in their balance sheets.”

.Further, GASB I60.105 states that “securities lending transactions collateralized by letters of credit or by securities that the governmental entity does not have the ability to pledge or sell unless the borrower defaults should not be reported as assets and liabilities in the balance sheet.”

Question 18

Dale City is accumulating financial resources that are legally restricted to payments of general long-term debt principal and interest maturing in future years. At December 31, $5,000,000 has been accumulated for principal payments and $300,000 has been accumulated for interest payments. These restricted funds should be accounted for in the:

Debt service fund, $5,300,000; General fund, $0.

Debt service fund, $5,000,000; General fund, $300,000.

Debt service fund, $0; General fund, $5,300,000.

Debt service fund, $300,000; General fund, $5,000,000.

Answer 18

Debt service fund, $5,300,000; General fund, $0.

The debt service fund is a reserve used to account for and report payments of the maturing principal and interest of general government short- and long-term debt.

These liabilities are recorded in the General Capital Assets and General Long-Term Liabilities accounts, which are subaccounts of the debt service fund.

Question 19

For governmental fund types, which answer describes their primary measurement focus?

Cash flows and balances

Income determination

Flows and balances of financial resources

Capital maintenance

Answer 19

Flows and balances of financial resources

GASB 1300.102.a states: “The governmental fund reporting focuses primarily on the sources, uses, and balances of financial resources.” The financial statements for governmental funds use the current financial resources measurement focus.

Question 20

Park City uses modified accrual and encumbrance accounting and formally integrates its budget into the general fund’s accounting records. For the year ending July 31, 20X1, the following budget was adopted:

• Estimated revenues $30,000,000
• Appropriations 27,000,000
• Estimated transfer to debt service fund 900,000

When Park’s budget is adopted and recorded, Park’s budgetary fund balance would be a:

$3,000,000 debit balance.

$3,000,000 credit balance.

$2,100,000 debit balance.

$2,100,000 credit balance.

Answer 20

$2,100,000 credit balance.

The complete entry to record the adopted budget is:

Estimated revenues 30,000,000

• Appropriations control 27,000,000
• Estimated transfer to debt service 900,000
• Budgetary Fund Balance 2,100,000

Question 21

The following information is relevant to one of the City of Mullins’ General Fund’s derived tax revenues:

• Fiscal year-end June 30
• Beginning receivables $450,000
• Beginning deferred revenues 100,000
• Beginning AFDA 50,000
• Receipts 1,250,000
• Ending receivables 600,000
• Receivables collected 6/30 - 8/30 125,000
• Ending allowance for doubtful accounts 60,000

The City of Mullins considers derived tax receivables collected within 60 days after the close of the fiscal year to be “available.” Furthermore, the City wrote off $30,000 of receivables as uncollectible during the year.

What would be the amount of revenues reported at the fund level?

$1,075,000

$1,400,000

$1,390,000

$965,000

Answer 21

$1,075,000

Question 22

Which of the following is the most correct statement regarding the capitalization of construction-period interest requirement on capital assets used in business-like activities?

Interest may not be capitalized on qualifying assets.

Interest should be capitalized on qualifying assets.

Interest capitalization is not an issue addressed by governmental accounting standards.

Interest capitalization is optional.

Answer 22

Interest should be capitalized on qualifying assets.

FASB and AICPA pronouncements dated before November 20, 1989, have been incorporated into the GASB Codification, which indicates that interest should be capitalized for what is termed “qualifying assets” of governments, including the business-like activities.

Qualifying assets include assets constructed for the government’s own use.

Therefore, the choices that interest may not be capitalized, that capitalization is optional, or that interest capitalization is not addressed in GASB standards are all incorrect.

Question 23

In governmental accounting, a fund is:

1. an independent, self-balancing set of accounts.
2. used to assist in ensuring fiscal compliance.

Neither I nor II

II only

I only

Both I and II

Answer 23

Both I and II

.GASB 1300 defines a fund “as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations…” (Emphasis added)

Question 24

How should financial reporting assist users in evaluating operating results of the governmental entity?

All of the answer choices are correct.

Provide information about how it financed its activities

Provide information about sources and uses of resources

Provide information necessary to determine whether its financial position improved or deteriorated

Answer 24

All of the answer choices are correct.

GASB Concepts Statement 1 states that financial reporting should assist users in evaluating the operating results of the governmental entity for the year by:

• “(1) Providing information about sources and uses of financial resources
• “(2) Providing information about how it financed its activities and met its cash requirements
• “(3) Providing information necessary to determine whether its financial position improved or deteriorated as a result of the year’s operations”

Question 25

Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund? Internal trust funds Permanent funds Pension trust funds Enterprise funds

Answer 25

Permanent funds Special revenue funds are classified as governmental funds. The other governmental funds are the general fund, capital projects funds, debt service funds and permanent funds. Governmental funds use the modified accrual basis of accounting. Enterprise funds are a type of proprietary fund and investment and pension trust funds are types of fiduciary funds. They use the accrual basis of accounting.

Question 26

* The Dunstown County general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $1,000,000. Included with the notice was an advance of $250,000. * During the year, the County incurred $400,000 of qualifying eligible grant expenditures, and no additional money had been received from the grantor. What would be the amount of deferred revenues reported at the end of the year by the general fund? $750,000 $150,000 $0 $600,000

Answer 26

$0 Resources provided before that period of qualifying activity should be recognized as deferred revenues. Since the amount of qualifying expenditures exceeded the amount of the advance, there would be no deferred revenues reported at year-end.

Question 27

Where should receipts from a special tax levy to retire and pay interest on general obligation bonds be recorded? Debt service fund General fund Capital projects fund Permanent fund

Answer 27

Debt service fund Debt service funds are used to account for payments of the maturing principal and related interest of general government long-term debt and the accumulation of financial resources for these payments. The resources for these payments may be accumulated from tax levies specifically designated for debt service and/or by transfers from other funds.

Question 28

For the fall semester of 20X2, a state-operated college sent tuition notices to enrolled students that totaled $6,720,000 for tuition and fees. Selected students were granted tuition waivers of $420,000 and fee waivers of $52,400. The net amount of tuition and fees realized was $6,184,200, because estimated uncollectible tuition and fees amounted to $63,400. What amount should the college report for the period as operating revenues from tuition and fees? $6,184,200 $6,247,600 $6,720,000 $6,300,000

Answer 28

$6,184,200 Tuition and fee revenues should be reported net of tuition discounts and allowances with the discount or allowance amount parenthetically disclosed on the face of the statement. Tuition waivers are a kind of discount that lowers net tuition received from specific students. Uncollectible accounts are recognized with the use of an allowance for government college and university accounting. Operating revenue from tuition and fees is $6,184,200 ($6,720,000 – $420,000 – $52,400 – $63,400).

Question 29

With regard to infrastructure, how should a change from depreciation to the modified approach be reported? As a change in accounting estimate, not requiring restatement of prior periods As a change in accounting estimate, requiring restatement of prior periods As a change in accounting principle, requiring restatement of prior periods As a change in accounting principle, not requiring restatement of prior periods

Answer 29

As a change in accounting estimate, not requiring restatement of prior period According to GASB 1400.107, footnote 9, a change from depreciation to the modified approach should be reported as a change in an accounting estimate, and this change would not require a restatement of prior periods.

Question 30

An organization is most likely to be considered a government if: its governing board monitors public opinion. it is a component unit of a governmental reporting entity. it is exempt from federal taxation. it has the power to enact and enforce a tax levy.

Answer 30

it has the power to enact and enforce a tax levy. The joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), states that organizations having the power to enact and enforce a tax levy are considered governments. Note that many nongovernmental organizations are exempt from federal taxation. Also, the GASB Codification (Section 2100.119, footnote 3) states that for-profit corporations can be component units of a governmental reporting entity. Finally, the governing boards of many organizations, governmental and otherwise, monitor public opinion in varying degrees.

Question 31

Tang City received $250,000 from a donor who stipulated that the resources must be invested and must remain intact, but any income generated may be used for general government services. In which fund should Tang City record the donation? Permanent Special revenue Private-purpose trust Custodial

Answer 31

Permanent A permanent fund, a governmental fund–type, is used when resources are restricted such that principal must be maintained indefinitely but earnings may be used to support the reporting government's own programs. This contrasts with the special revenue fund, also a governmental fund-type, which is used when revenue streams are restricted as to use or when the principal may eventually be expended . A private-purpose trust fund, a fiduciary fund, is used to account for principal and disbursal of earnings for beneficiaries other than the reporting government itself.

Question 32

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of short-term financing received from a bank, secured by the city's taxing power? Credit other financing sources Credit expenditures control Debit deferred revenues Credit tax anticipation notes payable

Answer 32

Credit tax anticipation notes payable The credit side of the entry then must be to some liability account. The only available response in this problem that increases a liability is “credit tax anticipation notes payable.” Moreover, in view of the information given, this is the ideal response.

Question 33

A government contributed $100,000 to its defined benefit pension plan during the year and had no current amounts due to the plan at year-end. During the year, the net pension liability related to the plan increased by $200,000 and the total pension liability increased by $350,000. What amount of pension expenditure would the government recognize for the year? $350,000 $0 $100,000 $200,000

Answer 33

$100,000 While a government’s full accrual financial statements recognize pension expense primarily based upon changes in the pension liability during the year, the modified accrual financial statements recognize pension expenditures primarily based upon a funding approach. Therefore, the government would recognize the full $100,000 contribution as pension expense for the year.

Question 34

Governmental financial reporting should provide information to assist users in which situation? 1. Making social and political decisions 2. Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens Both I and II Neither I nor II II only I only

Answer 34

Both I and II ## Footnote Government reporting should be a means of demonstrating accountability that enables users to assess that accountability. Specifically, the information provided should permit users to determine whether current-year revenues were sufficient to pay for current-year services and/or whether future years’ citizens must assume burdens for services previously provided, demonstrate the government’s budgetary accountability and compliance with other finance-related legal and contractual requirements, and assist users in assessing service efforts, costs, and accomplishments.

Question 35

The modified accrual basis of accounting should be used for which of the following funds? Enterprise fund Pension trust fund Capital projects fund Proprietary fund

Answer 35

Capital projects fund. ## Footnote In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds where revenues and expenditures are recorded, such as the General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds.

Question 36

How would a municipality that uses modified accrual and encumbrance accounting record revenues realized from a reimbursement grant which had been previously awarded and received in cash? Credit interfund revenues. Credit other financing sources. Credit deferred revenues. Debit deferred revenues.

Answer 36

Debit deferred revenues. * Encumbrance accounting is only one feature of the accounting practices used by municipalities for governmental funds. Accounting for governmental funds is done on the modified accrual basis. * There are many instances where a grant is awarded and received in cash prior to the recipient city incurring “qualifying” expenditures. * In such instances, receipt of the grant proceeds is recorded with a debit to cash and a credit to a deferred revenues (liability) account. * Then, as qualifying expenditures are incurred, the related grant revenues are recognized by debiting deferred revenues and crediting revenues.

Question 37

Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund? Enterprise Capital projects Internal service Nonexpendable trust

Answer 37

Capital projects In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds (General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds) where revenues and expenditures are recorded. The flow of economic resources measurement focus and the accrual basis are used in proprietary funds (Enterprise and Internal Service Funds) where revenues and expenses are recorded. Modified accrual accounting is used for nonexpendable trusts.

Question 38

Cash receipts from grants and subsidies to decrease operating deficits should be classified in which of the following sections of the statement of cash flows for governmental not-for-profit entities? Capital and related financing Operating Noncapital financing Investing

Answer 38

Noncapital financing * According to GASB 2450.118, footnote 6, cash inflows from noncapital financing activities include cash receipts from grants or subsidies to finance operating deficits. * A governmental entity would prepare statements of cash flows for proprietary funds and business-type activities that account for activities whose goal is self-support rather than making a profit. * A governmental not-for-profit entity may report as a special-purpose government engaged only in business-type activities.

Question 39

Which of the following fund types of a government reports a statement of net position? Permanent funds Capital project funds Enterprise funds Special revenue funds

Answer 39

Enterprise funds The statement of net position reports the financial position of proprietary funds. Enterprise funds are a type of proprietary fund. Capital projects funds, special revenue funds, and permanent funds are all types of governmental funds that report financial position on a balance sheet. The net assets of proprietary funds are called net position. The net assets of a governmental fund are represented by Fund Balance.

Question 40

* During its fiscal year ended June 30, 20X1, Cliff City issued purchase orders totaling $5,000,000, which were properly recorded as encumbrances at that time. * Cliff received goods and related invoices at the encumbered amounts totaling $4,500,000 before year-end. * .The remaining goods of $500,000 were not received until after year-end. Cliff paid $4,200,000 of the invoices received during the year. What amount of Cliff's encumbrances was outstanding at June 30, 20X1? $300,000 $800,000 $500,000 $0

Answer 40

$500,000

Question 41

Which of the following accounts should Moon City close at the end of its fiscal year? Fund balance Fund balance—reserved for encumbrances Expenditures Vouchers payable

Answer 41

Expenditures Expenditures is a nominal (operating statement) account used in periodically measuring outflows of financial resources, and as such is closed at the end of the fiscal year. Vouchers Payable, Fund Balance, and Fund Balance—Reserved for Encumbrances are all balance sheet (real) accounts. Balance sheet accounts are not closed at fiscal year-end.

Question 42

Answer 42

$0 Blair County would not record either of these sources of monies in its special revenue funds. The proceeds of short-term notes to be used for advances to private-purpose trust funds would be in a private-purpose trust fund and the amount received from the long-term debt to be used for a major capital project would be in a capital projects fund.

Question 43

Which of the following transactions should be reported as a liability in the general fund financial statements? Principal on long-term debt due 90 days after the balance sheet date An amount set aside to pay for an unfilled contract An amount to be paid from current financial resources An amount that is due within one year of the balance sheet date

Answer 43

An amount to be paid from current financial resources ## Footnote Modified accrual accounting (revenues and expenditures reporting using the flow of current financial resources measurement focus) is used in the governmental funds, including the general fund. The General Fund is the primary governmental fund and is used to account for most routine general government operations. A government’s unmatured long-term indebtedness should be reported as general long-term liabilities, rather than governmental fund liabilities.

Question 44

A town's fund financial statements are prepared following major fund reporting requirements, and combining fund statements detailing nonmajor funds are also provided. 3In reviewing the comprehensive annual financial report, you notice that all the internal service funds were combined and reported in a single column in the basic financial statements. .The combining financial statements for internal service funds included a column for each of the town's four internal service funds. The explanation of this presentation is: 1. management did not feel that any internal service fund was important enough for separate presentation in the basic financial statements, although the officials had the option of including any fund felt to be important. 2. the internal service funds provided service specifically for governmental activities. 3. major fund reporting requirements do not apply to internal service funds. 4. none of the internal service funds accounted for 10% of the total assets, liabilities, revenues, or expenditures/expenses of the proprietary funds or 5% of those elements of all funds.

Answer 44

major fund reporting requirements do not apply to internal service funds. Major fund reporting requirements do not apply to internal service funds. Therefore, they are usually combined for financial reporting and presented individually with combining statements. The other answer choices are not sufficient explanations for the town's presentation of the internal service fund financial information.

Question 45

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of the receipt of supplies from approved purchase orders and the approval of the related invoices? Debit expenditures control. Credit appropriations control. Credit other financing uses. Debit encumbrances control.

Answer 45

Debit expenditures control. * Modified accrual and encumbrance accounting are features of governmental fund accounting. * In this instance, the receipt of supplies and approval of the related invoices indicate that an expenditure and a liability should be recorded in the governmental fund which is to pay for the supplies. * Any encumbrance entry previously recorded for the supplies should be reversed (credit encumbrance control).

Question 46

Lily City provides funding for its postemployment benefits other than pension plans primarily on a pay-as-you-go basis. The plan does not meet the criteria specified in GASB Statement 75 to be a trusted “other postemployment benefit” (OPEB) plan. The following information relates to the OPEB plan at the end of the year: * Total OPEB liability $10,000,000 * OPEB plan fiduciary net position 1,000,000 * Net OPEB liability 9,000,000 What amount should Lily City report as an OPEB liability in its government-wide financial statements? $0 $9,000,000 $10,000,000 $1,000,000

Answer 46

$10,000,000 While many governments fund their OPEB plans primarily on a pay-as-you-go basis, they are required to report the true liability for those benefits in their government-wide financial statements. If a government’s OPEB plan is administered through a trust that meets specified criteria in GASB Statement 75, the net OPEB liability will be reported. However, if the criteria is not met, the total OPEB liability will be reported ($10,000,000) and any assets set aside for OPEB benefits will continue to be reported as assets of the government.

Question 47

Metro General is a municipally owned and operated hospital and a component unit of Metro City. Where should the information for Metro General be presented in the government-wide financial statements? It should not appear in the government-wide financial statements. In the business-type activities column In the governmental activities column In the component units column after the primary government totals

Answer 47

**In the component units column after the primary government totals** ## Footnote Data of discretely presented component units should be displayed in the government-wide statement of activities and statement of net position in columns to the right or after the primary government information. The focus of the government-wide financial statements should be on the primary government. Separate columns distinguish the primary government and its discretely presented component units. Discretely presented component units are not in substance part of the primary government. This contrasts with the presentation of blended component unit data, which is included within the primary government information because blended component units are, in substance, part of the primary government.

Question 48

Which of the following is a governmental fund that uses the current financial resources measurement focus? Internal service fund Special revenue fund Private-purpose trust fund Enterprise fund

Answer 48

Special revenue fund Governmental funds finance and account for general government activities, such as police and fire protection, courts, inspection, and general administration, and use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Governmental funds include the general fund, **special revenue fund,** capital projects fund, debt service fund, and permanent funds.

Question 49

Financing for the renovation of Fir City's municipal park, begun and completed during 20X1, came from _the following sources:_ Grant from state government **$400,000** *Proceeds from general obligation bond issue***500,000** Transfer from Fir's general fund **100,000** _In its 20X1 capital projects fund operating statement, Fir should report these amounts as:_ $400,000 revenues and $600,000 other financing sources. $900,000 revenues and $100,000 other financing sources. $0 revenues and $1,000,000 other financing sources. $1,000,000 revenues and $0 other financing sources.

Answer 49

$400,000 revenues and $600,000 other financing sources. ## Footnote The financing of the renovation of Fir City's municipal park is accounted for in the capital projects fund of the city. The resources from the state grant would be recorded as revenue. However, the proceeds from the bond issue and the interfund transfer would be classified as “other financing sources.” If the grant funds had not yet been used according to the grant guidelines, they would be recognized as deferred revenues, a liability, but not as other financing sources. Revenues are defined as inflows of financial resources from other than issuance of debt, interfund reimbursement, and interfund transfers.

Question 50

The Town of Starbuck's general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $2,000,000. Included with the notice was an advance of $1,000,000. During the year, the Town incurred $1,400,000 of program expenditures of which $800,000 were considered eligible qualifying expenditures. No additional money had been received from the grantor during the year. What would be the amount of deferred revenues reported at the end of the year by the general fund? $1,200,000 $0 $600,000 $200,000

Answer 50

$200,000 Normally, resources provided before that period of qualifying activity should be recognized as deferred revenues. Insofar as the amount of qualifying expenditures was less than the amount of the advance, the deferred revenues would be equal to the difference. Advance received $1,000,000 _Qualifying expenditures 800,000_ Deferred revenues $ 200,000

Question 51

\_\_\_\_Taxes, fines, grants, and other nonexchange transactions—where a government does not give value equal to that received—are major revenue sources of many governments.

Answer 51

Nonexchange transactions.

Question 52

_Dayne County's general fund had the following disbursements during the year:_ * Payment of principal on long-term debt $100,000 * Payments to vendors 500,000 * Purchase of a computer 300,000 What amount should Dayne County report as expenditures in its governmental funds statement of revenues, expenditures, and changes in fund balances? 1. $800,000 2. $900,000 3. $300,000 4. $500,000

Answer 52

$900,000 Because the governmental funds have the measurement focus of current financial resources, all three disbursements ($900,000) would be reported as expenditures. Because governmental funds do not account for noncurrent assets or liabilities, the purchase of equipment ($300,000) and the payment of principal on long-term debt ($100,000) are fund expenditures, as well as the payments to vendors ($500,000).

Question 53

Which of the following funds of a governmental unit records depreciation? Debt service fund Capital projects fund Internal service fund Special revenue fund

Answer 53

Internal service fund The internal service fund, a proprietary fund, is the only answer choice in which capital assets and related depreciation are recorded. The other answer choices are governmental funds in which neither capital assets nor depreciation expense are recorded.

Question 54

The Town of Starbuck's general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $2,000,000. Included with the notice was an advance of $1,000,000. During the year, the Town incurred $1,400,000 of program expenditures of which $800,000 were considered eligible qualifying expenditures. No additional money had been received from the grantor during the year. What amount of grant revenues would be reported for the year by the general fund? $1,400,000 $1,000,000 $2,000,000 $800,000

Answer 54

$800,000 On the modified accrual basis, revenues should be recognized when all applicable eligibility requirements are met and the resources are available. The $800,000 considered to be eligible qualifying expenditures would be recognized as grant revenues for the year. The resources received in excess of qualifying expenditures would be considered deferred revenues.

Question 55

Which of the following funds would be reported as a fiduciary fund in Pine City's financial statements? Special revenue Internal service Private-purpose trust Permanent

Answer 55

Private-purpose trust The only listed fund that would be reported as a fiduciary fund in Pine City's financial statements is the private-purpose trust fund. The special revenue and permanent funds are both governmental funds, and the internal service fund is one of two types of proprietary funds.

Question 56

The measurement focus of governmental-type funds is the determination of: financial position. flow of financial resources. both flow of financial resources and financial position. neither flow of financial resources nor financial position.

Answer 56

both flow of financial resources and financial position. The measurement focus of governmental type funds is on both: * the changes in financial position and * financial position. The flow of financial resources refers to the changes in financial position from the sources and uses of financial resources (GASB 1300.102). By contrast, the measurement focus of a proprietary fund is on determining “operating income, changes in net position (or cost recovery), financial position, and cash flows”—similar to a commercial entity.

Question 57

A county's balances in the general fund included the following: 1. Appropriations $745,000 2. Encumbrances 37,250 3. Expenditures 298,000 4. Vouchers payable 55,875 What is the remaining amount available for use by the county? $447,000 $353,875 $409,750 $391,125

Answer 57

$409,750 ## Footnote The appropriations included in the adopted budget constitute the maximum authorized for expenditure during the period, and cannot legally be exceeded unless subsequently amended by the legislative body. In this question, the appropriation was established at $745,000; expenditures incurred to date were $298,000 and $37,250 was encumbered. Only $409,750 remains available for spending. The vouchers payable represent past expenditures waiting only for cash payment. Appropriation $745,000 Expenditures (298,000) _Encumbrances (37,250)_ Funds available $409,750

Question 58

Which entity develops and distributes accounting standards for government entities? SEC FASB IASB GASB

Answer 58

GASB Some not-for-profit organizations are government entities, but others are nongovernment. * Government not-for-profit organizations follow the SLG (state and local government) GAAP hierarchy in determining applicable GAAP. These not-for-profit organizations are prohibited by GASB Statement 29 from applying FASB not-for-profit standards. * Nongovernment not-for-profit organizations should follow the business GAAP hierarchy and look to the FASB for primary guidance in determining applicable GAAP. There are significant differences in GAAP applicable to government and nongovernment not-for-profit organizations.

Question 59

Which of the following is the paramount objective of financial reporting by state and local governments? Accountability Reliability Consistency Comparability

Answer 59

Accountability The characteristics of governmental activities result in reporting objectives for these units. These characteristics include: * the separation of powers embodied in the representative form of government, * the existence of intergovernmental revenues in the federal government, * the relationship of services to the taxpayers receiving the services, * budgets as a control mechanism, and * fund accounting as another control mechanism. Consequently, the GASB has determined that accountability is the cornerstone of financial reporting for governmental entities.

Question 60

The County of Nemp charges surrounding governments an administrative fee for collecting and remitting property tax payments on their behalf. The activity is accounted for in a fiduciary fund. Which of the following best describes the proper treatment of the administrative fee on the county’s books? 1. Report the fee as a deduction in the statement of changes in net position of the fund. 2. Report the fee as an expenditure in the statement of changes in fund balance of the fiduciary fund. 3. Deduct the fee from the amounts remitted to the surrounding governments and add the fee to the amount due to the county’s General Fund. 4. Do not report the fee as either a deduction or expenditure.

Answer 60

Report the fee as a deduction in the statement of changes in net position of the fund. GASB Statement 84 requires fiduciary funds to report administrative costs as a deduction in the statement of changes in net position. The fund used to collect and remit property taxes for other governments is a fiduciary fund, specifically a custodial fund. Each government that is charged the fee will include it as an expenditure on its own books in the appropriate governmental fund

Question 61

During the current year, Vann County's motor pool internal service fund sold two vehicles for $5,000. The vehicles had a cost of $6,000 and a carrying value of $4,000. How should Vann County's motor pool internal service fund report this transaction in its fund financial statements? Other financing source of $5,000 Gain of $1,000 Revenue of $5,000 Special item of $1,000

Answer 61

**Gain of $1,000** A government’s self-supporting business-type activities are accounted for in the proprietary funds, which include enterprise funds and internal service funds. The flow of economic resources measurement focus and the accrual basis of accounting are used in proprietary funds. The accounting equation of proprietary funds is similar to that of a business corporation, which includes accounts for all related assets and liabilities—not just for current assets and current liabilities. Common examples of internal service funds are those used to account for government motor pools, central repair shops and garages, data processing departments, and photocopy and printing shops. _The entry to record to sale is as follows:_ Cash/Receivable 5,000 Accumulated Depreciation 2,000 Vehicles 6,000 Gain on Sale 1,000

Question 62

For governmental fund types, which of the following does not identify the primary characteristics of the structure? The relationship of taxpayers to services received The federal system of government and the prevalence of intergovernmental revenues The representative form of government and the separation of powers Flows and balances of financial resources

Answer 62

Flows and balances of financial resources. According to the summary of GASB Concept Statement 1, the primary characteristics of governmental structure are as follows: * "(1) The representative form of government and the separation of powers * "(2) The federal system of government and the prevalence of intergovernmental revenues * "(3) The relationship of taxpayers to services received "These are the primary characteristics that affect financial reporting of governmental-type activities and must be considered in establishing financial reporting objectives."

Question 63

According to the summary of GASB Concept Statement 1, the primary characteristics of governmental structure are as follows: * "(1) The \_\_form of government and the separation of \_\_ * "(2) The federal system of government and the prevalence of \_\_\_revenues * "(3) The \_\_\_\_of taxpayers to services received

Answer 63

representative , powers intergovernmental relationship

Question 64

The Dunstown County general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $1,000,000. Included with the notice was an advance of $250,000. During the year, the County incurred $400,000 of qualifying eligible grant expenditures, and no additional money had been received from the grantor. What would be the amount of intergovernmental receivables reported by the general fund at the close of the fiscal year? $600,000 $0 $750,000 $150,000

Answer 64

$150,000 The receivable would equal the difference between the amount of the advance and the revenues of $400,000 (the amount spent on qualifying expenditures). Revenues $400,000 _Less advance received (250,000)_ Intergovernmental receivable $150,000

Question 65

On January 2, Basketville City purchased equipment with a useful life of three years to be used by its water and sewer enterprise fund. Which of the following is the correct treatment for the asset? Capitalize; depreciation is optional. Capitalize; depreciation is not permitted. Record the purchase of the equipment as an expenditure. Capitalize; depreciation is required.

Answer 65

**Capitalize; depreciation is required.** Proprietary funds (including enterprise funds and internal service funds) are reported using the economic resources measurement focus and the accrual basis of accounting. Essentially, this means they are reported using a revenue and expense model. In this model, equipment is recorded and reported as capital assets (the term used for fixed assets in government reporting). Because expenses are reported, depreciation expense must be calculated and reported.

Question 66

The city accountant for a newly established municipality is setting up the new fund structure for the city's accounting system. How many funds should the accountant establish for the city? The minimum number of funds consistent with the needs of the city accountant Two: a special revenue fund and a general fund as required by the city manager Two: a general fund and a special revenue fund as required by GAAP The minimum number of funds consistent with legal requirements and sound financial administration

Answer 66

The minimum number of funds consistent with legal requirements and sound financial administration ## Footnote Governmental accounting is only required to have one fund, the general fund. Other funds can be added to meet budgetary and legal requirements. The answer choice, "the minimum number of funds consistent with the needs of the city accountant," while logical, as the city accountant may determine the appropriate number of funds, is ignoring potential legal requirements of various budgetary needs.

Question 67

To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about all of the following, except: the financial position and condition of the governmental entity. the governmental entity's physical and other nonfinancial resources. legal or contractual restrictions of resources and risks of potential loss of resources. how the governmental entity met its cash requirements.

Answer 67

how the governmental entity met its cash requirements. To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about: * the financial position and condition of the governmental entity, * the governmental entity's physical and other nonfinancial resources, and * legal or contractual restrictions of resources and risks of potential loss of resources.

Question 68

To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about: * the financial ___ and \_\_\_of the governmental entity, * the governmental entity's \_\_\_and other nonfinancial resources, and * \_\_\_restrictions of resources and \_\_of potential loss of resources.

Answer 68

position , condition physical/nonfinancial legal /contractual , risks

Question 69

To determine the accounting treatment for a transaction, a governmental entity must first refer to: Implementation Guides published by the GASB staff. GASB Statements. GASB Technical Bulletins. AICPA Practice Bulletins.

Answer 69

GASB Statements. GASB Statements are in category A of the governmental GAAP hierarchy.

Question 70

Which of the following is a required financial statement for an investment trust fund? Statement of activities Statement of revenues, expenditures, and changes in fiduciary net position Statement of revenues, expenses, and changes in fiduciary net position Statement of changes in fiduciary net position

Answer 70

Statement of changes in fiduciary net position Investment trust funds are one of the fiduciary fund types for state and local governments. Two financial statements are required for fiduciary funds—a statement of fiduciary net position and a statement of changes in fiduciary net position.

Question 71

Which of the following lead(s) to the use of fund accounting by a governmental organization? Financial control: Yes; Legal restrictions: No Financial control: Yes; Legal restrictions: Yes Financial control: No; Legal restrictions: No Financial control: No; Legal restrictions: Yes

Answer 71

Financial control: Yes; Legal restrictions: Yes A governmental accounting system must make it possible both (a) to present fairly and with full disclosure the financial position and results of financial operations of funds and account groups of the governmental unit in conformity with GAAP and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions (GASB 1100.101).

Question 72

Elm City issued a purchase order for supplies with an estimated cost of $5,000. When the supplies were received, the accompanying invoice indicated an actual price of $4,950. What amount should Elm debit (credit) to the reserve for encumbrances after the supplies and invoice were received? $(50) $50 $4,950 $5,000

Answer 72

$5,000

Question 73

A balance in the Fund Balance—Reserved for Encumbrances account in excess of a balance of encumbrances account indicates: an excess of purchase orders over invoices received. a recording error. an excess of appropriations over encumbrances. an excess of vouchers payable over encumbrances.

Answer 73

**a recording error.** A recording error must have been made if the balance in the Fund Balance—Reserved for Encumbrances account exceeds the amount of encumbrances. For example, when a purchase order is approved, the estimated amount is recorded in the journal entry: Encumbrances XX *Fund Balance--Reserved for Encumbrances* XX When the purchase order is filled, the entry is reversed, for the amount estimated, and the actual expenditure is recorded. The actual amount of expenditures may be more or less than the estimated amount, but that would not affect the encumbrance accounts.

Question 74

Vale City legally adopts a cash-basis budget. What basis should be used in Vale's combined statement of revenues, expenditures, and changes in fund balances—budget and actual? Modified accrual Modified cash Accrual Cash

Answer 74

Cash * Budgetary comparisons must be presented on the same basis of accounting as the adopted budget. * For this question, the preparation of the budget is on the cash basis, so budgetary comparisons will be prepared on the cash basis. * Budgetary comparison schedules should be accompanied by information (either in a separate schedule or in notes to required supplementary information (RSI)) that reconciles budgetary information to GAAP information.

Question 75

In the current year, a state government collected income taxes of $8,000,000 for the benefit of one of its cities that imposes an income tax on its residents. The state remitted these collections periodically to the city. The state should account for the $8,000,000 in the: custodial fund. internal service funds. special assessment funds. general fund.

Answer 75

custodial fund. When one governmental entity collects revenues for another and has the responsibility to remit the funds to the other entity, the first entity acts as a fiduciary for the second. The state must record the collected taxes in a custodial fund. This is a fund which allows the collection and subsequent remission of the monies to be recorded without affecting the funds with which the state itself operates. (GASB 1300.114)

Question 76

Which of the following types of funds use the economic resources measurement focus and the accrual basis of accounting? Fiduciary, governmental, and proprietary funds Fiduciary and proprietary funds Fiduciary and governmental funds Governmental funds

Answer 76

Fiduciary and proprietary funds * The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. Proprietary funds consist of enterprise and internal service funds. * GASB 1300.102.b indicates both enterprise and internal service funds use accrual accounting. * The pension trust fund is a fiduciary fund. GASB 1300.102.b details that fiduciary funds use the accrual basis of accounting. * The current financial resources measurement focus and the modified accrual basis of accounting are used for governmental funds. * The general fund, capital projects fund, special revenue fund, and debt service fund are all governmental funds.

Question 77

A city received a $9,000,000 federal grant to finance the construction of a homeless shelter. In which fund should the proceeds be recorded? Special revenue Permanent General Capital project

Answer 77

**Capital project** Capital projects funds are used to account for and report financial resources (including federal grants) that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Permanent funds are used only if the principal of the trust is required to be maintained intact. The General Fund is the primary governmental fund and is used to account for most routine general government operations. Special revenue funds are used to account for resources raised from revenues for specific general government purposes other than capital outlay or debt service.

Question 78

Governmental financial reporting should provide information to assist users in which situation(s)? 1. Making economic, social, and political decisions 2. Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens Both I and II I only II only Neither I nor II

Answer 78

Both I and II GASB Concepts Statement 1, Objectives of Financial Reporting, is the basis for this question. Item I is an appropriate response because the Concepts Statement says at paragraph 32: “financial reporting by state and local governments is used in **making economic, social, and political decisions and in assessing accountability**....” Item II is also an appropriate response because paragraph 61, in the discussion of accountability, states that “interperiod equity is a significant part of accountability” and thus “financial reporting should help users assess whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume (financial) burdens for services previously provided.”

Question 79

Lake County received the following proceeds that are legally restricted to expenditure for specified purposes: * Levies on affected property owners to install sidewalks: $500,000 * Gasoline taxes to finance road repairs: $900,000 What amount should be accounted for in Lake’s special revenue funds? $1,400,000 $500,000 $900,000 $0

Answer 79

$900,000 ## Footnote Special revenue funds are used to account for resources raised from revenues that are either restricted or committed for expenditure for specific general government purposes other than capital outlay or debt service. Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays. The sidewalks are capital in nature and would not be part of a special revenue fund but of a capital fund, whereas the road repairs are not capital but maintenance.

Question 80

The governmental fund measurement focus is on the determination of: income, economic resources, and flow of financial resources. income and flow of financial resources. economic resources. flow of financial resources.

Answer 80

flow of financial resources.. Financial statements for governmental funds should be prepared and presented utilizing the flow of current financial resources measurement focus.

Question 81

Which of the following subobjectives of accountability is “interperiod equity”? 1. Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity's legally adopted budget. 2. None of the answer choices are correct. 3. Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity. 4. Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

Answer 81

Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. The GASB has established “accountability” as the cornerstone of financial reporting for governmental entities. Under GASB Concepts Statement 1, accountability consists of the following subobjectives: * Interperiod equity: Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. * Budgetary and fiscal compliance: Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity's legally adopted budget; it should also demonstrate compliance with other finance-related legal or contractual requirements. * Service efforts costs and accomplishments: Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity.

Question 82

The GASB has established “accountability” as the cornerstone of financial reporting for governmental entities. Under GASB Concepts Statement 1, accountability consists of the following subobjectives: * Interperiod equity: Financial reporting should provide information to determine whether current-year revenues were ___ for current-year services. * Budgetary and fiscal compliance: Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity's legally adopted \_\_\_; it should also demonstrate \_\_\_with other finance-related legal or contractual requirements. * Service efforts costs and accomplishments: Financial reporting should provide information to assist \_\_in assessing the service efforts, costs, and accomplishments of the governmental entity.

Answer 82

sufficient to pay budget, compliance users

Question 83

Reporting of general infrastructure assets by all public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities is: required using the special provisions of GASB Statement 35 for phase 3 public institutions. required beginning with fiscal years ending after June 15, 2006. required using the full governmental model. encouraged but not required.

Answer 83

required using the full governmental model. Public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report infrastructure using the provisions of GASB Statement 34 codified as GASB Sp20.104. These provisions include the reporting of capital assets that are defined in GASB 1400.103 to include infrastructure.

Question 84

A city taxes merchants for various central district improvements. Which of the following accounting methods assists in assuring that these revenues are expended legally? Both fund accounting and budgetary accounting Neither fund accounting nor budgetary accounting Budgetary accounting Fund accounting

Answer 84

Both fund accounting and budgetary accounting Fund accounting segregates resources according to the purpose(s) for which they may be used. Thus, fund accounting helps ensure that the taxes required to be used for central district improvements are not expended for other purposes. Appropriations are adopted in the budget to authorize expenditure of resources during a particular budget period. Overexpenditure of appropriations—even for central district improvements—violates the budget law. Budgetary accounting maintains a record of the remaining appropriation authority available for specific purposes at any point in time. **Thus, budgetary accounting helps assure that resources are expended legally by helping to prevent overexpenditure of appropriations.**

Question 85

Government C sponsors a public entity risk pool in which Government C is also a participant. However, Government C is not the predominant participant in the pool. For the situation described, indicate the fund(s) Government C must use to account for the risk pool. Special revenue Internal service Enterprise Agency

Answer 85

Enterprise The proper accounting and financial reporting for this risk pool depends on whether the sponsoring government is also the predominant participant. If Government C is not the predominant participant, the pool would be treated as a stand-alone pool in substance and thus be accounted for in an enterprise fund and Government C's participation in the pool would be considered incidental.

Question 86

The primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements is the: National Council on Governmental Accounting (NCGA). Government Accounting and Auditing Committee of the AICPA (GAAC). Governmental Accounting Standards Board (GASB). Financial Accounting Standards Board (FASB).

Answer 86

Governmental Accounting Standards Board (GASB). The Governmental Accounting Standards Board (GASB) was created by the Financial Accounting Foundation (FAF) to specifically address the needs of governmental accounting. The Financial Accounting Standards Board (FASB) is recognized as the proper rule-setting authority for all other types of financial statements, including nonprofits, but no longer for governmental accounting.

Question 87

Which of the following is not a type of fiduciary fund? Custodial fund Permanent fund Investment trust fund Private-purpose trust fund

Answer 87

Permanent fund Fiduciary funds include pension trust funds, investment trust funds, private-purpose trust funds and custodial funds. Permanent funds are a type of governmental fund.

Question 88

The billings for transportation services provided to other governmental units are recorded by the internal service fund as: other financing sources. operating revenues. nonoperating revenues. transportation appropriations.

Answer 88

operating revenues. Internal service funds are established to account for activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case) and (2) (sometimes) other governments, at prices approximating their external exchange value. * This question illustrates an exchange-like reciprocal interfund activity. * Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds Other financing sources are used to record operating transfers-in for governmental funds. Nonoperating revenues include earnings tangential to the purpose of the fund, e.g., interest and miscellaneous revenue. Transportation appropriations is a budgetary account.

Question 89

It is inappropriate to record depreciation expenses in: an internal service fund. a private-purpose trust fund. an enterprise fund. a capital projects fund.

Answer 89

a capital projects fund. Depreciation expense is not recorded in any governmental fund since governmental funds account for neither depreciable assets nor expenses (the measurement focus of governmental funds is on expenditures, not expenses). Capital assets and related depreciation expenses are accounted for in proprietary funds and fiduciary funds. The only governmental fund type listed in the responses to this question is the capital projects fund, so this is the appropriate response.

Question 90

Governmental funds are: 1. General Fund, 2. Special Revenue Funds, 3. Capital Project Funds, 4. Debt Service Funds, and 5. Permanent Funds.

Answer 90

yeah

Question 91

Which of the following local government funds uses the accrual basis of accounting? Debt service Capital projects Enterprise Special revenue

Answer 91

Enterprise The enterprise fund uses the economic resources measurement focus and the accrual basis of accounting. .All of the other listed funds are governmental funds that use the current financial resources measurement focus and the modified accrual basis of accounting.

Question 92

A municipality that uses modified accrual and encumbrance accounting would use the permanent fund to account for: all activities except those that are required to be accounted for using another fund. payment of principal and interest on long-term borrowings. major construction activities. contributions made with the purpose of using the earnings from the invested contributions to support a contributor designated purpose.

Answer 92

contributions made with the purpose of using the earnings from the invested contributions to support a contributor designated purpose. ## Footnote Permanent funds are used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs—that is, for the benefit of the government or its citizenry. Major construction activities would be accounted for in Capital Projects Funds. Payment of interest and principal on tax-supported debt would normally be accounted for in a Debt Service Fund. The general fund is used to account for all financial resources except those that are required to be accounted for in another fund.

Question 93

An enterprise fund must be used when which of the following criteria are met? 1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees of the activity. 2. Goods or services are provided on a cost-reimbursement basis. 3. Laws require that the cost of providing services be recovered with fees and charges, rather than with taxes. 4. I and II I only I and III II and III

Answer 93

Activities are required to be reported as enterprise funds if either I or III is true. In addition, if pricing policies of the activity establish fees and charges designed to recover costs, an enterprise fund must be used. . The language describing funds as providing goods and services “on a cost-reimbursement basis” applies to internal service funds.

Question 94

At the beginning of the current year, Paxx County's enterprise fund had a $125,000 balance for accrued compensated absences. At the end of the year, the balance was $150,000. During the year, Paxx paid $400,000 for compensated absences. What amount of compensated absences expense should Paxx County's enterprise fund report for the year? $550,000 $400,000 $375,000 $425,000

Answer 94

$425,000 An enterprise fund is a proprietary fund that uses the economic resources measurement focus and accrual accounting. Therefore, the compensated absences long-term liability would be decreased when employees use their promised leave time and increased when employees accrue additional leave. The newly accrued leave would be recognized as an expense of the period. Therefore, analysis of the liability account indicates that $400,000 of compensated absence liability was extinguished during the year and $425,000 of additional liability incurred to explain the ending liability balance of $150,000.

Question 95

The estimated revenues control account of a governmental unit is debited when: actual revenues are recorded. actual revenues are collected. the budget is recorded. the budget is closed at the end of the year.

Answer 95

the budget is recorded. Adoption of the operating budget is recorded in the general ledger of a governmental fund with a budgetary entry that debits estimated revenues and credits appropriations, with the budgetary fund balance account being debited or credited for the difference. The debit balance in estimated revenues is compared periodically with the credit balance in revenues to determine whether actual revenues are behind or ahead of the budgeted (estimated) amount.

Question 96

A county's balances in the general fund included the following: * Appropriations $435,000 * Encumbrances 18,000 * Expenditures 164,000 * Vouchers payable 23,000 _What is the remaining amount available for use by the county?_ $271,000 $230,000 $248,000 $253,000

Answer 96

$253,000 The appropriations included in the adopted budget of the general fund represent the maximum authorized for expenditure during the period. If $164,000 has already been expended and another $18,000 has been encumbered or committed, then only $253,000 remains available for spending. The vouchers payable represent past expenditures waiting only for cash payment.

Question 98

Fiduciary funds use the \_\_\_resource measurement focus and the accrual basis of accounting. Revenues and expenses are\_\_\_ The difference between assets plus deferred outflows and liabilities plus deferred inflows is referred to as “\_\_\_.” A change in net position is calculated as the difference between \_\_\_and \_\_\_.

Answer 98

economic, not reported. net position additions and deductions

Question 99

Which of the following accounts should Moon City close at the end of its fiscal year? Fund balance Fund balance—reserved for encumbrances Expenditures

Answer 99

expenditure