Test bank for essentials of accounting for governmental and not for profit organizations 14th editio by StudyGuide

TEST BANK for Essentials of Accounting for Governmental and Not-for-Profit Organizations, 14th Edition by Paul Copley. (Complete 14 Chapters) Chapter 1: TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The Governmental Accounting Standards Board sets financial reporting standards for all units of government: federal, state, and local. ⊚ ⊚

true false

2) Fund accounting exists primarily to provide assurance that resources are used according to legal or donor restrictions. ⊚ ⊚

true false

3) The Financial Accounting Standards Board sets financial reporting standards for profitseeking businesses and nongovernmental, not-for-profit organizations. ⊚ ⊚

true false

4) FASAB, GASB and FASB standards are set forth primarily in documents called statements. ⊚ ⊚

true false

5) FASAB, GASB and FASB standards are set forth primarily in documents called concept statements. ⊚ ⊚

true false

6) The FASAB was established to recommend accounting and financial reporting standards for the federal government. ⊚ ⊚ .

true false 1

7) The GASB does not require supplementary information to be reported with its financial statements even if it is essential to establish appropriate context for the financial statements and notes. ⊚ ⊚

true false

8) The Financial Accounting Standards Board sets financial reporting standards for private not-for-profits and investor-owned businesses. ⊚ ⊚

true false

9) An organization is presumed to be governmental if it has the ability to issue directly debt that is exempt from federal taxes. ⊚ ⊚

true false

10) The Financial Accounting Standards Board and the Governmental Accounting Standards Board are parallel bodies under the oversight of the Financial Accounting Foundation. ⊚ ⊚

true false

11) The Federal Accounting Standards Advisory Board requires less extensive reports than does the FASB or GASB. ⊚ ⊚

true false

12) The FASAB requires more financial statements than are typically required of state and local governments.

⊚ ⊚

true false

13) The only objective of the Governmental Accounting Standards Board is to help users determine compliance with finance-related laws, rules, and regulations. ⊚ ⊚

true false

14) Governments must have as many funds as necessary to fulfill legal requirements and sound financial administration but must have at a minimum a General Fund. ⊚ ⊚

true false

15) A Management's Discussion and Analysis is required for state and local governmental units, and the federal government. ⊚ ⊚

true false

16) The GASB Concept Statement on Service Efforts and Accomplishments Reporting encourages state and local governments to include inputs of nonmonetary resources in their financial reporting. ⊚ ⊚

true false

17) Although certain supplementary information may not be required, if presented, it must follow GASB guidance regarding its format and content. ⊚ ⊚

true false

18) The GASB Concept Statement on Service Efforts and Accomplishments Reporting requires state and local governments to include inputs of nonmonetary resources in their financial reporting. ⊚ ⊚

true false

19) The format and content of supplementary information which is not required by GASB is up to the discretion of the reporting entity. ⊚ ⊚

true false

20) GASB and FASB Concept Statements establish accounting standards that must be complied with to receive an unqualified audit opinion. ⊚ ⊚

true false

21) FASAB, GASB and FASB standards are set forth primarily in documents called interpretations. ⊚ ⊚

true false

22) Fund-basis statements are presented for three categories of government activities: governmental, proprietary, and fiduciary. ⊚ ⊚

23)

State and local governments may use as many as twelve different fund types. ⊚ ⊚

true false

24) The economic resource measurement focus and accrual basis is an important feature of government-wide financial statements. ⊚ ⊚

true false

25) Businesslike activity fund-basis statements must be changed to the accrual basis from the modified accrual basis when preparing government-wide financial statements. ⊚ ⊚

true false

26) Governmental-type activity fund-basis statements must use accrual basis when preparing government-wide financial statements. ⊚ ⊚

true false

27) Fiduciary funds of a governmental unit use the current financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

28) Under the accrual basis of accounting, revenues are recognized when measurable and available to finance expenditures of the current period. ⊚ ⊚

true false

29) The government-wide statements and the fund statements for proprietary funds and fiduciary funds use the economic resources measurement focus and the accrual basis of accounting. ⊚ ⊚

true false

30) General fixed assets of the government are reported both in the government-wide financial statements and the governmental fund financial statements. ⊚ ⊚

true false

31) Comparison of the legally approved budget with actual results of the General Fund is not part of required supplementary information in the CAFR. ⊚ ⊚

true false

32) Comparison of the legally approved budget with actual results of the General Fund is included as part of required supplementary information in the CAFR. ⊚ ⊚

true false

33) Long-term debt associated with governmental activities (i.e. that is to be paid with tax revenues) is reported in the government-wide statements but not in the governmental fund statements ⊚ ⊚

true false

34) Measurement focus refers to those items, such as current and long-term assets, that are being reported on the financial statements. ⊚ ⊚

true false

35) Infrastructure is capitalized in the fund-basis statements of state and local governmental units.

⊚ ⊚

36)

true false

Fiduciary funds include custodial, pension trust, investment trust, and permanent funds. ⊚ ⊚

true false

37) The Financial Accounting Standards Board has authority to establish accounting and financial reporting standards for both private and state universities. ⊚ ⊚

38)

true false

FASB sets the reporting standards for private not-for-for profits. ⊚ ⊚

true false

39) Internal Service funds are treated as governmental activities in the government-wide statements if the principal customers are other departments within the General Fund. ⊚ ⊚

true false

40) Permanent funds can be either a governmental fund or a fiduciary fund where only income on donated assets may be spent. ⊚ ⊚

true false

41) Depreciation on capital assets is included as an expense in the Statement of Activities in the governmental fund-basis statements. ⊚ ⊚

true false

42) Depreciation on capital assets is included as an expense in the Statement of Revenues, Expenses, and Changes in Fund Net Position in the proprietary fund financial statements. ⊚ ⊚

true false

43) Depreciation on capital assets is not included as an expense in the Statement of Revenues, Expenses, and Changes in Fund Net Position in the proprietary fund financial statements. ⊚ ⊚

true false

44) According to GASB standards relating to Budgetary Accounting, an annual budget should be adopted by every governmental unit. ⊚ ⊚

true false

45) According to GASB standards relating to Budgetary Accounting, budgetary comparisons should be included in the appropriate financial statements or schedules for governmental funds for which an annual budget has been adopted. ⊚ ⊚

true false

46) According to GASB standards relating to Budgetary Accounting, budgetary comparisons are required for all funds, even those for which an annual budget has not been adopted. ⊚ ⊚

true false

47) According to FASB standards relating to Budgetary Accounting, the accounting system should provide the basis for appropriate budgetary control.

⊚ ⊚

true false

48) For most state and local governments, the budget, when adopted according to procedures specified by state laws, is not binding upon the administrators of a governmental unit. ⊚ ⊚

true false

49) A fund represents part of the activities of an organization which is separated from other activities in the accounting records to more easily demonstrate compliance with legal restrictions or limitations. ⊚ ⊚

50)

true false

A government may have two or more General Funds. ⊚ ⊚

true false

51) The GASB published a white paper which identifies five environmental differences between governments and for-profit enterprises. ⊚ ⊚

true false

52) The FASB sets accounting and financial reporting standards for governmentally related not-for-profit organizations, such as colleges and universities, health care entities, museums, libraries, and performing arts organizations that are owned or controlled by governments. ⊚ ⊚

true false

53) Accounting and financial reporting standards for profit-seeking businesses and for nongovernmental not-for-profit organizations are set by the Financial Accounting Standards Board. ⊚ ⊚

true false

54) The Financial Accounting Foundation (FAF) has oversight over the GASB but not the FASB. ⊚ ⊚

true false

55) The information needs of government creditors are vastly different from their counterparts in the corporate world which necessitates different accounting rules. ⊚ ⊚

true false

56) GASB utilizes two additional elements that do not appear in the balance sheets of nongovernmental organizations: deferred inflows and deferred outflows of resources. ⊚ ⊚

true false

57) The GASB and the FASB are parallel bodies under the oversight of the Financial Accounting Foundation (FAF). ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 58) Governmental funds include:

A) B) C) D)

59)

Which of the following has established a "Hierarchy of GAAP":

A) B) C) D)

60)

all funds that use accrual accounting. enterprise and internal service funds only. enterprise, internal service, and private-purpose trust funds. none of the choices are correct.

The term "fiduciary funds" applies to:

A) B) C) D)

62)

Financial Accounting Standards Board. Federal Accounting Standards Advisory Board. Governmental Accounting Standards Board. All of the choices have established a hierarchy.

The term "proprietary funds" applies to:

A) B) C) D)

61)

Special revenue funds. Internal service funds. Enterprise funds. Custodial funds.

enterprise and internal service funds. private-purpose trust, investment trust, pension trust and custodial funds. pension, investment trust and enterprise funds. enterprise, internal service, and private-purpose trust funds.

The GASB sets accounting standards for all of the following except:

A) B) C) D)

63)

Which of the following fund types is present in every general-purpose government?

A) B) C) D)

64)

State and local governments. Component units owned or controlled by governments. Governmentally related not-for-profit universities. Nongovernmental not-for-profit hospital.

Permanent Special revenue General Capital projects

Which of the following is a proprietary fund?

A) Internal service B) Investment trust C) Permanent D) Special revenue

65)

Which of the following is not a fiduciary fund?

A) B) C) D)

66)

Private-purpose trust Custodial Pension trust Permanent

Which of the following is a governmental fund?

A) Internal service B) Custodial C) Enterprise D) Special revenue

67) Which of the following is not one of the objectives of Federal Financial Reporting, as outlined in SFFAC 1, which was issued by the FASAB?

A) Financial reporting should enable evaluation of the success rate of programs. B) Financial reporting should enable evaluation of the service efforts, costs and accomplishments of the reporting entity. C) Financial reporting should reveal whether financial systems and controls are adequate. D) Financial reporting should demonstrate accountability with regard to raising and expending money.

68) for:

The FASAB has the authority to establish accounting and financial reporting standards

A) B) C) D)

69)

The FASB has the authority to establish accounting and financial reporting standards for:

A) B) C) D)

State and local governments. Investor owned business. Federal government agencies. Public not-for-profits.

Federal government. Private not-for-profits. Public not-for-profits. State and local governments.

70)

The GASB has the authority to establish accounting and financial reporting standards for:

A) B) C) D)

71)

State governments. Private not-for-profits. Federal government. None of the choices are correct.

In order for a fund to exist, there must be:

A) B) C) D)

A fiscal entity; assets set aside for a specific purpose. A double-entry accounting entity. Both are optional and not required Both options are required

72) Which fund category must change from modified accrual to accrual basis when preparing government-wide financial statements?

A) B) C) D)

73)

Governmental Proprietary Fiduciary Governmental & Proprietary only

Which of the following use the current financial resources measurement focus?

A) Fiduciary fund statements B) Governmental fund statements C) Proprietary fund statements D) Internal Service fund statements

74)

Which of the following best describes how many funds a government should use?

A) One for each revenue source B) Two at a minimum; the General Fund and one enterprise fund C) As many as necessary to fulfill legal requirements and sound financial administration D) None of the choices are correct

75) Which of the following would not be included in FASB Statement of Financial Accounting Concepts #4, which identifies the information needs of the users of non-business financial statements?

A) Assessing services provided by a non-business organization and its ability to continue to provide those services B) Format and content of financial statements C) Assessing managements’ stewardship and performance D) Evaluation of an organization’s economic resources, obligations, and effects of changes in those net resources

76) The Governmental Accounting Standards Board has been given authority to establish accounting and financial reporting standards for:

A) all governmental units and agencies. B) federal, state, and local governments and governmentally related utilities, authorities, hospitals, and colleges and universities. C) state and local governmental entities, and governmentally related utilities, authorities, hospitals, and colleges and universities. D) all governmental units and all not-for-profit organizations.

77) Which of the following characteristics would not define an organization as governmental?

A) The power to enact and enforce a tax levy. B) The potential for unilateral dissolution by a government with the net resources reverting to a government. C) The receipt of grant money from a state or local government for the purpose of providing services to the public. D) None of the choices are correct.

78) Level "A" GAAP for The University of Virginia, a public institution, would be established by the:

A) B) C) D)

79)

Under the modified accrual basis of accounting, expenditures should be recognized when:

A) B) C) D)

80)

they are authorized by the budget ordinance. they are paid. they are measurable and can be financed by the revenues of the current period. the fund liability is incurred.

Fiduciary funds use the:

A) B) C) D)

81)

Financial Accounting Standards Board. Governmental Accounting Standards Board. American Institute of Certified Public Accountants. National Association of College and University Business Officers.

economic resources measurement focus and modified accrual basis of accounting. current financial resources measurement focus and accrual basis of accounting. economic resources measurement focus and accrual basis of accounting. none of the choices, the fiduciary funds have no revenues.

Proprietary funds use the:

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

82)

Governmental funds use the:

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

83)

Government-wide statements use the:

A) B) C) D)

84)

current financial resources measurement focus and accrual basis of accounting. economic resources measurement focus and modified accrual basis of accounting. economic resources measurement focus and accrual basis of accounting. none of the choices are correct.

Governmental funds do not include:

A) Special revenue funds. B) Custodial funds C) Debt service funds. D) The General fund.

85) Which of the following organizations has authority to establish accounting and financial reporting standards for the federal government?

A) Federal Accounting Standards Advisory Board. B) Office of Management and Budget. C) Governmental Accounting Standards Board. D) None of the choices; no one has been granted authority to set standards for the federal government.

86) Which of the following is most correct with regard to Management's Discussion and Analysis (MD&A)?

A) State and local governments are required to provide an MD&A. B) Federal custodial financial reports are required to provide an MD&A. C) Both state and local governments and federal agencies are encouraged, but not required to provide an MD&A. D) Both state and local governments and federal agencies are required to provide an MD&A.

87) GASB Concepts Statement No. 3, defines methods of presenting information in financial reports. Concepts Statement No. 3 states that:

A) notes to the financial statements may not include management’s objective explanations. B) required supplementary information should be objective but may also include predictions or subjective assessments if management deems it necessary for understanding of the financial statements. C) disclosure in the notes is not an adequate substitute for recognition in the financial statements. D) All of the choices are correct.

88)

According to the GASB, Capital assets:

A) must be reported in government-wide statements but are not reported in any of the fund financial statements. B) must be reported in government-wide statements and in proprietary fund financial statements. C) are not to be reported in either government-wide or fund financial statements. D) are to be reported but not depreciated in government-wide and fund financial statements.

89)

Long-term debt of a governmental unit would be reported in the:

A) government-wide financial statements and proprietary fund financial statements. B) government-wide financial statements only. C) debt service funds of governmental fund financial statements and government-wide financial statements. D) notes to the financial statements only.

90) A city government collects local sales taxes legally restricted to pay for the construction of a new courthouse. Which fund should account for the receipt of the sales taxes?

A) B) C) D)

Special revenue fund Capital projects fund Private-purpose trust fund General fund

91) A city government collects local sales taxes legally restricted to pay for the hiring of teachers for hearing impaired school children. Which fund should account for the receipt of the sales taxes?

A) B) C) D)

Special revenue fund Capital projects fund Private-purpose trust fund General fund

92) A city government makes its semiannual payment of interest on revenue bonds issued to pay for the construction of additional public transit stations. Which fund would account for the payment?

A) Debt service fund B) Capital projects fund C) Enterprise fund D) Internal service fund

93) A city government sells police cars no longer in use. No restrictions have been placed on the proceeds. Which fund should account for the receipt?

A) B) C) D)

94)

General fund Capital projects fund Enterprise fund Debt service fund

Accrual accounting is used by state and local governments for:

A) government-wide financial statements only. B) government-wide financial statements and proprietary fund financial statements only. C) government-wide, proprietary fund, and fiduciary fund financial statements only. D) government-wide and all fund financial statements.

95)

Under GASB, modified accrual accounting would be found in the:

A) government-wide financial statements only. B) governmental fund financial statements only. C) governmental and fiduciary fund financial statements only. D) governmental, proprietary, and fiduciary fund financial statements but not in the government-wide financial statements.

96)

Which of the following is not a fiduciary fund type?

A) Custodial. B) Expendable trust. C) Private-purpose trust. D) Investment trust.

97) the:

Level "A" GAAP for Cook County Hospital, a public hospital, would be established by

A) B) C) D)

98)

Governmental Accounting Standards Board. Financial Accounting Standards Board. Hospital Financial Management Association. American Institute of Certified Public Accountants.

Which of the following is correct regarding fund classifications?

A) Governmental funds include the general, special revenue, internal service, capital projects, and permanent. B) Proprietary funds include enterprise, internal service, and private-purpose. C) Fiduciary funds include custodial and enterprise funds. D) None of the choices are correct.

99)

Notre Dame University, a private institution, has level "A" GAAP established by the:

A) B) C) D)

100)

Long-term debt to be paid from proprietary funds is reported as a liability in:

A) B) C) D)

101)

General, special revenue, debt service, capital projects, private purpose. General, special revenue, debt service, capital projects, permanent. General, special revenue, debt service, capital projects, internal service. None of the choices are correct.

Which of the following is not an objective of federal financial reporting?

A) B) C) D)

103)

the proprietary fund Statement of Net assets (or Net Position). the government-wide Statement of Net assets (or Net Position). both of the choices are true. neither of the choices is true.

Which of the following are the governmental funds?

A) B) C) D)

102)

American Institute of Certified Public Accountants. Governmental Accounting Standards Board. National Association of College and University Business Officers. Financial Accounting Standards Board.

Budgetary Integrity Increase Taxpayer Awareness Stewardship Operating Performance

Which of the following funds is a Fiduciary Fund?

A) B) C) D)

Debt Service Fund Enterprise Fund Internal Service Fund Pension Trust Fund

104) Which of the following statement(s) are not included in the proprietary funds for a government entity:

A) B) C) D)

105)

Capitalized fixed assets may be reported in which of the following fund-basis statements?

A) B) C) D)

106)

Statement of Revenues, Expenditures, and Changes in Fund Balances. Statement of Cash Flows. Statement of Net Position. All of the choices are included.

Proprietary funds Permanent funds Special revenue funds Capital project funds

Which of the following fund types uses modified accrual accounting?

A) Enterprise B) Capital Project C) Pension Trust D) Internal Service

107)

Which of the following fund types uses accrual accounting?

A) Debt Service B) Special Revenue C) Permanent D) Investment Trust

108)

A permanent fund classified under governmental funds:

A) Accounts for resources that are legally restricted so only earnings, not principal, may be expended, and for purposes to benefit the government and its citizenry. B) Accounts for most of the basic services provided by the governmental unit. C) Accounts for financial resources intended for major capital projects. D) Accounts for services provided by one department of a government to another.

109)

The general fund classified under governmental funds:

110)

A capital projects fund classified under governmental funds:

A) Accounts for resources that are legally restricted so only earnings, not principal, may be expended, and for purposes to benefit the government and its citizenry. B) Accounts for most of the basic services provided by the governmental unit. C) Accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for capital projects. D) Accounts for services provided by one department of a government to another.

111)

Which of the following funds is not a Fiduciary Fund?

A) Investment Trust Fund B) Private Purpose Trust Fund C) Permanent Fund D) Pension Fund

112) The ________ sets the accounting and financial reporting standards for both state and local governments and public not-for-profits.

A) B) C) D)

FASAB FASB GASB AICPA

113) The ________ is the government’s official annual report prepared and published as a matter of public record.

A) B) C) D)

114)

complete audited financial report comprehensive annual financial report governmental annual financial report independent auditor’s report

State and local governmental funds are organized into three categories including:

A) B) C) D)

governmental, proprietary, and restricted. proprietary, fiduciary, and restricted. governmental, fiduciary, and restricted. governmental, proprietary, and fiduciary.

115) The ________ Fund accounts for all resources other than those required to be accounted for in other funds.

A) B) C) D)

General Enterprise Custodial Special revenue

116) The ________ Fund accounts for and reports the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purpose other than debt service or capital projects.

A) B) C) D)

Custodial Enterprise Special revenue General

117) The ________ Funds are used when resources are provided primarily through the use of sales and service charges to parties external to the government and it is the intent of the government to measure revenues, expenses and changes in net position.

A) B) C) D)

Custodial Enterprise General Special revenue

118) The ________ Funds are used to account for situations in which the government is acting as a collecting/disbursing agent.

A) B) C) D)

Custodial Enterprise General Special revenue

119)

What basis of accounting would the Enterprise Fund use?

A) B) C) D)

120)

Accrual Modified Accrual Cash Expended Accrual

What are Enterprise funds used for?

A) To account for pension and employee benefit funds for which the governmental unit is the trustee. B) To account for most of the basic services provided by the governmental units. C) To report resources that are legally restricted so only earnings, not principal, may be expended, and for purposes to benefit the government and its citizenry. D) To account for resources provided primarily through the use of sales and service charges to parties external to the government.

121) Which of the following is an environmental difference between governments and forprofit business enterprises?

A) B) C) D)

122)

How many General Funds may a government have?

A) B) C) D)

Relationship with stakeholders Donor restricted assets Fiduciary responsibilities Both donor restricted assets and fiduciary responsibilities

One. As many as is required to fulfill legal obligations. A varying number, depending on the annual needs of the government. None of the choices are correct.

123) The Financial Accounting Standards Board (FASB) is the standard setting organization for which of the following reporting organizations?

A) B) C) D)

124)

Private not-for-profits Public not-for-profits Investor owned businesses Private not-for-profits and investor owned businesses are both correct

The fund basis statements for governmental funds are presented using the:

A) Economic Resources Measurement focus and the Accrual Basis of Accounting. B) Current Financial Resources Measurement focus and the Modified Accrual Basis of Accounting. C) Current Financial Resources Measurement focus and the Accrual Basis of Accounting. D) Economic Resources Measurement focus and the Modified Accrual Basis of Accounting.

125) What type of fund is used when resources are provided mainly through business-like transactions to parties external to the government?

A) B) C) D)

Enterprise Funds Custodial Funds Internal Service Funds Capital Projects Funds

126) Financial reports for state and local governments are well suited for all the following EXCEPT?

A) B) C) protection. D)

Assessing financial condition and results of operations. Comparing actual results with the legally adopted budget. Measuring the effectiveness of government services such as police and fire Assisting in determining compliance with finance-related laws and regulations.

127) Which of the following funds is used to account for the payment of principal and interest of general long term debt of a government?

A) B) C) D)

128)

Capital Projects Fund Internal Service Fund Custodial Fund Debt Service Fund

The GASB is under the oversight of:

A) B) C) D)

GAO. FASAB. FAF. FASB.

129) Which of the following are nonauthorative sources that a government may use when the accounting treatment of a transaction is not addressed in one of the authoritative sources?

A) GASB Concept Statements B) GASB Technical Bulletins C) Literature of the American Institute of Certified Public Accountants (AICPA) specifically cleared by the GASB D) GASB Implementation Guides

130) Which of the following is a Category A source of authoritative GAAP for state and local governments?

A) GASB Technical Bulletins B) Literature of the American Institute of Certified Public Accountants (AICPA) specifically cleared by the GASB C) GASB Implementation Guides D) GASB Statements (and Interpretations)

131) In FASB’s Statement of Financial Accounting Concepts No. 4, the FASB identifies the information needs of the users of nonbusiness financial statements. Which of the following is not one of those needs?

A) Making decisions about the allocation of resources to those organizations B) Assessing the services that a nonbusiness organization provides and its ability to continue to provide those services C) Assessing cash flow and the entity’s ability to make current payments D) Evaluating an organization’s economic resources, obligations, and effects of changes in those net resources

132)

What does the acronym CAFR stand for?

A) B) C) D)

133)

Comprehensive Annual Financial Report Consolidated Annual Financial Report Comprehensive Audited Financial Report Consolidated Annual Federal Report

Which of the following statements is false?

A) A comprehensive annual financial report (CAFR) is the government’s official annual report prepared and published as a matter of public record. B) A CAFR is not required for entities with only a general fund. C) The CAFR contains introductory material, an auditor’s report, certain RSI, schedules necessary to demonstrate legal compliance, and statistical tables. D) Governments have two levels of financial statement reporting. The first is the fundbasis financial statements and the second is the government-wide statements.

134)

Which of the following statements regarding fund accounting is true?

A) A typical town or county government has approximately the same number of funds as cities and states. B) Fund-basis statements are presented for three categories of activities: governmentwide, proprietary, and fiduciary. C) Each fund requires its own journal, but all funds post the information to a common general ledger. D) While a business will typically have a single general ledger, the activities of governments are broken down into accounting subunits called funds.

135)

Which of the following does not use the economic resources measurement focus?

A) B) C) D)

Fiduciary funds Governmental funds Proprietary funds Government-wide funds

136) Which of the following is not true with respect to a transaction that is nonexchange in nature?

A) They are activities where benefits received are in direct proportion to the fees charged for goods or services. B) They are activities heavily financed by taxes and other involuntary contributions from people and organizations who do not receive benefits directionally proportional to the contribution they make. C) They are activities undertaken in response to the needs of the public. D) They are activities where recipients may pay less than the cost of the goods or service received.

137) GASB standards provide that accounting systems of governmental funds are designed to measure:

A) The extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period against financial resources. B) The acquisition and disposal of net assets. C) The net financial resources available for past periods. D) The receipt of resources. These resources are always restricted to only current assets.

138)

Which of the following is an attribute of modified accrual accounting?

A) Long-term assets and depreciation are recorded in the governmental fund balance sheet B) Revenues are generally recognized when measurable and available to finance the expenditures of the current period C) Long-term debt is recorded in the governmental fund balance sheet D) Expenses are recorded on the Statement of Changes in Fund Balance

139)

Which of the following is true with respect to the government-wide statements?

A) Government-wide statements are prepared using the accrual basis of accounting, including the recording of fixed assets and long-term debt. B) Government-wide statements are prepared using the modified accrual basis of accounting and the current financial resources measurement focus. C) Government-wide statements are prepared using the modified accrual basis of accounting and an economic resource measurement focus. D) Government-wide statements use the current financial resources measurement focus and the accrual basis of accounting.

140)

Which of the following are governmental funds?

A) Custodial and Permanent B) Enterprise and Debt Service C) Debt Service and Capital Project D) Internal Service and Special Revenue

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 141) Contrast revenue recognition under the accrual and modified accrual bases of accounting.

142) What is the difference between recording an expenditure under modified accrual accounting and an expense under accrual accounting?

143) Identify the accounting standard setting bodies for U.S. commercial, private not-forprofits, public not-for-profits, state and local governments, and the federal government.

144) Which reporting organizations fall under the following standard-setting bodies?FASAB GASB FASB

145) Contrast the economic resources measurement focus and the current financial resources measurement focus with regard to the accounting treatment of capital assets.

146) What are the five environmental factors relating to how governments are different from commercial businesses as described by GASB in a white paper entitled: Why Governmental Accounting and Financial Reporting Is – and Should Be – Different:

147) Identify the three basic fund categories, the funds that make up each of them, and the category’s basis of accounting.

148) Contrast the economic resources measurement focus and the current financial resources measurement focus with regard to the accounting treatment of long-term debt.

149) The GASB has established a hierarchy of GAAP for financial statements preparers. List one category A and one category B source.

150) What are the four objectives that should be followed with respect to federal financial reporting according to Statements of Federal Financial Accounting Concepts (SFFAC) #1 as issued by the FASAB?

151) In its Statement of Financial Accounting Concepts #4, the FASB identifies the information needs of the users of non-business financial statements. These include providing information that is useful to present and potential resource providers in which four evaluation areas?

152) Provide the definition of the following terms as outlined by GASB Concepts Statement No. 4, Elements of Financial Statements:Assets Liabilities Net position Inflows of resources Outflows of resources

153) What are the fund-basis financial statements for each of the following fund categories?Fiduciary Proprietary Governmental

154)

List and define the five classifications of governmental funds.

155) What is the definition of governmental organizations agreed upon by the FASB and GASB?

Answer Key Test name: Chapter 1: Introduction to Accounting and Financial Reporting for Governmental a 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) FALSE .

26) TRUE 27) FALSE 28) FALSE 29) TRUE 30) FALSE 31) FALSE 32) TRUE 33) TRUE 34) TRUE 35) FALSE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) TRUE 43) FALSE 44) TRUE 45) TRUE 46) FALSE 47) FALSE 48) FALSE 49) TRUE 50) FALSE 51) TRUE 52) FALSE 53) TRUE 54) FALSE 55) FALSE .

56) TRUE 57) TRUE 58) A 59) D 60) B 61) B 62) D 63) C 64) A 65) D 66) D 67) A 68) C 69) B 70) A 71) D 72) A 73) B 74) C 75) B 76) C 77) C 78) B 79) D 80) C 81) B 82) D 83) C 84) B 85) A .

86) D 87) C 88) B 89) A 90) B 91) A 92) C 93) A 94) C 95) B 96) B 97) A 98) D 99) D 100) C 101) B 102) B 103) D 104) A 105) A 106) B 107) D 108) A 109) B 110) C 111) C 112) C 113) B 114) D 115) A .

116) C 117) B 118) A 119) A 120) D 121) A 122) A 123) D 124) B 125) A 126) C 127) D 128) C 129) A 130) D 131) C 132) A 133) B 134) D 135) B 136) A 137) A 138) B 139) A 140) C

141) The accrual basis of accounting recognizes revenues when they are earned and expect to be realized. Expenses are recognized when the related goods or services are used up. Modified accrual accounting recognizes revenues when measurable and available to finance the expenditures of the current period. Expenditures, not expenses, are recognized in the period in which the fund liability is incurred. 142) The accrual basis of accounting recognizes revenues when they are earned and expect to be realized. Expenses are recognized when the related goods or services are used up. Modified accrual accounting recognizes revenues when measurable and available to finance the expenditures of the current period. Expenditures, not expenses, are recognized in the period in which the fund liability is incurred. 143) The FASAB sets standards for the federal government, GASB sets standards for state and local governments and public not-for-profits, and FASB sets standards for private not-for-profits and investor-owned businesses. 144) The FASAB sets standards for the federal government, GASB sets standards for state and local governments and public not-for-profits, and FASB sets standards for private not-for-profits and investor-owned businesses. 145) Under the economic resources measurement focus, capital assets are capitalized and depreciated. Under the current financial resources measurement focus, capital assets are not capitalized or depreciated, but are charged to expenditures when received.

146) The GASB published a white paper identifying five environmental differences between governments and for-profit businesses. They are organizational purpose, sources of revenues, potential for longevity, relationship with stakeholders and the role of the budget. Organizational Purpose: Governments exist for the well-being of citizens by providing public services. Unlike businesses, profit is not an objective so a measure other than net income is needed. In addition, the stakeholders and the information they require are very different. Governments report information that is far more disaggregated than a commercial enterprise. Sources of Revenue: Governments derive many of their resources from taxes. Individuals and businesses pay taxes because they are legally bound. Since there is no “product or service” being conveyed at the time of payment, it is difficult to determine when to recognize revenue. Potential for Longevity: Governments rarely go out of business, so they have an accounting focus with a long-term view of operations and the sustainability of services and the ability of meet future demand. Relationship with Stakeholders: Governments have an obligation to demonstrate accountability for public funds. Fund accounting is used by governments to provide assurance that resources are used according to legal or donor restrictions. Role of the Budget: Budgets are expressions of public policy and often carry the authority of law. Public officials must stay within their budgets. Required budget vs. actual comparisons indicate the degree of compliance in this area. 147) The three fund categories are governmental, proprietary and fiduciary. Governmental funds include permanent, debt service, capital project, special revenue, and general. Governmental funds use modified accrual accounting. Proprietary funds include internal service and enterprise. Proprietary funds use accrual accounting. Fiduciary funds include private purpose trust, investment trust, pension trust, and custodial. Fiduciary funds use accrual accounting. .

148) An economic resource measurement focus measures both current and long-term assets and liabilities and is the measurement focus used by businesses. With respect to the current financial resources measurement, GASB standards provide that accounting systems of governmental funds are designed to measure (a) the extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period against financial resources and (b) the net financial resources available for future periods. The focus is on the receipt and expenditure of resources. These resources are generally restricted to current assets and liabilities. 149) Only GASB Statements and interpretations are Category A GAAP. 150) SFFAC 1 outlines four objectives that should be followed in federal financial reporting. 1. Budgetary integrity, indicates that financial reporting should demonstrate accountability with respect to the raising and expending of moneys. 2. Operating performance, suggests that financial reporting should enable evaluation of the service efforts, costs and accomplishments of the federal custodial. 3. Stewardship, reflects the concept that financial reporting should enable an assessment of the impact on the nation of the government’s operations and investments. 4. Systems and controls, indicates that financial reporting should reveal whether financial systems and controls are adequate. 151) FASB’s Statement of Financial Accounting Concepts No. 4, identifies the information needs of the users of nonbusiness financial statements. These include providing information that is useful to present and potential resource providers to make decisions about the allocation of resources to those organizations, assess the services that a nonbusiness organization provides and its ability to continue to provide those services, assess management’s stewardship and performance and evaluate an organization’s economic resources, obligations, and effects of changes in those net resources. .

152) The GASB’s Concepts Statement No. 4 provides key definitions of items appearing in financial statements. 153) Fiduciary funds prepare a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. Proprietary funds prepare a Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position and a Statement of Cash Flows. Governmental funds prepare a Balance Sheet and a Statement of Revenues, Expenditures, and Changes in Fund Balances. 154) The 5 governmental funds are: general, special revenue, capital project, debt service and permanent funds. The general fund accounts for most of the basic services provided by the government. Special revenue funds accounts for and reports the proceeds of specific revenue sources that are restricted or committed to expenditure for a specified purpose other than debt service or capital projects. Capital projects fund accounts for and reports financial resources that are committed or assigned to expenditure for capital outlays. It accounts for the purchase or construction of major capital improvements except those purchased or constructed by a proprietary or fiduciary fund. Debt service funds accounts for a reports financial resources that are restricted, committed or assigned to expenditure for principal and interest, other than interest or principal on proprietary or fiduciary activities. Permanent funds accounts for and reports 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.

155) Public corporations and bodies corporate and politic are governmental organizations. Other organizations are governmental organizations if they have one or more of the following characteristics: Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization’s governing body by officials of one or more state or local governments, the potential for unilateral dissolution by a government with the net resources reverting to a government or the power to enact and enforce a tax levy. In addition, organizations are presumed to be governmental if they have the ability to issue directly debt that pays interest exempt from federal taxation.

Chapter 2:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A Comprehensive Annual Financial Report (CAFR) would include an introductory section, management's discussion and analysis, basic financial statements, required supplementary information other than MD&A, combining and individual fund statements, narrative explanations, and statistical section. ⊚ ⊚

true false

2) The three major sections of a CAFR are the Introductory, Financial, and Statistical sections. ⊚ ⊚

The introductory and statistical sections of a CAFR are required to be audited. ⊚ ⊚

true false

State and local governments are not required to prepare a CAFR. ⊚ ⊚

true false

5) Combining statements are required whenever a non-major column is used in one of the fund financial statements. ⊚ ⊚

true false

6) A complete CAFR includes combining financial statements to reflect greater detail of nonmajor funds. ⊚ ⊚ .

true false 1

7) In addition to the government-wide statements, governments are required to prepare fund financial statements for governmental, proprietary and fiduciary funds. ⊚ ⊚

true false

8) In addition to the government-wide statements, governments are required to prepare fund financial statements for governmental funds only. ⊚ ⊚

true false

9) The General Fund is not always considered to be a major fund when preparing fund basis financial statements. ⊚ ⊚

true false

10) With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues and expenditures combined are at least 10% of the total for the governmental funds category. ⊚ ⊚

true false

11) With respect to fund basis financial statements, a government may only designate a fund to be a major fund if it meets the size thresholds established by GASB. ⊚ ⊚

true false

12) With respect to fund basis financial statements, a government may designate any fund to be a major fund if reporting that fund separately would be useful.

⊚ ⊚

true false

13) When preparing fund basis financial statements, funds not reported separately are aggregated and reported in a single column under the label nonmajor funds. ⊚ ⊚

true false

14) When preparing fund basis financial statements, funds not reported separately are reported individually by function. ⊚ ⊚

true false

15) Fiduciary fund statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

16) Governmental fund statements are prepared using the economic financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

17) According to the GASB, a primary government can only be a state or a general-purpose local government, such as a city or county. ⊚ ⊚

true false

18) Blending of financial information is done when component units and the primary government are so intertwined that they are essentially the same.

⊚ ⊚

true false

19) The statistical section of the CAFR contains the combining schedules of non-major funds. ⊚ ⊚

true false

20) The government-wide financial statements present the government as a whole, including component units and fiduciary activities. ⊚ ⊚

true false

21) The basic financial statements of a state or local governmental unit include the MD&A, government-wide statements, fund statements, and the notes. ⊚ ⊚

true false

22) Governmental-type fund financial statements include the Balance Sheet and the Statement of Revenues, Expenditures, Changes in Fund Balances, and a Statement of Cash Flows. ⊚ ⊚

23)

true false

Governmental-type fund financial statements do not include a Statement of Cash Flows. ⊚ ⊚

true false

24) Governmental fund financial statements include columns for the General Fund and all other "major" governmental funds.

⊚ ⊚

true false

25) The total fund balances reported in the total column of the fund basis statements must be reconciled to the total Net Position presented in the governmental activities column of the government-wide Statement of Net Position. ⊚ ⊚

true false

26) Entities which are determined to be component units of state and local governmental units must be discretely presented in the financial statements. ⊚ ⊚

true false

27) The government-wide financial statements are prepared using the current resources measurement focus and accrual basis of accounting. ⊚ ⊚

28)

The government-wide financial statements do not include a Statement of Cash Flows. ⊚ ⊚

29)

true false

Prior-year data is required for government-wide financial statements. ⊚ ⊚

true false

30) The governmental fund statements are prepared using the current financial resources measurement focus and accrual basis of accounting.

⊚ ⊚

true false

31) The fiduciary fund financial statements are prepared using the economic financial resources measurement focus and accrual basis of accounting. ⊚ ⊚

32)

true false

The General Fund is always a major fund for purposes of financial reporting. ⊚ ⊚

true false

33) Notes to the financial statements must distinguish between the primary government and discretely presented component units. ⊚ ⊚

true false

34) General purpose governments engaged in both governmental and business type activities prepare governmental fund, proprietary fund and government-wide financial statements. ⊚ ⊚

true false

35) Only governmental fund statements include separate columns for discretely presented component units. ⊚ ⊚

36)

Governmental accounting standards require the statistical section. ⊚ ⊚

true false

37) The Government-wide financial statements include a separate column for fiduciary fund information. ⊚ ⊚

true false

38) Management’s Discussion and Analysis (MD&A) in The Comprehensive Annual Financial Report (CAFR) is part of the Financial Section. ⊚ ⊚

true false

39) Government-wide statements are to be prepared using the economic resources measurement focus and accrual basis of accounting. ⊚ ⊚

true false

40) Government-wide statements are to be prepared using the current financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

41)

Prior-year data may be presented but are not required on government-wide statements. ⊚ ⊚

42)

true false

Prior-year data are required to be presented on government-wide statements. ⊚ ⊚

true false

43) Proprietary funds are required to prepare a Statement of Cash Flows from operating activities using the direct method. ⊚ ⊚

true false

44) A Comprehensive Annual Financial Report for a state or local governmental unit should contain an introductory section, a financial section, and a statistical section. ⊚ ⊚

true false

45) A government may not selectively designate any fund to be a major fund even if reporting the fund separately would be useful. ⊚ ⊚

true false

46) The Comprehensive Annual Financial Report (CAFR) contains four major sections: introductory, financial, supplementary, and statistical. ⊚ ⊚

true false

47) The fund balance reported in the Governmental Funds Balance Sheet must equal the total Net Position in the governmental activities column of the government-wide Statements of Net Position. ⊚ ⊚

true false

48) Fund balance is an account title used only in governmental funds to indicate the excess of assets over liabilities. ⊚ ⊚

true false

49) The Governmental Accounting Standards Board considers the financial reporting entity to include the primary government, but not its component units. ⊚ ⊚

true false

50) GASB requires governments to prepare cash flows from operating activities using the indirect method for a proprietary fund. ⊚ ⊚

true false

51) When performing an audit of the CAFR, auditors review the material to establish that it is not misleading in relation to the basic statements but do not include the MD&A in the scope of the audit. ⊚ ⊚

52)

Fiduciary funds are not included in the government-wide statements. ⊚ ⊚

53)

true false

Permanent funds are not presented as part of the government-wide statements. ⊚ ⊚

true false

Prior year balances are required to be presented in government-wide statements. ⊚ ⊚

54)

true false

55) Internal service funds typically are not included in the governmental activities column on the government-wide statements. ⊚ ⊚

true false

56) Because proprietary funds use a different basis of accounting than the government-wide statements, there must be a reconciliation between the two sets of statements. ⊚ ⊚

true false

57) Governments who prepare government-wide statements are not required to prepare separate fund-level financial statements within the three categories of funds: governmental, proprietary, and fiduciary. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 58) Which of the following is true regarding the proprietary fund financial statements?

A) Proprietary fund financial statements include the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position, and Statement of Cash Flows. B) Normally, a reconciliation is required between the proprietary fund financial statements and the business-type activities column in the government-wide financial statements. C) The Statement of Net Position reflects equity as contributed equity and retained earnings. D) The Statement of Cash Flows may be prepared using either the direct or indirect methods.

59)

Which of the following is true regarding the fiduciary fund financial statements?

A) Fiduciary fund financial statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting. B) Fiduciary fund financial statements reflect equity as reserved and unreserved. C) Custodial funds are reported only on the Statement of Changes in Fiduciary Net Position. D) Fiduciary fund financial statements include the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.

60)

Which of the following is not considered Required supplementary Information (RSI)?

A) B) C) D)

61)

Which of the following is considered Required supplementary Information (RSI)?

A) B) C) D)

62) as:

Management's Discussion and Analysis. Budgetary Comparison Schedule. Schedule of Risk Management Activities. All of the choices are considered RSI.

Governmental-type funds label the excess of assets over liabilities on the balance sheet

A) B) C) D)

Notes to the financial statements. Budgetary Comparison Schedule. Management's Discussion and Analysis. None of the choices; all are considered RSI.

Net Position. Net Fund Balance and Liabilities. Fund Balance. Assets Net of Liabilities.

63) In addition to the government-wide statements, governments are required to prepare fund financial statements for which of the following category of funds?

A) B) C) D)

Proprietary funds. Governmental type funds. Fiduciary funds. All of the choices are correct.

64) Which of the following is true regarding the Comprehensive Annual Financial Report (CAFR)?

A) The CAFR has three main sections: introductory, financial, and statistical. B) Required supplementary Information includes a Budgetary Comparison Schedule for the General Fund and all major special revenue funds that have a legally adopted annual budget (unless a statement is prepared). C) Both statements are true. D) Both statements are false.

65)

Which of the following is true regarding the government-wide statements?

A) The government-wide statements include a Statement of Net Position and a Statement of Activities. B) The governmental activities portion of the government-wide statements is prepared using the current financial resources measurement focus and modified accrual basis of accounting. C) Both statements are true. D) Both statements are false.

66)

Which of the following is true regarding the government-wide Statement of Net Position?

A) Discretely presented component units are included in a separate column (or columns). B) Net Position is displayed in three categories: net investment in capital assets, reserved, and unreserved. C) Both statements are true. D) Both statements are false.

67)

Which of the following is true with respect to the General Fund?

A) The General Fund is considered to be a major fund if the combined total of assets, liabilities, revenues and expenses exceeds 10% of the total of all governmental funds. B) The General Fund is considered to be a major fund when preparing fund basis financial statements if it bears a financial benefit or burden to the primary government. C) The General Fund is always considered to be a major fund when preparing fund basis financial statements. D) The General Fund is not reported as part of the CAFR.

68) With respect to the preparation of fund basis financial statements, governmental funds other than the General Fund are considered to be major when which of the following conditions exist?

A) With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of that individual governmental fund constitutes 10% of the total for the governmental fund category. B) With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of that individual governmental or enterprise fund are 5% of the total of the governmental and enterprise categories, combined. C) Both are choices required for a governmental fund to be a major fund. D) Either choices would fulfill the requirements.

69) With respect to the preparation of fund basis financial statements, governmental funds other than the General fund are considered to be major when which of the following conditions exist?

A) With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of the individual governmental fund under consideration constitutes 25% of the total for the governmental fund category. B) With respect to fund basis financial statements, governmental funds are considered to be a major fund when total assets, liabilities, revenues, or expenditures of individual governmental or enterprise fund under consideration are 15% of the total of the governmental funds and enterprise categories, combined. C) Both of the choices are required for a governmental fund to be a major fund. D) Neither of the choices are correct.

70)

Which of the following statements is false?

A) With respect to fund basis financial statements, a government may designate any fund to be a major fund if reporting that fund separately would be useful. B) When preparing fund basis financial statements, any funds not reported separately are reported by function. C) When preparing fund basis financial statements, any funds not reported separately are aggregated and reported in a single column under the label non-major funds. D) In addition to the government-wide statements, governments are required to prepare fund financial statements for governmental, proprietary and fiduciary funds.

71)

Governmental fund statements are prepared using:

A) Economic resources measurement focus and modified accrual basis of accounting. B) Current financial resources measurement focus and modified accrual basis of accounting. C) Economic resources measurement focus and accrual basis of accounting. D) Current financial resources measurement focus and accrual basis of accounting.

72) The total fund balances presented in Governmental Funds Statements are different from the total Net Position on the government-wide Statement of Net Position. Which of the following is not a reason for this difference?

A) The two statements have different bases of accounting B) Capital assets used in government operations are not current financial resources and therefore are not reported in the funds C) Some liabilities are not due and payable in the current period and are not reported in fund liabilities D) Accrued Wages Payable at year end are reported on the statement of Net Position but are not reported in the fund statements

73) Which of the following is true regarding GASB's definition of the financial reporting entity?

A) The financial reporting entity might include a primary government, component units, joint ventures, or a jointly governed organization. B) Primary governments may be general-purpose governments (such as states, cities, and counties) or special-purpose governments that have separately elected governing bodies, are legally separate and are fiscally independent of other state or local governments. C) Blending is used to incorporate component units when those component units are, in substance, part of the primary government. D) All of the choices are true.

74) Which of the following is true regarding the financial reporting entity of a state or local government?

A) B) C) D)

A. Many component units are discretely presented, rather than blended. B. Only a primary government is reported in the government-wide statements. C. A school district could never be a primary government. D. Both B and C choices are true.

75) Which of the following is false regarding the financial reporting entity of a state or local government? .

A) B) C) D)

A. Many component units are discretely presented, rather than blended. B. Only a primary government is reported in the government-wide statements. C. A school district can be a primary government. D. Both B and C are false.

76) Which of the following is true regarding the composition of the Comprehensive Annual Financial Report (CAFR)?

A) The CAFR is to include both blended and discretely presented component units. B) The CAFR is required in order to be in conformity with Generally Accepted Accounting Principles (GAAP). C) The CAFR contains four major sections: introductory, financial, supplementary, and statistical. D) All of the choices are true.

77) Which of the following is true regarding Management's Discussion and Analysis (MD&A)?

A) MD&A is not considered part of Required supplementary Information (RSI). B) MD&A takes the place of footnotes. C) MD&A should present an analysis of significant variations between the original and final budget. D) All of the choices are true.

78)

Under GASB rules for the financial reporting entity:

A) Component units must be reported in columns (discrete presentation) separate from the funds of a primary government. B) Counties are component units of the State Government. C) Blended and discretely presented component units are to be reported in governmentwide financial statements but not in fund financial statements. D) Component units are included if the primary government is financially accountable for their operations.

79)

Which of the following is included in Required supplementary Information (RSI)?

A) Management's Discussion and Analysis (MD&A). B) Budgetary Comparison Schedule. C) The Schedule of Funding Progress and Schedule of Employer Contributions when the government reports a pension trust fund. D) All of the choices are correct.

80)

Which of the following is true regarding the government-wide financial statements?

A) The government-wide financial statements are not required to present prior-year data. B) The government-wide financial statements include a Statement of Net Position and a Statement of Activities, but not a Statement of Cash Flows. C) The government-wide financial statements include capital assets, including infrastructure, and reflect depreciation, except for infrastructure using the modified approach. D) All of the choices are true.

81)

Which of the following is true regarding the government-wide Statement of Net Position?

A) A reporting entity (primary government plus component units) total column is required. B) The government-wide Statement of Net Position reflects capital assets, net of accumulated depreciation, for both governmental and business-type activities. C) The government-wide Statement of Net Position must be prepared in a classified format; that is, both assets and liabilities must be separated between current and long-term categories. D) The government-wide Statement of Net Position includes all resources entrusted to the government; including governmental, proprietary, and fiduciary.

82)

Which of the following is true regarding the government-wide Statement of Activities?

A) The government-wide Statement of Activities may reflect expenses either by function (general government, public safety, etc.) or by object or natural classification (salaries, supplies, etc.). B) The government-wide Statement of Activities reflects most taxes as program revenues. C) The government-wide Statement of Activities is prepared using the modified accrual basis of accounting for governmental activities and using the accrual basis of accounting for business-type activities. D) Separate rows are presented for major government functions and business-like activities.

83)

Which of the following is true regarding the government-wide Statement of Activities?

A) In the government-wide Statement of Activities, "special items" are those items that are both unusual and infrequent and are not under the control of management. B) Transfers between governmental and business type activities are eliminated and do not appear on the government-wide Statement of Activities. C) The Statement of Activities includes depreciation expense. D) Taxes levied, including those restricted to a particular purpose, are reported as program revenue.

84)

Which of the following is true regarding the governmental fund financial statements?

A) The governmental fund financial statements include the Balance Sheet, and the Statement of Revenues, Expenditures, and Changes in Fund Balances. B) The governmental fund financial statements are prepared on the current financial resources measurement focus and modified accrual basis of accounting. C) The governmental fund Balance Sheet reflects the residual equity as Fund Balance. D) All of the choices are true.

85) Which of the following items would likely appear in the reconciliation between the governmental fund financial statements and the governmental activities column in the government-wide financial statements?

A) A. The inclusion of long-term liabilities in the government-wide financial statements and not in the governmental fund financial statements. B) B. The inclusion of depreciation of capital assets in the governmental activities column of the government-wide financial statements and not in the governmental fund statements. C) C. The additional accrual of some revenues and expenses in the government-wide financial statements that were not made in the governmental fund financial statements. D) D. All of the choices are correct.

86)

Which of the following is true regarding the Budgetary Comparison Schedule?

A) A. The Budgetary Comparison Schedule compares the actual results to both the original budget and the final budget, but display of variances is optional. B) B. The Budgetary Comparison Schedule is considered part of the basic financial statements. C) C. The Budgetary Comparison Schedule must be prepared for the General Fund and each major special revenue fund that has a legally adopted budget. D) D. Both A and C choices are true.

87)

Which of the following is false regarding major fund reporting for governmental funds?

A) The General Fund is always a major fund. B) Each fund that is considered major must be reported in a separate column in the governmental funds financial statements. C) A government may designate any fund as major if it feels that reporting that fund in the basic financial statements would be useful. D) None of the choices, all are true.

88)

Which of the following is true regarding the Comprehensive Annual Financial Report?

A) The basic financial statements consist of the government-wide, the governmental fund, the proprietary fund, and the fiduciary fund financial statements (and the notes to the financial statements). B) The government-wide financial statements include the Statement of Net Position, the Statement of Activities, and the Statement of Cash Flows. C) Both of the choices are true. D) Neither of the choices is true.

89)

Funds other than the General Fund must be considered a major fund when:

A) Total assets, liabilities, revenues, or expenditures/expenses of that fund constitute 10 percent of either the governmental or enterprise category. B) Total assets, liabilities, revenues, or expenditures/expenses of that fund are 5 percent of the total of the governmental and enterprise category. C) Conditions of either of the choices exist. D) Conditions of both of the choices exist.

90)

Which of the following is true regarding the governmental fund statements?

A) The governmental fund statements include a Statement of Cash Flows prepared on the direct method. B) The governmental fund statements are prepared using the economic financial resources measurement focus and modified accrual accounting. C) Neither of the choices is true. D) Both of the choices are true.

91)

Which of the following is true regarding the proprietary fund financial statements?

A) The proprietary fund financial statements include the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Fund Net Position, and the Statement of Cash Flows. B) The proprietary funds include enterprise, internal service, and permanent funds. C) Both of the choices are true. D) Neither of the choices is true.

92)

Which of the following is true regarding fiduciary fund financial statements?

A) Fiduciary fund financial statements include the Statement of Fiduciary Net Position, the Statement of Changes in Fiduciary Net Position, and the Statement of Cash Flows prepared using the direct method. B) Fiduciary fund financial statements are prepared on the current financial resources measurement focus and modified accrual accounting. C) Both of the choices are true. D) Neither of the choices is true.

93)

Which of the following is true regarding the reporting of Budget-Actual Comparisons?

A) A Budget-Actual Comparison Schedule is required for the General Fund and all major special revenue funds that have a legally adopted annual budget. B) A Budget-Actual Comparison Statement may be prepared in lieu of the Schedule. C) Both of the choices are true. D) Neither of the choices is true.

94) be:

An example of an expenditure classification by function for a governmental fund would

A) B) C) D)

Public safety. Capital outlay. Salaries. Debt service.

95) Direct expenses are required to be reported by function in Government-wide statements. Which of the following would not be an appropriate category?

A) B) C) D)

Community development Capital outlay Parks and recreation Health and welfare

96) Which of the following is true regarding the reporting of major funds in the governmental funds financial statements?

A) The General Fund is always considered a major fund. B) A fund is considered major if its revenues, expenditures, assets, or liabilities exceed 10% of the total governmental fund categories and if the same element (revenues, expenditures, assets, or liabilities) exceeds 5% of the governmental and enterprise funds combined. C) Both of the choices are true. D) Neither of the choices is true.

97)

Which of the following is true regarding financial reporting of governmental funds?

A) The Fund Balance of governmental funds reports fund balance as reserved and unreserved. B) Governmental funds include the General Fund, special revenue funds, capital projects funds, debt service funds, and permanent funds. C) Both of the choices are true. D) Neither of the choices is true.

98)

Which of the following is true regarding the government-wide Statement of Activities?

A) B) C) D)

99)

General revenues include items such as charges for services and program fees. Fiduciary activities are included. Both of the choices are true. Neither of the choices is true.

Which of the following is true regarding the governmental fund statements?

A) The Governmental Funds Balance Sheet does not reflect capital assets or long-term debt. B) The Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances reports columns for major funds, non-major funds (in total), and total. C) Both of the choices are true. D) Neither of the choices is true.

100)

Which of the following is true regarding component units?

A) Component units may be reported discretely in the government-wide statements or may be blended as a fund in the fund financial statements (and thus also included in the government-wide financial statements). B) Component units could include towns, school districts, counties, and municipalities. C) Both of the choices are true. D) Neither of the choices is true.

101)

Which of the following is true regarding the government-wide financial statements?

A) The government-wide financial statements include the Statement of Net Position and the Statement of Activities. B) The government-wide financial statements are prepared using the current financial resources measurement focus and the modified accrual basis of accounting. C) Both statements are true. D) Neither statement is true.

102)

Which of the following is true regarding the governmental fund financial statements?

A) The governmental fund financial statements include the Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balances. B) The governmental fund financial statements are prepared using the current financial resources measurement focus and the modified accrual basis of accounting. C) Both of the choices are true. D) Neither of the choices is true.

103)

Which of the following is true regarding the proprietary fund financial statements?

A) The proprietary fund financial statements include the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Fund Net Position, and the Statement of Cash Flows. B) The proprietary fund financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. C) Both statements are true. D) Neither statement is true.

104)

Which of the following is true regarding the proprietary funds statements?

A) Major enterprise and internal service funds are reported in separate columns; a column is presented for all non-major enterprise and internal service funds (combined), and a total column is presented. B) Financial statements include a Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position, and Statement of Cash Flows. C) Both statements are true. D) Neither statement is true.

105)

Which of the following is true regarding fiduciary fund statements?

A) Fiduciary fund statements include the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position. B) Fiduciary fund statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting. C) Both statements are true. D) Neither statement is true.

106)

Which of the following is true regarding fiduciary funds?

A) Fiduciary funds are reported in the fiduciary fund financial statements but not in the government-wide financial statements. B) Custodial funds should present both a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. C) Both of the choices are true. D) Neither of the choices is true.

107) Where in the CAFR would one find the long-term liability for revenue bonds (paid from the revenues of an enterprise fund)?

A) The proprietary funds Statement of Net Position only. B) The government-wide Statement of Net Position and the proprietary funds Statement of Net Position. C) The government-wide Statement of Net Position and the RSI Schedule of Bonds Payable. D) The government-wide Statement of Net Position only.

108)

Which of the following funds requires a Budgetary Comparison Schedule?

A) Enterprise Funds B) Internal Service Funds C) General Fund D) Investment Trust Funds

109) Which part of the financial section of the CAFR is considered "Required supplementary Information?"

A) B) C) D)

Auditor’s Report Management’s Discussion and Analysis Government-Wide Financial Statements Fund Financial Statements

110)

Which of the following is true regarding Government-wide financial statements?

A) B) C) D)

Prior year data must be presented. A Statement of Cash Flows is not required for Government-wide statements. Depreciation may only be reported as a charge in total to the general government. Fiduciary activities are only reported if they qualify as a major fund.

111) A reconciliation from Enterprise funds statements to government-wide statements is not necessary because:

A) They both use the same measurement focus and basis of accounting (economic resources, accrual). B) They both use the same measurement focus and basis of accounting (current financial resources, modified accrual). C) They use a different measurement focus and basis of accounting. D) Enterprise funds are not included in the government-wide statements.

112)

Which of the following Sections of the CAFR is audited?

A) B) C) D)

Financial section Statistical section Management Discussion and Analysis section Financial and statistical sections

113) The statistical section typically presents ________ years of information in each table or schedule.

A) B) C) D)

3 5 10 12

114)

What are the three major sections of the Comprehensive Annual Financial Report?

A) Introductory Section, Financial Section, Budgetary Comparison B) Introductory Section, Financial Section, Management Discussion and Analysis C) Introductory Section, Financial Section, Statistical Section D) Introductory Section, Financial Section, Reporting Infrastructure

115) In addition to a Statement of Net Position, Proprietary Fund (fund-basis) financial statements include which of the following?

A) B) C) D)

116)

Statement of Revenues, Expenses, and Changes in Fund Net Position. Statement of Cash Flows. Both of the choices are included. Neither of the choices is included.

A budgetary comparison schedule is required for?

A) B) C) D)

A. The General Fund. B. Each special revenue fund that has a legally adopted annual budget. C. Enterprise funds. D. A budgetary comparison schedule is required for only choices A & B.

117) In addition to a Statement of Net Position, what statements are required in the government-wide Financial Statements?

A) B) C) D)

118) .

Statement of Activities. Statement of Cash Flows. Neither of the choices are required. Both of the choices are required.

Which Statement is presented using the accrual basis of accounting? 28

A) B) C) D)

119)

A. Governmental Fund Balance Sheet B. Government-Wide Statement of Activities C. Statement of Revenues, Expenditure and changes in Fund Balances D. Both A and B choices are true.

A Statement of Cash Flows is required for which type of fund?

A) B) C) D)

Proprietary. Governmental. Fiduciary. None of the choices are correct.

120) GASB requires which of the following (if applicable) to be included in the Notes to Financial Statements?

A) Outstanding encumbrances B) The definition of cash and cash equivalents used in the statement of cash flows for proprietary funds C) Interfund receivables and payables D) All of the choices are correct

121) GASB provides which method(s) for including component unit financial information with that of the primary government?

A) B) C) D)

Discrete Presentation Blending Both Discrete Presentation and Blending None of the choices are correct.

122) The modified approach for infrastructure requires schedules and disclosures to be included in which part of the CAFR?

A) B) C) D)

Notes to the Financial Statements Other Supplementary Information Required supplementary Information Proprietary Fund Statements

123) Which of the following is not true regarding the Statement of Cash Flows for proprietary funds?

A) B) C) D)

124)

Four categories of cash flows are used. Interest and dividends received are recorded as investing activities. The direct method is required for reporting cash flows from operations. All of the choices are true statements.

Which of the following is true about the combining financial statements?

A) They are used whenever a nonmajor column is used in one of the fund financial statements. B) The total column in the combining statements is not always the same as the nonmajor funds column in the basic financial statements. C) Both of the choices are true. D) Neither of the choices is true.

125)

Which of the following funds require a Statement of Cash Flows?

A) B) C) D)

Governmental funds Proprietary funds Fiduciary Funds Governmental and Fiduciary Funds

126) With respect to Government-wide financial statements, which of the following is not required by GASB?

A) B) C) D)

Statement of Cash Flow Statement of Net Position Statement of Activities All of the choices are required by GASB

127) Which of the following is not one of the major sections of the Comprehensive Annual Financial Report (CAFR)?

A) B) C) D)

128)

Budgetary Financial Introductory Statistical

Which of the following indicates a governmental fund is considered to be a major fund?

A) Total assets, liabilities, revenues or expenditures of the individual governmental fund constitutes 10 percent of the governmental funds category. B) Total assets, liabilities, revenues or expenditures/expenses are 5 percent of the total of the governmental and enterprise category. Other funds may be designated major funds at the discretion of management. C) Both choices are required. D) Either of the choices will qualify a fund to be a major fund.

129)

Which of the following is not correct with respect to reporting major funds?

A) Any funds not reported separately are aggregated and reported in a single column under the label nonmajor funds. B) A government may designate any fund as a major fund if reporting that fund separately would be useful. C) The general fund is not classified as a major fund if it does not meet the 10% and 5% tests for a major fund. D) If the reporting government is preparing a complete CAFR, a schedule showing the detail of nonmajor funds is provided in the other supplementary information section.

130) GASB provides guidance for determining when a primary government should include a legally separate organization in its financial report. What would be required for the primary government to include the related entity in its financial reports?

A) A. The primary government controls a voting majority of the other organization’s governing board or otherwise may impose its will on the organization. B) B. The other organization is fiscally dependent upon the primary government. C) C. The related organization must represent a financial benefit or burden to the primary government. D) D. Either A or B plus C choice would be sufficient to require inclusion.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 131) Identify three items often found in Required Supplementary Information.

132)

List the Government-wide financial statements required by GASB.

133)

List the fund financial statements required by GASB for governmental type funds.

134)

List the fund financial statements required by GASB for proprietary type funds.

135)

List the basic financial statements required by GASB for fiduciary type funds.

136) In addition to government-wide statements, governments are required to prepare fund financial statements within which three categories of funds?

137)

What are the five categories of fund balance on a Governmental Funds Balance Sheet?

138) List the five categories outlined in GASB to be included in the statistical section of the CAFR.

139) List and describe the three major sections of the Comprehensive Annual Financial Report and indicate briefly what is in each.

140) What is the rule for determining whether a governmental fund, other than the General Fund, is a major fund?

141)

Identify two areas where GASB requires supplementary information (RSI).

142) The Governmental Accounting Standards Board has established rules for determining when a government should include another entity in its financial statements.Distinguish between a primary government and a component unit. Include one example of each.GASB permits two methods of reporting component units in the financial reporting entity. Describe the two methods and indicate when each should be used.The City of X is deciding whether or not to include a transit system in its financial report and how the transit system would be reported if a positive decision were made. The transit system is a legally separate entity, has its own governing board, not appointed by the city, has a different auditor, and issues its own financial report. The city has signed an agreement that, for the next ten years (the life of a bond issue related to transit operations), and it will make up the deficit of the transit system. During the last two years, the deficit has been $10 million, approximately 50% of the amount reported as a profit of its other enterprise operations. Make recommendations to the city, including whether or not to include the transit system and, if so, how to report it.

143) GASB establishes that the financial reporting entity is the primary government together with its component units. Define primary government and component unit.

144) GASB provides guidance for determining when a primary government should include a legally separate organization in its financial report. Outline the criteria for inclusion.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 145) The following information is available for the preparation of the government-wide financial statements of the City of Bloomfield as of June 30, 2020:

Accounts payable, business-type activities Accounts payable, governmental activities

240,000 610,000

Capital assets, net, business-type activities

10,300,000

Capital assets, net, governmental activities

10,400,000

Cash and cash equivalents, business-type activities

1,900,000

Cash and cash equivalents, governmental activities

1,200,000

Inventories, business-type activities

600,000

Net Position, restricted for debt service, business-type activities Net Position, restricted for debt service, governmental activities

640,000 930,000

Net Position, net investment in capital assets, business-type activities Net Position, net investment in capital assets,, governmental activities Noncurrent liabilities, business-type activities

4,760,000

Noncurrent liabilities, governmental activities

3,150,000

Receivables, business-type activities

1,230,000

Receivables, governmental activities

400,000

7,250,000 4,990,000

Assume all long-term liabilities were incurred in the acquisition of capital assets.

Required: From the information given above, prepare, in good form, a Statement of Net Position for the City of Bloomfield as of June 30, 2020. Include the unrestricted net position, which is to be computed from the information presented above. Include a total column. Aurora has no component units.

146) The following information is available for the preparation of the government-wide financial statements for the Village of Twin Oaks for the year ended June 30, 2020:

Expenses: General government Public safety

$ 27,000,000 17,200,000

Public works

13,800,000

Health and sanitation

6,300,000

Culture and recreation

5,700,000

Inventories, business-type activities

8,100,000

Water and sewer system

640,000

Parking system

420,000

Revenues: Charges for services, general government

4,200,000

Charges for services, public safety

300,000

Operating grant, public safety

940,000

Charges for services, health and sanitation Operating grant, health and sanitation

3,500,000 920,000

Charges for services, culture and recreation

2,200,000

Charges for services, water and sewer

12,250,000

Charges for services, parking system

740,000

Property taxes

49,300,000

Sales taxes

23,400,000

Other: Special item—gain on sale of park land Transfer from business-type activities to governmental

1,210,000 500,000

Net position, July 1, 2019 – governmental activities

14,410,000

Net position, July 1, 2019 – business-type activities

12,312,000

Required: From the information given above, prepare, in good form, a Statement of Activities for the Village of Twin Oaks for the Year Ended June 30, 2020.

147) The following General Fund information is available for the preparation of the financial statements for the City of Pine Cove for the year ended December 31, 2020.

Revenues: Property taxes

$ 26,400,000

Sales taxes

10,150,000

Fines and forfeits

1,320,000

Licenses and permits

2,250,000

Intergovernmental

890,000

Investment earnings

660,000

Expenditures: Current:

General government

8,200,000

Public safety

19,400,000

Public works

6,300,000

Health and sanitation

1,200,000

Culture and recreation

12,160,000

Other: Encumbrances

100,000

Appropriations

40,000,000

Estimated Revenues

42,000,000

Transfer to debt service fund

1,130,000

Special item-proceeds from sale of land Fund balance, January 1, 2020

760,000 7,600,000

Required: From the information given above, prepare, in good form, a General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the City of Pine Cove for the Year Ended December 31, 2020.

148) The following water and sewer information is available for the preparation of the financial statements for the County of Augusta for the year ended June 30, 2020:

Operating revenues—charges for services

$ 17,590,000

Operating expenses: Personal services

8,960,000

Contractual services

1,822,000

Utilities Repairs and maintenance

880,000 1,580,000

Depreciation

2,640,000

Interest revenue

410,000

Interest expense

360,000

Capital contributions

997,000

Transfer to General Fund

950,000

Net position, July 1, 2019

2,720,000

Required: From the information given above, prepare, in good form, a Water and Sewer Fund column for the proprietary fund Statement of Revenues, Expenses, and Changes in Fund Net Position for the County of Augusta for the Year Ended June 30, 2020.

Answer Key Test name: Chapter 2: Overview of Financial Reporting for State and Local Governments 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) FALSE 16) FALSE 17) FALSE 18) TRUE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) TRUE .

26) FALSE 27) FALSE 28) TRUE 29) FALSE 30) FALSE 31) TRUE 32) TRUE 33) TRUE 34) TRUE 35) FALSE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) TRUE 42) FALSE 43) TRUE 44) TRUE 45) FALSE 46) FALSE 47) FALSE 48) TRUE 49) FALSE 50) FALSE 51) TRUE 52) TRUE 53) FALSE 54) FALSE 55) FALSE .

56) FALSE 57) FALSE 58) A 59) D 60) A 61) D 62) C 63) D 64) C 65) A 66) A 67) C 68) C 69) D 70) B 71) B 72) D 73) D 74) A 75) B 76) A 77) C 78) D 79) D 80) D 81) B 82) D 83) C 84) D 85) D .

86) D 87) D 88) A 89) D 90) C 91) A 92) D 93) C 94) A 95) B 96) C 97) B 98) D 99) C 100) A 101) A 102) C 103) C 104) B 105) A 106) C 107) B 108) C 109) B 110) B 111) A 112) A 113) C 114) C 115) C .

116) D 117) A 118) B 119) A 120) D 121) C 122) C 123) D 124) A 125) B 126) A 127) A 128) C 129) C 130) D 131) In addition to MD&A, RSI requires schedules for the following: Schedule when the modified approach to infrastructure is used, budgetary comparison schedule, pension schedules, and schedules of risk management activities. 132) Government-wide statements include the Statement of Net Position and the Statement of Activities. 133) The governmental fund financial statements include the Balance Sheet, and the Statement of Revenues, Expenditures, and Changes in Fund Balances. 134) Proprietary fund financial statements include a Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position, and Statement of Cash Flows. 135) Fiduciary fund statements include the Statement of Fiduciary Net position, Statement of Changes in Fiduciary Net Position. The Statement of Cash Flows is not required for fiduciary funds. .

136) In addition to government-wide statements, governments are required to prepare fund financial statements for governmental, proprietary and fiduciary funds. 137) The five categories of fund balance on a Governmental Funds Balance Sheet Non-spendable are: restricted, committed, assigned and unassigned. 138) The five categories outlined in GASB to be included in the statistical section of the CAFR. are: financial trends information, revenue capacity information, debt capacity information, demographic and economic information and operating information. 139) The three major sections are introductory, financial and statistical. The introductory section includes a letter of transmittal, organization chart, and list of principal officials. The financial section includes the auditor's report, MD&A, the basic financial statements (including the footnotes), other RSI, combining statements for non-major funds (not reported separately in the basic financial statements), and schedules. The statistical section includes certain statistical tables indicating financial trends, revenue and debt capacity, demographic and economic information and operating information. Data is generally presented for the past 10 years. 140) The general fund is always considered to be a major fund. Other governmental funds are considered to be a major fund when both of the following conditions exists; 1) Total assets, liabilities, revenues or expenditures of that individual government fund constitute 10% of the total for the governmental funds category and 2) Total assets, liabilities, revenues or expenditures of that individual government fund are 5% of the total of the governmental and enterprise categories, combined. In addition, a government may designate any fund as a major fund if reporting that fund separately would be useful.

141) RSI appears in two parts of the financial section; MD&A precedes the financial statements and other RSI schedules follow the notes to the financial statements. In addition to MD&A, Budgetary comparison schedules, Information about infrastructure assets reporting using the modified approach, Pension funding schedules and Schedules of risk management activities are areas where GASB requires RSI.

142) A primary government is a state or a general-purpose local government, such as a municipality or a county. It may also be a special purpose government that has a separately elected governing board, is legally separate, and is fiscally independent of other state or local governments. A component unit is a legally separate organization for which the elected officials of a primary government are financially accountable. In addition, a component unit can be another organization for which the nature and significance of its relationship with a primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. An example of a primary government would be a city. An example of a component unit might be a library that is legally separate and has its own board but is financially dependent on the city. The two methods are blending and discrete presentation. Blending is the reporting of a component unit in the government-wide financial statements as a part of the primary government. Blending is appropriate only when the component unit is “so intertwined with the primary government that they are in substance the same entity”. Discrete presentation involves presenting financial information of the component in a separate column apart from the primary government and not included in the totals for the primary government. Discrete presentation is the most commonly used method. In this case, I would recommend that the transit system be incorporated as a component unit based on the idea that “exclusion would cause the reporting entity's financial statements to be misleading or incomplete. ”The Statement of Activities would show the operating loss of the transit system and the transfer from the primary government to make up the deficit. I would report it discretely, not blended, as the transit system is generally separate.

143) A primary government is a state government, a general-purpose local government such as a city or county, or a special-purpose government such as a school district. Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. In addition, a component unit can be an organization for which the nature and significance of its relationship with a primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. 144) GASB provides guidance for determining when a primary government should include a legally separate organization in its financial report. First the relationship with the entity must have one of the following characteristics: (1) the primary government controls a voting majority of the other organization’s governing board or otherwise may impose its will on the organization; or (2) the other organization is fiscally dependent upon the primary government. An entity is fiscally dependent on a primary government if that government approves or modifies its budget, sets charges for its services, or if the government’s approval is required to issue debt. In addition, the related organization must represent a financial benefit or burden to the primary government. A financial burden exists, for example, if the primary government is responsible for liabilities of the other organization. In contrast, a financial benefit exists if the government is entitled to or may access the other organization’s resources. 145) CITY OF BLOOMFIELD STATEMENT OF NET POSITION JUNE 30, 2020 Governmental Business-Type Activities Activities

Total

Assets:

Cash and Cash Equivalents

Receivables

1,200,000

400,000

Inventories

1,900,000

3,100,000

1,230,000

1,630,000

600,000

Capital Assets, Net

10,400,000

10,300,000

20,700,000

Total Assets

12,000,000

14,030,000

26,030,000

610,000

240,000

850,000

Noncurrent Liabilities

3,150,000

4,990,000

8,140,000

Total Liabilities

3,760,000

5,230,000

8,990,000

7,250,000

5,310,000

12,560,000

730,000

640,000

1,370,000

260,000

2,850,000

3,110,000

8,800,000

$ 17,040,000

Liabilities: Accounts Payable

Net Position: Net investment in capital assets, Restricted for Debt Service Unrestricted Total Net Position

8,240,000

146) VILLAGE OF TWIN OAKS STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2020 Program Revenues Net(Expense)Revenue and Change in Net Position Functions/Pro Expenses Charges Operatin Government Business Total grams for g Grants al -Type Services Activities Activiti es Governmental Activities:

General $ 27,000, 4,200,0 Government 000 00 Public 17,200, 300,000 Safety 000 Public Works 13,800, 000 Health and 6,300,0 3,500,0 Sanitation 00 00 Culture and 5,700,0 2,200,0 Recreation 00 00 Total 70,000, 10,200, Governmental 000 000 Activities Business-Type Activities: Water and 8,100,0 12,250, Sewer System 00 000 Parking 420,000 740,000 System Total 8,520,0 12,990, Business00 000 Type Activities Total

$ (22,800, ) $ 000 940,00 (15,960, ) 0 000 (13,800, ) 000 920,00 (1,880,0 ) 0 00 (3,500,0 ) 00 1,860, (57,940, ) 000 000

$ 78,520, $ 23,190, $ 1,860, 000 000 000

(57,940, ) 000

$ (22,800, ) 000 (15,960, ) 000 (13,800, ) 000 (1,880,0 ) 00 (3,500,0 ) 00 (57,940, ) 000

4,150, 000 320,00 0 4,470, 000

4,150,00 0 320,000

4,470, 000

(53,470, ) 000

4,470,00 0

General Revenues

Property Taxes

49,300,000

Sales Taxes

23,400,000

Special Item-Gain on Sale of Park Land Transfers

1,210,000

500,000

(500,000 )

Total General Revenues, Special Items, and Transfers

74,410,000

(500,000 )

73,910,000

Change in Net Position

16,470,000

3,970,000

20,440,000

Net Position, July 1, 2019

14,410,000

12,612,000

27,022,000

Net Position, July 30, 2020 $ 30,880,000 $ 16,582,000

$ 47,462,000

147) CITY OF PINE COVE GENERAL FUND STATEMENTS OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES YEAR ENDED DECEMBER 31, 2020 Revenues: Property Taxes

$ 26,400,0000

Sales Taxes

10,150,000

Fees and Fines

1,320,000

Licenses and Permits

2,250,000

Intergovernmental Revenues

890,000

Investment Earnings

660,000

Total Revenues

41,670,000

Expenditures: Current: General Government

8,200,000

Public Safety

19,400,000

Public Works

6,300,000

Health and Sanitation

1,200,000

Culture and Recreation

4,160,000

Total Expenditures

39,260,000

Excess of Expenditures Over Revenues

2,410,000

Other Financing Sources (Uses): Transfer to Special Revenue Fund

(1,130,000 )

Total Other Financing Sources (Uses)

(1,130,000 )

Special Item: Proceeds from Sale of Land Net Change in Fund Balance

760,000 2,040,000

Fund Balance, January 1, 2020

7,600,000

Fund Balance, December 31, 2020

9,640,000

148) COUNTY OF AUGUSTA WATER AND SEWER FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION YEAR ENDED JUNE 30, 2020 Operating Revenues: Charges for Services

$ 17,590,000

Operating Expenses: Personal Services Contractual Services Utilities

$ 8,960,000 1,822,000 880,000

Repairs and Maintenance

1,580,000

Depreciation

2,640,000

Total Operating Expenses

15,882,000

Operating Income

1,708,000

Non-operating Revenues (Expenses):

Interest Revenue

410,000

Interest Expense

(360,000 )

Total Non-operating Revenues and Expenses Income Before Contributions and Transfers Capital Contributions

1,758,000

Transfer to General Fund

(950,000 )

Change in Net Position

1,805,000

Net Position, July 1, 2019

2,720,000

Net Position, June 30, 2020

(50,000 )

997,000

4,525,000

Chapter 3:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The term, Fund Balance, is used to indicate the residual net position of a proprietary fund. ⊚ ⊚

true false

2) Net resources of a governmental fund represented by currently due taxes receivable is an example of a nonspendable fund balance. ⊚ ⊚

true false

3) Net resources of a governmental fund represented by prepaid insurance is an example of a nonspendable fund balance. ⊚ ⊚

true false

4) $200,000 of unencumbered funds to be used for government operations in the future from the General Fund is an example of an unassigned fund balance. ⊚ ⊚

true false

5) Outstanding encumbrance of $80,000 for the purchase of furniture & fixtures is an example of a restricted fund balance. ⊚ ⊚

true false

6) Rainy day funds are classified as restricted if they are created by a resolution or ordinance that identifies the specific circumstances under which the resources may be expended. ⊚ ⊚

true false

7) If "rainy day" funds are available "in emergencies" or periods of "revenue shortfalls" they are not ordinarily classified as committed. ⊚ ⊚

true false

8) Rainy day funds that are available "in emergencies" or "revenue shortfalls" may still be classified as committed if the emergency or shortfall condition is specified and is of such a magnitude as to distinguish it from events that are routine. ⊚ ⊚

true false

9) An exchange transaction is one where each party is given and receives essentially equal value. ⊚ ⊚

true false

10) A nonexchange transaction is one where a government receives resources without giving equal value in return. ⊚ ⊚

true false

11) When using modified accrual accounting, revenues should be recognized when measurable and available to finance expenditures of the current period. ⊚ ⊚

true false

12) Property tax revenue is considered available if it is received no more than 30 days after the fiscal year end.

⊚ ⊚

true false

13) Encumbrances under modified accrual accounting are recognized when fund liabilities are incurred. ⊚ ⊚

true false

14) Modified accrual accounting is essentially the same as cash basis except that long term assets are not recorded. ⊚ ⊚

true false

15) The modified accrual basis is a distinct system of accounting that contains financial statement elements that appear nowhere else. ⊚ ⊚

16)

true false

There are no expenses in modified accrual funds. ⊚ ⊚

true false

17) Revenues, but not expenses, are recorded the same under accrual and modified accrual accounting. ⊚ ⊚

18)

Budgets are legally binding upon administrators. ⊚ ⊚

true false

19)

Real estate property taxes are an example of derived tax revenue. ⊚ ⊚

20)

true false

Sales taxes, income taxes, and motor fuel taxes are examples of derived tax revenues. ⊚ ⊚

true false

21) Sales taxes, income taxes, and motor fuel taxes are examples of government-mandated nonexchange transactions. ⊚ ⊚

true false

22) A nonexchange transaction is one in which a government receives value without directly giving equal value in exchange. ⊚ ⊚

true false

23) A fair exchange transaction is one in which a government gives or receives value without directly receiving or giving equal value in exchange. ⊚ ⊚

24)

Modified accrual accounting is essentially equivalent to cash basis accounting. ⊚ ⊚

true false

25) The only difference between modified accrual accounting and accrual accounting is the difference in the recognition of long-term assets and liabilities. ⊚ ⊚

true false

26) With respect to Governmental Funds, Fund Balance must be broken down into assigned and unassigned. ⊚ ⊚

true false

27) The GASB has categorized nonexchange transactions into two categories: (1) imposed nonexchange revenues and (2) voluntary nonexchange transactions. ⊚ ⊚

28)

true false

An example of an imposed nonexchange revenue is the property tax. ⊚ ⊚

true false

29) A donation received is considered a voluntary nonexchange transaction only if it is unrestricted. ⊚ ⊚

true false

30) The GASB has created four "eligibility requirements" that must be met before revenue can be recognized: (1) required classification of recipients, (2) timing, (3) reimbursements, and (4) contingencies. ⊚ ⊚

true false

31) Under GASB Statement 33 requirements for accrual accounting, property tax revenue should be recognized in the period that the tax is collected. ⊚ ⊚

true false

32) Under modified accrual accounting, property tax revenue should be recognized when measurable and available; available means collected no more than 90 days after year-end. ⊚ ⊚

true false

33) When recording the budget, an excess of estimated revenues over appropriations would be debited to Budgetary Fund Balance. ⊚ ⊚

true false

34) When a purchase order or contract is issued as authorized by an appropriation, it is known as an expenditure. ⊚ ⊚

true false

35) The budgetary account used to record budgeted revenues is called "Estimated Revenues Control." ⊚ ⊚

true false

36) The category "other financing sources" includes transfers from other funds, but not bond issue proceeds. ⊚ ⊚

true false

37) Examples of budgetary accounts include Estimated Revenues, Appropriations, and Estimated Other Financing Uses. ⊚ ⊚

true false

38) GASB requires that the budgetary basis of accounting for the General Fund used in the Budget-Actual Comparison Schedule be on the same modified accrual basis as the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balance. ⊚ ⊚

true false

39) Under the modified accrual basis, property taxes are recognized in the period in which cash is received, regardless of when the taxes were levied. ⊚ ⊚

true false

40) When liabilities authorized by an appropriation have been incurred, the appropriation is said to be expended. ⊚ ⊚

true false

41) The Budgetary Comparison Schedule is considered a part of Required Supplementary Information in the Comprehensive Annual Financial Report. ⊚ ⊚

42)

Encumbrances are recorded when a purchase order is filled or a contract is executed. ⊚ ⊚

true false

43)

Encumbrances are often deemed necessary for recurring expenditures such as payroll. ⊚ ⊚

true false

44) The Budgetary Comparison Schedule requires a column for the original budget, a column for the final revised budget, and a column for actual figures, computed on the accrual basis. ⊚ ⊚

45) year.

true false

Budgetary accounts begin each year with a zero balance and are closed at the end of each ⊚ ⊚

true false

46) "Unexpended Appropriations Balance" may be interpreted as how much a government may continue to spend and remain within its budget. ⊚ ⊚

47)

true false

Expenditure classification by character includes current, capital outlay, and debt service. ⊚ ⊚

true false

48) The journal entry to record a purchase order in the General Fund would be a debit to Encumbrances Control account and credit to Accounts Payable. ⊚ ⊚

true false

49) An appropriations budget is authorization for administrators to incur specified amounts of liabilities on behalf of the government for specified purposes.

⊚ ⊚

true false

50) Transfers from one fund to another are classified as expenditures in the fund making the transfer. ⊚ ⊚

true false

51) An Appropriations budget is the legal authorization for administrators of governmental unit to incur liabilities for purposes specified and to not exceed the amount specified. ⊚ ⊚

true false

52) Expenditure is a decrease in fund financial resources (net of liabilities) other than through interfund transfers. ⊚ ⊚

true false

53) Modified accrual accounting records encumbrances when goods are ordered and a liability when goods are received and the government is obligated to pay vendors and accrual accounting does not record encumbrances and records a liability when goods are received. ⊚ ⊚

54)

true false

Revenues for governmental funds should be recognized when measurable and earned. ⊚ ⊚

true false

55) When purchase orders are filled and the invoice amount differs from the estimated amount, the amount recorded as an expenditure corresponds to the invoice amount.

⊚ ⊚

true false

56) When purchase orders are filled and the invoice amount differs from the estimated amount, the amount reversed from the encumbrance account equals the invoice amount. ⊚ ⊚

true false

57) Governments create special revenue funds whenever a tax or other revenue source is legislated to be used for a specific purpose, other than capital assets or debt service. ⊚ ⊚

true false

58) GASB requires a reconciliation between the amount shown as GAAP expenditures in the basic financial statements and the amount shown in the budgetary comparison schedule. ⊚ ⊚

true false

59) The modified accrual basis is a distinct system of accounting that contains financial statement elements that appear nowhere else. Among these are expenditures and fund balances. ⊚ ⊚

true false

60) The modified accrualbasis of accounting used in governmental accounting is essentially equivalent to the cash basis accounting used by businesses. ⊚ ⊚

61)

true false

Governmental funds may not record liabilities or accrue expenditures when payable.

⊚ ⊚

true false

62) Revenues are recorded the same under accrual and modified accrual accounting. The difference in the two methods applies only to expenses/expenditures. ⊚ ⊚

63)

true false

There are no expenses in modified accrual funds. ⊚ ⊚

true false

64) The modified accrual basis evolved from the demand for accountability over public resources and is therefore closely tied to the budget function. ⊚ ⊚

true false

65) Deferred Inflows of Resources have a credit balance and are obligations of the reporting entity. ⊚ ⊚

true false

66) Deferred Inflows of Resources have a credit balance but they do not represent obligations of the reporting entity. ⊚ ⊚

true false

67) Deferred Outflows of Resources have a debit balances and represent assets of the reporting organization.

⊚ ⊚

true false

68) Deferred Outflows of Resources have a credit balances and represent valuation accounts (i.e. contra-assets) of the reporting organization. ⊚ ⊚

true false

69) Deferred Outflows of Resources have a debit balances but are not assets of the reporting organization. ⊚ ⊚

true false

70) Only items specifically identified in GASB standards may be reported as deferred inflows or deferred outflows. ⊚ ⊚

71)

true false

Fund Balance is analogous to the capital of an investor-owned entity. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 72) The modified accrual basis is a distinct system of accounting that:

A) Differs from accrual accounting only in its failure to recognize long term assets and liabilities. B) Records expenses and revenues the same as accrual accounting. C) Records expenditures and fund balances. D) Is equivalent to cash basis accounting.

73)

Which of the following is true with respect to rainy day funds?

A) Rainy day funds are classified as committed if they are created by a resolution or ordinance that identifies the specific circumstances under which the resources may be expended. B) If rainy day funds are available “in emergencies” or periods of “revenue shortfalls” they are classified as committed. C) Both of the choices are true. D) Neither of the choices is true.

74) A transaction in which a government receives resources without directly giving equal value in exchange is known as a(n):

A) B) C) D)

Equity Transaction. Fair Exchange. Nonexchange Transaction. Not Fair Market Exchange transaction.

75) Which of the following is not one of the four classes into which nonexchange transactions apply in accordance with GASB Statement No. 33?

A) B) C) D)

Voluntary nonexchange transactions. Imposed nonexchange revenues. Derived tax revenues. Mandatory exchange transactions.

76) Property Taxes, special assessments, and fines and forfeits are types of nonexchange transactions. These are examples of:

A) B) C) D)

77)

Government-mandated nonexchange transactions. Imposed nonexchange transactions. Deferred inflows. Voluntary nonexchange transactions.

Which of the following would not be a nonexchange transaction for a state government?

A) Sales of lottery tickets. B) Property taxes. C) Fines and forfeits. D) Income taxes.

78) Sales taxes, income taxes, and motor fuel taxes are examples of which class of nonexchange transactions?

A) Imposed nonexchange transactions. B) Derived tax revenues. C) Government-mandated nonexchange transactions. D) Voluntary nonexchange transactions.

79)

The four classes of nonexchange transactions include all of the following except:

A) Imposed nonexchange revenues. B) Derived tax revenues. C) Voluntary nonexchange transactions. D) Sales of Services.

80)

With respect to budgetary reporting by governments, which of the following is not true?

A) While GASB standards guide the format of the comparison, it does not require governments to maintain budgetary accounts. B) The basis of accounting used to report the "Actual" column in the budgetary comparison schedule is prepared according to legal requirements for budget preparation; even if it is a departure from GASB standards. C) Budgetary accounts are required to appear in the general purpose financial statements. D) GASB standards require governments to present a comparison of budgeted and actual results for the General Fund and special revenue funds with legally adopted budgets.

81) The general ledger journal entry in the General Fund to record the adoption of a budget would include:

A) B) C) D)

A credit to Estimated Other Financing Sources Control. A debit to Budgetary Fund Balance—Reserve for Encumbrances. A debit to Appropriations Control. A debit to Estimated Revenues Control.

82) The general ledger journal entry in the General Fund to record encumbrances for the issuance of purchase orders would include:

A) B) C) D)

A credit to Encumbrance Control. A debit to Expenditures Control. A credit to Accounts Payable. A credit to Budgetary Fund Balance—Reserve for Encumbrances.

83) The general ledger journal entry in the General Fund to record actual expenditures and reversal of the associated encumbrance would include:

A) B) C) D)

84)

A debit to Encumbrance Control. A credit to Encumbrance Control. A debit to Accounts payable. A credit to Budgetary Fund Balance—Reserve for Encumbrances.

Governmental Funds Fund Balance is displayed in which of the following categories?

A) B) C) D)

Nonspendable, Spendable, Assigned, Unassigned Nonspendable, Restricted, Unrestricted Restricted, Unrestricted, Assigned, Unassigned Nonspendable, Restricted, Committed, Assigned, Unassigned

85) According to GASB standards, which of the following is an example of a nonspendable fund balance?

A) Resources (such as supplies) that are used in operations rather than converted to cash B) The corpus of a permanent fund that may not be spent C) Prepaid insurance D) All of the choices are correct

86) According to GASB standards, which of the following statements is not true regarding restricted fund balances?

A) Restricted funds are those that are subject to constraints imposed by external parties or by law. B) Restricted fund balance can result from legally enforceable requirements that resources be used only for specific purpose. C) Restricted funds are the result of a self-imposed constraint by a government upon itself. D) All of the choices are correct.

87) According to GASB, which of the following statements is correct regarding committed funds?

A) Committed funds are those that are designated as committed through ordinance or resolution by the government’s highest level of authority. B) These constraints are easily changed by administrators. C) This is constraint is imposed by law and may not be changed without amendment of the law. D) Committed funds may be redesignated to uncommitted in the event of a budget shortfall.

88) According to the GASB, which of the following statements is not true regarding assigned funds?

A) Assigned fund balances represent governmental resources that the government intends to use for a specific purpose such as a debt service fund. B) This is the only fund balance that can be negative. C) Constraints on assigned resources are more easily changed than committed funds. D) For governmental funds other than the General Fund, this is the category for all positive residual fund balances.

89)

According to GASB standards, an unassigned fund balance is:

A) B) C) D)

The residual category for the General Fund. The only category of Fund balance that may not be reported as a negative number. The designation given for rainy day funds. None of the choices are correct.

90) GASB standards ________ that each governmental reporting entity display ________ General Fund in its general-purpose financial statements.

A) B) C) D)

recommend; one or more recommend; only one require; only one require; one or more

91) Which of the following expenditure classification schemes may be used by governmental funds?

A) B) C) D)

Activity Character Function All of the choices are correct

92) Assume estimated revenues exceed appropriations. When the budget for the General Fund is recorded, the journal entry will include:

A) B) C) D)

93)

a credit to Budgetary Fund Balance. a credit to Estimated Revenues Control. a debit to Appropriations Control. a credit to Budgetary Fund Balance—Reserve for Encumbrances.

All of the following are commonly used major revenue source classes except for:

A) B) C) D)

Taxes. Intergovernmental revenues. Fines and Forfeits. Transfers from other funds.

94) What is the first step a government takes in acquiring goods or services through the General Fund?

A) B) C) D)

Requisition order Expenditure Appropriation Encumbrance

95) Assume encumbrances do not expire at year-end. $16,000 was encumbered during the prior year for a computer and the actual cost of the computer in the current year is $14,000. How does this affect unassigned fund balance?

A) B) C) D)

96)

Which of the following items would typically not need an encumbrance?

A) B) C) D)

97)

Previous Year: increase $16,000; Current Year: decrease $14,000 Previous Year: decrease $16,000; Current Year: increase $2,000 Previous Year: no effect; Current Year: decrease $14,000 Previous Year: decrease $16,000; Current Year: decrease 14,000

Office Equipment New Building Regular Salaries New Computer

Revenues of governmental fund types should be recognized when:

A) B) C) D)

collected in cash. authorized by the budget ordinance. taxes become delinquent. measurable and available.

98) Wages that have been earned by the employees of a governmental unit, but not paid at year-end, should be recorded in the General Fund by a debit to which of the following accounts?

A) B) C) D)

99)

Appropriations. Encumbrances. Expenses. Expenditures.

The Revenues account of a government is credited when:

A) B) C) D)

the budget is recorded in the accounts. property taxes are collected. property taxes are levied. budgetary accounts are closed at the end of the year.

100) The Fire Department of a given city received an appropriation in the amount of $12,000,000 for the fiscal year ended June 30, 2020. During the month ended July 31, 2020, the following transactions occurred: (a) purchase orders were issued in the amount of $1,200,000; (b) purchase orders, related to (a) above, were filled in the amount of $1,000,000; the related invoice amount was $985,000; invoices were paid in the amount of $900,000; (c) salaries were accrued and paid in the amount of $675,000. The balance available for the fire department as of July 31, 2020 is:

A) B) C) D)

$10,225,000. $10,140,000. $10,540,000. $11,440,000.

101) The Police Department of a given city received an appropriation in the amount of $10,000,000 for the fiscal year ended June 30, 2020. During the month ended July 31, 2020, the following transactions occurred: (a) purchase orders were issued in the amount of $1,800,000; (b) purchase orders, related to (a) above, were filled in the amount of $1,790,000; the related invoice amount was $1,795,000; invoices were paid in the amount of $1,750,000; (c) salaries were accrued and paid in the amount of $975,000. The balance available for the police department as of July 31, 2020 is:

A) B) C) D)

102)

$7,230,000. $7,240,000. $7,220,000. $7,420,000.

An example of expenditure classification by object would be:

A) B) C) D)

Current. Public safety. Police department. Salaries.

103) In a budgetary entry (combining entry), if Estimated Revenues Control exceeds Appropriations Control, the excess would be:

A) B) C) D)

104)

credited to Fund Balance-Unreserved. debited to Fund Balance-Unreserved. debited to Budgetary Fund Balance. credited to Budgetary Fund Balance.

A Budgetary Comparison Schedule is:

A) optional under GASB standards for all funds. B) required by GASB for internal management reports only; not permitted for external financial reporting. C) required for all governmental fund types. D) required for the General Fund, and for special revenue funds, for which an annual budget has been adopted.

105) When a computer which is to be used by an activity accounted for by the General Fund of a governmental unit is received, it should be recorded in the General Fund as a(an):

A) B) C) D)

Appropriation. Encumbrance. Expenditure. Capital asset.

106) In a budgetary entry, if Appropriations Control exceeds Estimated Revenues Control, the excess would be:

A) B) C) D)

debited to Budgetary Fund Balance. credited to Budgetary Fund Balance. credited to Fund Balance-Unassigned. credited to Fund Balance—Reserved for Encumbrances.

107) When supplies ordered for use in an activity accounted for in the General Fund of a government are received at an actual price which is less than the estimated price on the purchase order, the Encumbrance Control account is:

A) B) C) D)

credited for the actual price of the supplies received. debited for the estimated price on the purchase order. credited for the estimated price on the purchase order. debited for the actual price for the supplies received.

108) If Budgetary Fund Balance was debited in the process of recording a budget for the General Fund of a governmental unit, it can be assumed that:

A) B) C) D)

Estimated Revenues exceed Appropriations. Estimated Expenses exceed Actual Revenues. Actual Expenses exceed Estimated Expenses. Appropriations exceed Estimated Revenues.

109) The Budgetary Fund Balance—Reserve for Encumbrances account is properly considered to be a(an):

A) B) C) D)

current liability. expenditure. long-term liability. None of the choices are correct.

110) A certain government passed its budget for the fiscal year ended December 31, 2020. Estimated Revenues amounted to $13,000,000; Appropriations amounted to $12,000,000; Estimated Other Financing Uses amounted to $700,000; and Estimated Other Financing Sources amounted to $200,000. In the budgetary entry (combining entry):

A) B) C) D)

Budgetary Fund Balance would be credited for $500,000. Budgetary Fund Balance would be debited for $500,000. Budgetary Fund Balance would be debited for $1,000,000. Budgetary Fund Balance would be credited for $1,500,000.

111) Budgetary Fund Balance—Reserve for Encumbrances (current year) in excess of a balance of Encumbrances Control indicates:

A) B) C) D)

112)

Which of the following results in an expenditure?

A) B) C) D)

An excess of Vouchers Payable over Encumbrances Control. An excess of purchase orders released over invoices received. An excess of invoices received over purchase orders released. A recording error.

Place a purchase order. Receive goods previously ordered. Receive an invoice on goods previously received. Payment of an invoice previously received.

113)

Which of the following results in an encumbrance?

A) B) C) D)

Place a purchase order. Receive goods previously ordered. Receive an invoice on goods previously received. Payment of an invoice previously received.

114) The Fire Department of a certain city received an appropriation in the amount of $13,000,000 for the fiscal year ended December 31, 2019. During the month ended January 31, 2020, the following transactions occurred: (a) purchase orders were issued in the amount of $480,000; (b) purchase orders, related to (a) above, were filled in the amount of $380,000; the related invoice amount was $368,000; invoices were paid in the amount of $350,000; (c) salaries were accrued and paid in the amount of $575,000; (d) the appropriation was increased in amount of $100,000. The amount available for the Fire Department as of January 31, 2020 would be:

A) B) C) D)

$11,787,000. $12,077,000. $12,057,000. $12,137,000.

115) The General Fund of the City of X passed a budget, providing for $2,000,000 in anticipated revenues and $1,990,000 in anticipated expenditures. The journal entry(s) to record the budget would result in a:

A) B) C) D)

116)

credit to Appropriations Control in the amount of $1,990,000. debit to Estimated Revenues Control in the amount of $2,000,000. credit to Budgetary Fund Balance in the amount of $10,000. all of the choices are correct.

All of the following are budgetary accounts except:

A) B) C) D)

Estimated Revenues Appropriations Expenditures All of the choices are correct

117) Estimated Revenues are $4,600,000, and Appropriations are $4,000,000, the journal entry for the budget includes a:

A) B) C) D)

Debit to Budgetary Fund balance for 600,000 Debit to Encumbrances for 600,000 Credit to Budgetary Fund balance for 600,000 Credit to Budgetary Fund Balance—Reserve for Encumbrances for 600,000

118) The legal authorization for the administrators of the governmental unit to incur liabilities during the budget period for purposes specified in the appropriations statute or ordinance and not to exceed the amount specified for each purpose is a(an):

A) B) C) D)

Appropriation. Encumbrance. Other financing source/use. Expenditure.

119) How would purchase orders and contracts be reported under modified accrual accounting and accrual accounting?

A) B) C) D)

Modified Accrual

Accrual

Expenditure Encumbrance Encumbrance Expenditure

No entry No entry Liability Liability

A) B) C) D)

120)

Revenues in governmental fund accounting:

A) transfers. B) C) D)

121)

A B C D

include taxes, fees, resources provided by other governments, and interfund are recognized when earned. are recognized in the fiscal year they are available for expenditure. none of the choices describes revenues in governmental accounting.

The purpose of an encumbrance is to prevent governments from:

A) B) C) D)

Overriding Unauthorized Contracts. Spending in Excess of the Amounts Authorized. Revising the Approved Budget. Misappropriating Tax Revenues.

122) Under modified accrual accounting, budgetary authority expires at year end and the balances of Revenues and Expenditures are closed to:

A) B) C) D)

Net Position. Fund Balance. Other Financing Uses. Other Financing Sources.

123) Revenues are raised to finance governmental activities, but revenues may be expended only for purposes and in amounts approved by the legislative branch in compliance with laws of competent jurisdictions. This process is known as the:

A) B) C) D)

Appropriations Process. Encumbered Process. Expended Process. Budgetary Fund.

124) When liabilities authorized by an appropriation have been incurred, the appropriation is said to be:

A) B) C) D)

125)

Encumbered. Expired. Expended. Expensed.

Expenditure classifications by function includes all of the following except:

A) B) C) D)

Debt Service. General Government. Public Safety. Highways & Streets.

126) At what point would the General Fund account "Budgetary Fund Balance—Reserve for Encumbrances" be debited?

A) B) C) D)

127)

A. When an item is ordered by the government. B. When an authorized liability is incurred (the government receives the order). C. When cash is paid to the vendor. D. Choice A or B depending on authorized appropriations.

The difference between an expenditure and an encumbrance is?

A) estimates. B) C) D)

128)

An encumbrance is an expended expenditure. Enterprise funds record expenditures, but do not record encumbrances. Expenditures are estimates and encumbrances are not.

To record the budget for the General Fund:

A) B) C) D)

129)

An expenditure is the actual amount of an authorized liability and encumbrances are

Revenue Control is Debited. Expenditure Control is Debited. Appropriations Control is Debited. Estimated Revenue Control is Debited.

Which of the following is true regarding the final appropriations budget?

A) It is legal and binding B) Can be changed at any time by the accounting department C) Can be exceeded by actual appropriations D) It is used only for comparison purposes and is not binding

130)

Which of the following results in a decrease in fund balance of a governmental fund?

A) B) C) D)

Expenditures Transfers Received Encumbrance Both Encumbrance and Expenditures choices are correct.

131) At year-end, the balance of Expenditures, Revenues, and Other Financing Sources and Uses accounts are closed to:

A) B) C) D)

132) be:

When a liability is incurred as authorized by an appropriation, the appropriation is said to

A) B) C) D)

133)

Budgetary Fund Balance. Expenses. Fund Balance. Expenditure Control.

Encumbered. Appropriated. Expensed. Expended.

Which of the following statements is true?

A) The modified accrual basis is a distinct system of accounting that contains financial statement elements that appear nowhere else. Among these are expenditures and fund balances. B) The modified accrual accounting used in governmental accounting is essentially equivalent to the cash basis accounting used by businesses. C) Governmental funds record may not record liabilities or accrue expenditures when payable. D) Revenues are recorded the same under accrual and modified accrual accounting. The difference in the two methods applies only to expenses/expenditures.

134)

Which of the following statements is false?

A) Deferred Inflows of Resources have a credit balance but they do not represent obligations of the reporting entity. B) Deferred Outflows of Resources have a debit balance but are not assets of the reporting organization. C) Fund Balance is analogous to the capital of an investor-owned entity. D) Only items specifically identified in GASB standards may be reported as deferred inflows or deferred outflows.

135)

Which of the following statements is NOT correct?

A) Assigned resources differ from committed in that assigned resources require a formal action by the governing body of the government. B) Resources in the General Fund may be assigned to a specific purpose if that is the intent of the government. C) Governments should not report assigned fund balance amounts if the assignment for specific purpose results in a negative unassigned fund balance. D) Rainy day amounts that are available "in emergencies" or in periods of "revenue shortfalls" would not be classified as committed unless the emergency or shortfall condition is specified and of a magnitude to distinguish it from events that occur routinely.

136) The Township of Thomasville’s General Fund has the following net resources at year end: $69,000 of prepaid insurance$410,000 rainy day fund approved by the township governing board with specific conditions for its use$1,800 of supplies inventory$60,000 state grant for snow removal$150,000 contractual obligations for the purchase of equipmentOutstanding encumbrance of $105,000 for the purchase of furniture & fixtures (assume no contractual obligation)Total Fund Balance is $1,010,500What would be the total Nonspendable fund balance?

A) B) C) D)

$69,000 $70,800 $150,000 $410,500

137) The Township of Thomasville’s General Fund has the following net resources at year end: $69,000 of prepaid insurance$410,000 rainy day fund approved by the township governing board with specific conditions for its use$1,800 of supplies inventory$60,000 state grant for snow removal$150,000 contractual obligations for the purchase of equipmentOutstanding encumbrance of $105,000 for the purchase of furniture & fixtures (assume no contractual obligation)Total Fund Balance is $1,010,500What would be the total Restricted fund balance?

A) B) C) D)

$60,000 $410,000 $479,000 $150,000

138) The Township of Thomasville’s General Fund has the following net resources at year end: $69,000 of prepaid insurance$410,000 rainy day fund approved by the township governing board with specific conditions for its use$1,800 of supplies inventory$60,000 state grant for snow removal$150,000 contractual obligations for the purchase of equipmentOutstanding encumbrance of $105,000 for the purchase of furniture & fixtures (assume no contractual obligation)Total Fund Balance is $1,010,500What would be the total Committed fund balance?

A) B) C) D)

$410,000 $562,500 $560,000 $210,000

139) The Township of Thomasville’s General Fund has the following net resources at year end: $69,000 of prepaid insurance$410,000 rainy day fund approved by the township governing board with specific conditions for its use$1,800 of supplies inventory$60,000 state grant for snow removal$150,000 contractual obligations for the purchase of equipmentOutstanding encumbrance of $105,000 for the purchase of furniture & fixtures (assume no contractual obligation)Total Fund Balance is $1,010,500What would be the total Assigned fund balance?

A) B) C) D)

$165,000 $129,000 $315,000 $105,000

140) The Township of Thomasville’s General Fund has the following net resources at year end: $69,000 of prepaid insurance$410,000 rainy day fund approved by the township governing board with specific conditions for its use$1,800 of supplies inventory$60,000 state grant for snow removal$150,000 contractual obligations for the purchase of equipmentOutstanding encumbrance of $105,000 for the purchase of furniture & fixtures (assume no contractual obligation)Total Fund Balance is $1,010,500What would be the total Unassigned fund balance?

A) B) C) D)

$235,800 $214,700 $175,800 $410,000

141) The City of Park Ridge reported appropriations in the amount of $40,000,000 for its General Fund for the fiscal year ended December 31, 2020. During that year, expenditures amounted to $37,900,000 (related to current year purchase orders that have been filled). In addition, $1,600,000 in encumbrances had been issued this year, but not filled.In its 2020 Budgetary Comparison Schedule, the amount Park Ridge reports for expenditures (and encumbrances, if applicable) would be:

A) B) C) D)

$39,500,000. $37,900,000. $36,300,000. Not enough information is provided to calculate the solution.

142) The City of Park Ridge reported appropriations in the amount of $40,000,000 for its General Fund for the fiscal year ended December 31, 2020. During that year, expenditures amounted to $37,900,000 (related to current year purchase orders that have been filled). In addition, $1,600,000 in encumbrances had been issued this year, but not filled. The amount that Park Ridge would report for expenditures (and encumbrances, if applicable) in its 2020 General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances (GAAP Basis) would be:

A) B) C) D)

$38,400,000. $39,500,000. $37,900,000. Not enough information is provided to calculate the solution.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 143) What is the difference between an exchange and a nonexchange transaction?

144) The following are GASB’s fund balance classifications. Define and give an example of each.

Nonspendable Restricted Committed Assigned Unassigned

145) List the four eligibility requirements for a government to record revenue from a nonexchange transaction. Provide a brief explanation for each.

146)

What are the four classes of nonexchange revenues?

147) What are the revenue and expenditure recognition criteria under modified accrual accounting? Include in your answer specifically the recognition of property tax revenue.

148) With respect to reporting for the General Fund, what is the difference between GAAP basis and budgetary basis reporting?

149)

Briefly discuss how governmental budgeting differs from budgeting for businesses.

150) Where does the Budgetary Fund Balance-Reserve for Encumbrances account appear on the Balance Sheet of a General Fund?

151) Define the term “Expenditure” and distinguish between that term and each of the following terms:ExpenseDisbursementEncumbrance

152) Define the term “Revenue” and distinguish between that term and “Other Financing Sources.”

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 153) The Village of Lake George’s General Fund has the following net resources at December 31, 2020:$ 14,400 of prepaid insurance$ 25,000 of property taxes receivable – currently due and expected to be collected within 60 days$300,000 rainy day fund approved by the township governing board$82,500 of supplies inventory$33,000 government grant for city park maintenance$10,000 contractual obligations for the purchase of park fixtures$270,000 to be used to fund government operations in the future Required: Prepare the fund balance section of the Balance Sheet.

154)

The City of Fairport adopted the following budget for fiscal year 2020:

Anticipated Revenues: Property Taxes

$ 4,040,000

Licenses and Permits

51,000

Fines and Forfeits

402,000

Total

$ 4,952,000

Approved spending levels: General Government

$ 1,550,000

Public Safety

2,300,000

Public Works

1,085,000

Total

$ 4,935,000

In addition, the City reported the following actual amounts for the same fiscal year.

Revenues: Property Taxes

$ 4,065,000

Licenses and Permits

546,000

Fines and Forfeits

384,000

Total

$ 4,995,000

Expenditures – Current Year General Government Public Safety

$ 1,579,000 2,073,000 *

Public Works Total

1,204,000 $ 4,856,000

Encumbrances - Current Year Public Safety *Includes expenditures related to 2019 encumbrances-Public Safety

117,000 40,000

Required: Prepare a budgetary comparison schedule for the City for the year ended December 31, 2020 assuming the fund balance of the General Fund (budgetary basis) was $627,000 at January 1, 2020. No "original budget" column is required. Include a "variance" column.

155) The City of Westboro passed an appropriations ordinance for the year ended June 30, 2020. Included in the appropriations ordinance was an appropriation for public safety in the amount of $7,500,000. During the month ended July 31, 2020 the following transactions took place:Purchase orders were issued in the amount of $475,000.Goods were received, related to purchase orders in the amount of $345,000, along with invoices amounting to $342,000.Salaries were paid in the amount of $390,000.Because of an economic slowdown, a budget amendment was passed cutting all departments' (annual) appropriations by 4%. Required: Compute the amount of appropriations available at July 31, 2020.

156) Prepare the General Ledger journal entries for the General Fund for the Village of Bath for the year ended December 31, 2020The budget was formally adopted. Estimated revenues are $3,450,000 and appropriations are estimated to be $3,404,500.Revenues were received in the amount of $3,306,500.Purchase orders were issued in the amount of $1,723,000.Purchase orders were filled in the amount of $1,643,500. The invoice amount was $1,650,000.Expenditures, not encumbered, amounted to $1,460,000. (not yet paid).Amounts from d and e are paid.

Answer Key Test name: Chapter 3: Modified Accrual Accounting: Including the Role of Fund Balances and 1) FALSE 2) FALSE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) FALSE 20) TRUE 21) FALSE 22) TRUE 23) FALSE 24) FALSE 25) FALSE .

26) FALSE 27) FALSE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) FALSE 33) FALSE 34) FALSE 35) TRUE 36) FALSE 37) TRUE 38) FALSE 39) FALSE 40) TRUE 41) TRUE 42) FALSE 43) FALSE 44) FALSE 45) TRUE 46) TRUE 47) TRUE 48) FALSE 49) TRUE 50) FALSE 51) TRUE 52) TRUE 53) TRUE 54) FALSE 55) TRUE .

56) FALSE 57) TRUE 58) TRUE 59) TRUE 60) FALSE 61) FALSE 62) FALSE 63) TRUE 64) TRUE 65) FALSE 66) TRUE 67) FALSE 68) FALSE 69) TRUE 70) TRUE 71) FALSE 72) C 73) A 74) C 75) D 76) B 77) A 78) B 79) D 80) C 81) D 82) D 83) B 84) D 85) D .

86) C 87) A 88) B 89) A 90) C 91) D 92) A 93) D 94) C 95) B 96) C 97) D 98) D 99) C 100) B 101) C 102) D 103) D 104) D 105) C 106) A 107) C 108) D 109) D 110) A 111) D 112) B 113) A 114) C 115) D .

116) C 117) C 118) A 119) B 120) C 121) B 122) B 123) A 124) C 125) A 126) B 127) A 128) D 129) A 130) A 131) C 132) D 133) A 134) C 135) A 136) B 137) A 138) C 139) D 140) B 141) A 142) C

143) An exchange transaction is one where each party is given and receives essentially equal value. A nonexchange transaction is one where a government receives resources without directly giving equal value in exchange.

144) Nonspendable Nonspendable fund balances are net assets of a fund that cannot be spent because of the terms of a trust agreement or because the assets are not cash. Examples include supplies and prepaid insurance. Also included in this category would be permanent fund principal. Restricted Restricted funds are those that are subject to constraints imposed by external parties or by law. Restrictions may also be result from legally enforceable requirements that resources be used only for specific purpose. An example would be proceeds of sales taxes restricted by state law for a specified purpose. Committed Committed funds are those that are designated as committed through ordinance or resolution by the government’s highest level of authority. These constraints are not easily changed. This constraint is self-imposed. An example would be a Village board approval of a large construction contract. Assigned Assigned funds are governmental funds that the government intends to use for a specific purpose. Constraints on assigned resources are more easily changed than committed funds. An example would be a debt service fund. Unassigned Unassigned funds are in the residual category for the General Fund. This

is the only category of Fund balance that can be reported as a negative number. All net assets of the General Fund that are not reported in another fund balance category are reported as unassigned. 145) Required characteristics of recipients The recipients of the funds must have the characteristics specified by the provider. Time requirement If there is a specific time requirement for expenditure, revenue is recorded in the time period specified. Reimbursement If money is only received upon incurrence of qualifying outlays, revenue is recognized when expenditures have been incurred. Contingencies Pledged resources receivable contingent upon a certain event are recorded as revenue when the contingency has been met. 146) The four classes of nonexchange revenues are: Imposed nonexchange revenues, Derived tax revenues, Government-mandated nonexchange transactions and Voluntary nonexchange transactions. 147) When using modified accrual accounting, revenues should be recognized when measurable and available to finance expenditures of the current period. Property tax revenue is considered available if it is received no more than 60 days after the fiscal year end. Expenditures under modified accrual accounting are recognized when fund liabilities are incurred.

148) GAAP basis is used for the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance. Budgetary basis is used to report the “Actual” column in the budgetary comparison schedule which must be prepared according to legal requirements for budget preparation; even if it is a departure from GASB standards. 149) Governmental budgets carry the authority of law and are subject to considerable public scrutiny. Government officials are prohibited from spending outside their budgetary authority. In business, budgets are largely optional, internal documents. Unlike a business budget, a government’s annual budget is often required to be balanced. Therefore, the government’s annual budget determines the taxes that must be raised during a year to support the costs of the spending plan. In contrast, a business bases its spending budget based on projected sales. 150) The Fund Balance-Reserved for Encumbrances account is a budgetary account and does not appear in the financial statements. However, when determining categories for fund balance, outstanding encumbrances of the General Fund are an expression of the government’s intent to use fund resources for a particular purpose and it would be inappropriate to include these amounts in Unassigned Fund Balance.

151) Expenditures are defined by the GASB as decreases in fund net financial resources other than through interfund transfers. Expenditures of governmental funds are recognized at the time and in the amount in which liabilities are incurred, whether the liability is for an expense, a current asset, or for a capital asset, except for principal and interest on long-term and special assessment debt, which is recorded when due. FASB defines expenses as decreases in net assets from producing goods, rendering of services, or other activities. Disbursement is the payment of cash, generally by check or equivalent. By contrast, an expenditure is recognized when a liability is incurred, even if the liability will not be paid until the following period. Current GASB standards require an intent to repay the liability from currently available financial resources in order to recognize an expenditure when using modified accrual accounting. An encumbrance of an appropriation is the estimated amount of purchase orders, contracts, or other commitments which are chargeable against the appropriation. When the purchase order is filled or contract executed, the appropriation is expended in the amount of the actual liability. 152) Revenue is defined as increases in fund financial resources other than from interfund transfers and debt issue proceeds. As the definition of revenues implies, Other Financing Sources are increases in fund financial resources from interfund transfers and debt issue proceeds. 153) Village of Lake George Partial Balance Sheet-General Fund As of December 31, 2020

Fund Balances Nonspendable: Supplies inventory

82,500

Prepaid insurance

14,400

Restricted: Intergovernmental grants

33,000

Committed: Rainy day fund

300,000

Purchase of park fixtures

10,000

Unassigned

270,000

Total Fund Balance

709,900

154) CITY OF FAIRPORT BUDGETARY COMPARISON SCHEDULE GENERAL FUND For the year ended Dec. 31, 2020 Final Actual Budget

Variance

Revenues: Property Taxes

$ 4,040,000 $ 4,065,000 $

25,000

Licenses and Permits

510,000

546,000

36,000

Fines and Forfeits

402,000

384,000

(18,000 )

Total Revenue

$ 4,952,000 $ 4,995,000 $

43,000

Expenditures & Encumbrances – Current Year General Government

$ 1,550,000 $ 1,579,000 $ (29,000 )

Public Safety

2,300,000

2,150,000

150,000

Public Works

1,085,000

1,204,000

(119,000 )

Total Expenditures & Encumbrances – Current Year Net Change in Fund Balance

$ 4,935,000 $ 4,933,000 $

Fund Balance Jan. 1 Fund Balance Dec. 31

17,000

62,000

627,000

644,000 $

689,000 $

2,000 45,000

5,000

155) Effect on Available Appropriations Original Budget

7,500,000

Balance in Available Appropriations $ 7,500,000

a. Record Encumbrances

(475,000 )

7,025,000

b. Record Expenditures

(342,000 )

6,683,000

Reverse Encumbrances

345,000

7,028,000

c. Salaries(Expenditure)

(390,000 )

6,638,000

d. Budget Amendment

(300,000 )

6,338,000

156) a.

Estimated Revenues Control

3,450,000

Appropriations Control

3,404,500

Budgetary Fund Balance

45,500

Cash

3,306,500

Revenues Control

Encumbrances Control

3,306,500

1,723,000

Budgetary Fund Balance-Reserve for Encumbrances

1,723,000

Budgetary Fund Balance-Reserve for Encumbrances Encumbrances Control

1,643,500

Expenditures Control

1,460,000

1,643,500

Accounts payable

Accounts payable Cash

1,460,000

3,110,000 3,110,000

Chapter 4:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Every general purpose government may have more than one General Fund. ⊚ ⊚

The General Fund accounts for any resources not reported in one of the other funds. ⊚ ⊚

true false

Under General Fund, revenues are recognized when earned and available. ⊚ ⊚

true false

Under General Fund, revenues are recognized when measurable and earned. ⊚ ⊚

true false

5) Special revenue funds may be used whenever the government wishes to segregate income for specific purposes. ⊚ ⊚

true false

6) Special revenue funds are used when it is desirable to provide separate reporting of resources that are restricted or committed to expenditure for purposes other than debt service or capital projects. ⊚ ⊚

7) .

true false

In special revenue funds, revenues are recognized when available and measurable. 1

⊚ ⊚

true false

8) The purpose of fund accounting is to segregate those financial resources that have constraints or limitations on their use to demonstrate compliance with those limitations. ⊚ ⊚

true false

9) Special revenue funds are used if the resources are required to be used to acquire capital assets or for the payment of interest and principal on long-term debt. ⊚ ⊚

true false

10) Governmental funds' financial statements are prepared using the accrual basis of accounting. ⊚ ⊚

true false

11) Governmental funds' financial statements are prepared using modified accrual basis of accounting and the current financial resource measurement focus. ⊚ ⊚

12)

true false

Most interfund transactions are not eliminated in the government-wide statements. ⊚ ⊚

true false

13) Interfund transactions are of particular interest to financial statement preparers and users since failure to properly report these transactions will result in two funds being misstated.

⊚ ⊚

true false

14) Transactions between funds of the same government are not assumed to be arm’s length in nature. ⊚ ⊚

true false

15) A common use of special revenue funds is to account for (non-capital) intergovernmental grants when federal or state governments provide resources to local governments. ⊚ ⊚

true false

16) Resources appropriately reported within proprietary or fiduciary funds are included in special revenue funds. ⊚ ⊚

true false

17) Receivables from sales taxes are recorded in the period that the retailer submits the taxes to the government. ⊚ ⊚

true false

18) When closing the books for the General Fund, an excess of revenues over expenditures and transfers out would be credited to Fund Balance. ⊚ ⊚

true false

19) When the General Fund purchases water from an enterprise fund, the General Fund would credit expenditure.

⊚ ⊚

true false

20) When a special revenue fund accounts for grants that are awarded on a reimbursement basis, revenues are recognized only after qualified expenditures have been recognized. ⊚ ⊚

true false

21) Expenditures for claims and judgments of governmental funds should be recognized to the extent that the liabilities are going to be paid with available resources. ⊚ ⊚

true false

22) Interfund services provided and used are recognized directly as Revenues and Expenditures. ⊚ ⊚

true false

23) Interfund services provided and used are recognized as direct Increases and Decreases in Fund Balance. ⊚ ⊚

true false

24) Special revenue funds are used when it is desirable to provide separate reporting of resources that are assigned to unrestricted expenditure for purposes other than debt service or capital projects. ⊚ ⊚

true false

25) When closing the General Fund and Special Revenue Funds of a state or local governmental unit, the balance of the operating statement accounts and the balances of the budgetary accounts are closed. ⊚ ⊚

true false

26) A special item is a significant transaction that is unusual or infrequent, but within the control of management. ⊚ ⊚

true false

27) GASB standards require both extraordinary and special items to be reported separately after other financing sources and uses in the General and Special Revenue fund financial statements. ⊚ ⊚

true false

28) The Debt Service Fund records the receipt of money from the General Fund as nonoperating revenue on the activities Statement of Revenues, Expenditures, and Changes in Fund Balance. ⊚ ⊚

true false

29) Proceeds from the Sale of Land in the General Fund is a source of fund and would be closed at year end. ⊚ ⊚

true false

30) Under the purchases method to account for supplies inventory, an asset is recorded when inventories are acquired, and the expenditure is recorded when the supplies are consumed.

⊚ ⊚

true false

31) Expenditures for claims and judgments, compensated absences, and special termination benefits should be recognized in the General Fund whether or not the liabilities are to be paid with available resources. ⊚ ⊚

true false

32) Government fund statements use the modified accrual basis, while government-wide, proprietary fund and fiduciary funds use accrual basis. ⊚ ⊚

true false

33) Government and Fiduciary fund statements use the modified accrual basis, while government-wide, and proprietary funds use accrual basis. ⊚ ⊚

true false

34) After closing entries, a special revenue fund’s Fund Balance account represents the net amount of resources available for future appropriation. ⊚ ⊚

true false

35) The fund balance represents the excess of fund assets (and deferred outflows) over fund liabilities (and deferred inflows). ⊚ ⊚

true false

36) When establishing funds, governments should attempt to have a large number of special revenue and other funds to provide the user with maximum detail to understand the transactions. .

⊚ ⊚

true false

37) When establishing funds, governments should attempt to minimize the number of special revenue and other funds, instead using functional classification to record transaction detail. ⊚ ⊚

38)

A Special Revenue Fund may not have a positive Unassigned Fund Balance. ⊚ ⊚

39)

true false

Only the General Fund may have a positive Unassigned Fund Balance. ⊚ ⊚

true false

40) When establishing funds, governments should never attempt to minimize the number of special revenue and other funds, instead using functional classification to record transaction detail. ⊚ ⊚

true false

41) GASB standards for property tax revenue recognition under the modified accrual basis of accounting provide that revenue is permitted to be recorded if the expected amount to be collected can be determined and collection is reasonably assured, even if the taxes are expected to be collected more than 60 days after the fiscal year end. ⊚ ⊚

true false

42) The purpose of fund accounting is to segregate those financial resources that have constraints or limitations on their use so that the government may demonstrate compliance with those limitations. ⊚ ⊚

true false

43) Special revenue funds are not used if the fund resources are required to be used to acquire capital assets or for the payment of interest and principal on long-term debt. ⊚ ⊚

true false

44) GASB standards provide particular guidance for the use of special revenue funds. Specifically, the standards require that special revenue funds be used only if a substantial portion of the resources are provided by one or more restricted, committed, or assigned revenue sources. ⊚ ⊚

true false

45) Although a government may use resources to supplement a special revenue fund, assignment of resources is not sufficient for the establishment of a special revenue fund. ⊚ ⊚

true false

46) If the government expects that a substantial portion of the resources supporting a special revenue fund’s activities will no longer be derived from restricted and committed revenue sources, the government should discontinue the use of a special revenue fund and report the fund’s remaining resources in the General Fund. ⊚ ⊚

true false

47) Expenditures recorded under modified accrual accounting is essentially the same as an expense recorded under accrual accounting.

⊚ ⊚

true false

48) Generally, expenditures are recorded and fund liabilities are recognized when goods and services are received, regardless of whether resources are available in the fund. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 49) Which of the following is true with respect to Special revenue funds?

A) A. Special revenue funds are used when it is desirable to provide separate reporting of resources that are restricted or committed as to expenditure for purposes other than debt service or capital projects. B) B. Special revenue funds are used when it is desirable to provide separate reporting of resources that are designated for specific purposes. C) C. Special revenue funds are used when it is desirable to provide separate reporting for funds provided by other governments to support capital projects. D) D. Both B and C choices are true.

50)

Which of the following is false with respect to Special revenue funds?

A) Resources appropriately reported within proprietary or fiduciary funds are excluded from special revenue funds. B) A special revenue funds is used to account for taxes which are required by law to be used by the government to support specific activities, other than debt service or capital projects. C) Special revenue funds may be used for any designated purpose to segregate revenues and ensure compliance with restrictions. D) None of the choices.

51)

Which of the following is true regarding the use of Special Revenue Funds?

A) Special Revenue Funds may be used whenever a government wishes to segregate income for specific purposes. B) Special Revenue Funds are appropriate if the sole source of resources is assigned funds. C) Special Revenue Funds may only be used when a substantial portion of the resources are provided by restricted or committed revenue sources. D) Once a Special Revenue Fund is established, it will continue to be a Special Revenue Fund until all resources are exhausted.

52)

Which of the following statements is not true regarding modified accrual accounting?

A) Expenditures and fund liabilities are recorded when goods and services are received. B) Debt service expenditures for principal and interest are accrued. C) Expenditures for claims and judgments and landfill post-closure care costs of governmental funds should be recognized to the extent that the liabilities are going to be paid with available resources. D) Compensated absences and special termination benefits of governmental funds that will not be paid with available resources should be reported as liabilities in the government-wide statements.

53)

Regarding interfund transactions, which of the following is not correct?

A) Transaction between funds are not assumed to be arm’s length in nature. B) Interfund transactions must be repaid. C) Failure to properly report interfund transactions will result in two funds being misstated. D) Interfund reimbursement is a payment by one fund to second fund to repay it for a purchase which belongs in the first fund.

54)

Which of the following is an interfund transaction?

A) B) C) D)

55)

Transfers between funds. Services provided by one fund and used by another. Loans from one fund to another. All of the choices are interfund transactions.

Which of the following statements is not correct?

A) Transactions between funds of the same government may not be assumed to be arms’ length in nature. B) Most interfund transactions are eliminated in the government-wide statements. C) Interfund reimbursements are classified as other financing sources or uses. D) Interfund transfers are classified as other financing sources or uses.

56)

The journal entry to record the budget of a Special Revenue Fund would include:

A) B) C) D)

No entry; Special Revenue Funds do not record budgets. A debit to Estimated Revenues Control. A credit to Estimated Revenues Control. A debit to appropriations Control.

57) The journal entry to record the re-establishment of encumbrances that were outstanding at the close of the prior period would include:

A) B) C) D)

A. A credit to Budgetary Fund Balance—Reserve for Encumbrances. B. A debit to Budgetary Fund Balance—Reserve for Encumbrances. C. A credit to Encumbrance Control. D. A and B choices would both be included in the journal entry.

58) The journal entry to record the prior year’s deferred inflows: property taxes (those expected to be collected more than 60 days beyond year-end) as revenue in the current year would include: .

A) B) C) D)

59)

The journal entry to record an encumbrance would include:

A) B) C) D)

60)

A. A debit to Deferred Inflows: Revenues. B. A debit to Revenues Control. C. A credit to Revenues Control. D. A and C choices would both be included in the journal entry.

A debit to Budgetary Fund Balance—Reserve for Encumbrances. A credit to Budgetary Fund Balance—Reserve for Encumbrances. A debit to Appropriations Control. A credit to Encumbrance Control.

The journal entry to record the property tax levy for a municipality would include:

A) B) C) D)

A. A debit to Bad Debts Expense. B. A credit to Estimated Uncollectible Taxes. C. A credit to Taxes Receivable. D. A and B choices would both be included in the journal entry.

61) The journal entry to write-off an uncollectible property tax receivable for a municipality would include:

A) B) C) D)

62)

A. A credit to Estimated Uncollectible Taxes. B. A debit to Bad Debts Expense. C. A credit to Taxes Receivable. D. B and C choices would both be included in the journal entry.

Reciprocal interfund activity:

A) Does not include interfund loans. B) Includes interfund transfers. C) Is the external counterpart to exchange transactions. D) Is the internal counterpart to exchange transactions.

63)

Nonreciprocal interfund activity:

A) Includes interfund services provided and used. B) Includes interfund transfers and reimbursements. C) Includes exchange-like transactions. D) Includes interfund loans.

64) Which of the following is correct with respect to accounting for supplies inventories in a governmental fund?

A) Supplies inventories may be recorded using either the purchase method or the consumption method. B) An amount equal to the ending balance of supplies is reported as Nonspendable Fund Balance. C) The consumption method is preferable over the purchase method since it requires no adjustment to supplies expense when preparing the government-wide statements. D) All of the choices are correct.

65) Under the modified accrual basis of accounting, GASB standards for property tax revenue recognition provide that revenue should not be recognized for property taxes collected:

A) B) C) D)

More than 50 days after fiscal year end. More than 60 days after fiscal year end. More than 30 days after fiscal year end. After fiscal year end.

66)

Which of the following is true regarding modified accrual accounting?

A) Modified accrual accounting requires that all expenditures be recognized on the cash basis. B) Revenues are recognized in the period in which they become available and measurable, and expenditures are recognized at the time a liability is incurred, except for principal and interest on long-term debt. C) Modified accrual accounting is required for all fund-basis financial statements. D) All of the choices are true.

67) When payrolls and other liabilities are incurred and must be paid before substantial amounts of cash will be collected, what type of short-term note is desirable and secured by a government's power to tax?

A) B) C) D)

68)

Tax Relief Note Payable. Tax Budget Note Payable. Tax Anticipation Note Payable. Tax Encumbrances Note Payable.

Expenditures are generally recorded and fund liabilities are recognized:

A) When goods and services are received, but only if resources are available in the fund. B) When invoices are paid. C) When purchase orders are issued, regardless of whether or not resources are available in the fund. D) When goods and services are received, regardless of whether or not resources are available in the fund.

69) When would a special revenue fund be deemed to have satisfied the eligibility requirement of a reimbursement-type federal grant, under GASB Statement 33?

A) B) C) D)

Only as qualified expenditures are incurred. Only after work is completely finished for the project. When a plan for use of the funds has been developed and approved. When the grant is first approved by the granting agency.

70) The entry to re-establish encumbrances related to purchase orders from the prior year would include:

A) B) C) D)

A debit to Budgetary Fund Balance—Reserve for Encumbrances. A debit to Encumbrances Control. A credit to Accounts Payable. None of the choices are correct.

71) The Town of Little River expects to collect $90,000 in sales tax from the state government within 30 days of the end of fiscal year 2020 for retail sales taking place in fiscal year 2020. What entry, would Little River make at the end of 2020?

A) Taxes receivable

90,000

Deferred Inflows

90,000

B) Taxes receivable - deferred

90,000

Revenues control

90,000

C) Taxes receivable Due from state government

90,000 90,000

D) Due from state government

90,000

Revenues control

72)

Which of the following is not likely to be recorded in a special revenue fund?

A) B) C) D)

73)

90,000

Phone fees restricted to supporting the emergency 911 access system. Hotel taxes restricted to promoting tourism. Sales taxes restricted to courthouse additions. State motor fuel tax restricted to road maintenance.

Indicate which of the following use Modified Accrual Accounting? Capital Projects Fund

A) B) C) D)

No Yes Yes Yes

A) B) C) D)

Government-wide Financial Statements Yes No No Yes

Special Revenue Fund No Yes Yes No

Internal Service Fund Yes No Yes No

A B C D

74) Short-term loans which are backed by the taxing power of the governmental unit and used to meet working capital requirements are called:

A) B) C) D)

Appropriation loan. Inter-fund loans. Other financing sources. Tax anticipation notes.

75) A donor pledged $200,000 to the fund raising drive of a local government to assist its police officers in obtaining the latest technology. The pledge was made on July 16, 2019, but was conditioned on the government raising an additional $200,000 from other donors. By the fiscal year-end of June 30, 2020, the local government had raised only $5,000 from other donors. What entry would be made for the initial pledge by the local government during the year ended June 30, 2020?

A) B) C) D)

No entry is required until the condition is fully met. Debit a receivable and credit deferred inflows. Debit a receivable and credit Fund Balance. Debit a receivable and credit revenue.

76) The General Fund of the City of Lexington approved a tax levy for the calendar year 2020 in the amount of $2,600,000. During 2020, $2,250,000 was collected. During 2021, $95,000 was collected during the first 30 days, $75,000 was collected during days 31-60, and $70,000 was collected during the days 61-90. The balance is expected to be uncollectible. During the post-audit, you discovered that the City showed $2,600,000 in revenues. How much revenue should the City recognize in 2020 from this tax levy?

A) B) C) D)

$2,250,000 $2,345,000 $2,420,000 $2,465,000

77) The City of Brownsville had a balance in the Budgetary Fund Balance—Reserve for Encumbrances account at the end of 2019 in the amount of $90,000. During 2020, all purchase orders related to the $90,000 were filled, and the invoice amount was $91,200. Which of the following would be true regarding the Statement of Revenues, Expenditures, and Changes in Fund Balances for 2020? (assume encumbrances do not lapse)

A) The amount shown for Expenditures would include only the $1,200. B) The amount shown for Expenditures would include only the $90,000. C) The amount shown for Expenditures would include the $91,200. D) The amount shown for Expenditures would not include items related to orders placed in 2019.

78)

Under modified accrual accounting, revenues are recognized when measurable and:

A) B) C) D)

Available. Collected. Earned. Expenditures have been made.

79) When accounting for the General Fund, the Encumbrances Control account is credited when:

A) B) C) D)

A purchase order is approved. The budget is approved. An invoice is paid. A purchase order is filled or canceled.

80) The City of Pine Cove levied property taxes for the fiscal year ended June 30, 2020, in the amount of $9,600,000. During the year ended June 30, 2020, $8,350,000 in property taxes was collected. It is estimated that $375,000 will be collected during the next 60 days, $695,000 will be collected after 60 days, and $180,000 will not be collected. What is the maximum amount Pine Cove can recognize as property tax revenue for the fiscal year ended June 30, 2020, in its Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances, assuming there were no unpaid property taxes at the end of the previous year? .

A) B) C) D)

$8,500,000. $8,725,000. $9,815,000. $10,000,000.

81) What is the effect on the General Fund's fund balance when capital assets are purchased during a year from General Fund revenues?

A) B) C) D)

Fund balance is increased. Fund balance is decreased. There is no effect, since one asset (cash) is replaced by another (capital asset). None of the choices, capital assets must be purchased through a capital projects

fund.

82) The initial transfer of cash from the General Fund to establish a motor pool internal service fund would require the General Fund to credit Cash and debit:

A) Investment in Internal Service Fund. B) Other Financing Uses—Transfers Out Control. C) Expenditures – Vehicle maintenance. D) Accounts Receivable-Internal Service Fund.

83) When supplies ordered by a governmental unit are received at an actual price which is less than the estimated price on the purchase order, the Encumbrance Control account is:

A) B) C) D)

Credited for the actual price on the purchase invoice. Credited for the original estimated price for the supplies. Debited for the original estimated price for the supplies. Debited for the actual price on the purchase invoice.

84) Which of the following accounts of a governmental unit’s General fund is debited when supplies previously ordered are received?

A) B) C) D)

Encumbrances Control. Reserve for Supplies. Budgetary Fund Balance—Reserve for Encumbrances. Appropriations.

85) Which of the following accounts of a governmental unit’s General Fund is credited to close it at the end of the fiscal year?

A) B) C) D)

86)

Appropriations Control. Other Financing Sources—Transfers In. Budgetary Fund Balance—Reserve for Encumbrances. None of the choices are correct.

The Expenditures control account in the General Fund is debited when:

A) B) C) D)

Supplies are ordered. The budget is recorded. The books are closed at the end of the year. Equipment previously ordered is received.

87) Which of the following accounts in the General Fund is credited when a purchase order is approved?

A) B) C) D)

Appropriations Control. Encumbrances Control. Budgetary Fund Balance—Reserve for Encumbrances. Vouchers Payable.

88)

A transfer should be reported in the operating statement of the General Fund as a(an):

A) B) C) D)

89)

Revenue or Expenditure. Due from or Due to Other Funds. Other Financing Source or Use. None of the choices, it is a direct increase or decrease to fund balance.

The Revenues Control account of the General Fund is debited when:

A) B) C) D)

The budget is recorded at the beginning of the year. Uncollectible taxes receivable accounts are written off. Property taxes are collected. None of the choices are correct.

90) The asset, equipment, used by a department accounted for by the General Fund of a governmental unit should be reported in the:

A) B) C) D)

Government-wide statements. General Fund. Government-wide statements; and General Fund. None of the choices are correct.

91) Liabilities incurred, such as for accrued payroll, but still unpaid at year-end, should be recorded in the General Fund by a debit to which one of the following accounts?

A) B) C) D)

Encumbrances Control. Expenditures Control. Current Expense. Appropriations Control.

92) The following items were included in the City of Wilson's General Fund expenditures for the year ended June 30, 2020: .

Computer for City Clerk Maintenance on heating units for City Hall

$ 3,000 $ 9,000

How much should be classified as capital assets in Wilson's General Fund balance sheet at June 30, 2020?

A) B) C) D)

$-0-. $3,000. $9,000. $12,000.

93) What would be the effect on the General Fund’s Fund Balance at the end of the current fiscal year of recording the purchase of a $5,000 new computer with a five year estimated useful life and $1,000 salvage?

A) B) C) D)

Have no effect on the General Fund's Fund Balance. Reduce the General Fund's Fund Balance $1,000. Reduce the General Fund's Fund Balance $5,000. Reduce the General Fund's Fund Balance $6,000.

94) A local government was awarded a federal grant in the amount of $800,000 to provide for a summer youth employment program for young people. The grant was a reimbursement grant, and a notification of the grant award was received on Apri1 30, 2020. The local government expended the resources as follows:June 2020: $285,000July 2020: $250,000August 2020: $265,000The federal government sent the funds in the month following the expenditure. The local government would recognize revenues for the fiscal year ended June 30, 2020 in which amount?

A) B) C) D)

$0 because this is an other financing source, not a revenue $285,000. $250,000. $800,000.

95) The General Fund of the City of Bangor purchased water from its Water Utility Fund in the amount of $20,000. The General Fund would debit:

A) B) C) D)

Water Expense. Other Financing Uses—Transfers Out. Expenditures Control. None of the choices; no entries would be made.

96) General Fund resources were expended in the amount of $185,000 to purchase a new fire truck. The General Fund would debit:

A) Expenditures Control. B) Capital assets - Motor Vehicles. C) Expenditures Control; and Capital assets - Motor Vehicles. D) None of the choices; no entry is made in the General Fund when a motor vehicle is purchased because only current financial resources are recorded in the General Fund.

97)

Which of the following is true regarding modified accrual accounting?

A) A. Revenues are recognized when measurable and available to finance expenditures of the current period. B) B. Expenditures are generally recognized as the related goods or services are received. C) C. Both A and B choices are true. D) D. Neither of the choices is true.

98)

When recording property taxes, the estimated uncollectible amount of property taxes is:

A) B) C) D)

99)

Recognized as an expenditure. Recognized as a reduction of revenue. Not recognized. None of the choices are correct.

Interfund services purchased by the General Fund are recognized as:

A) B) C) D)

Transfers Out. Decreases in Fund Balance. Expenditures. None of the choices are correct.

100) A December 2020 year-end government should record which of the following as expenditures:

A) B) C) D)

101)

A. Salaries Payable due January 20, 2020. B. Bond Payable that matures January 30, 2020. C. Bond Payable that matures February 14, 2020. D. Both A and B choices are correct.

When delinquent taxes are written off:

A) B) C) D)

Fund balance will decrease. Expenditures will increase. Taxes receivable will be unaffected. Fund balance will be unaffected.

102) In February, X City ordered $550,000 of supplies. On March 17th it received all of the ordered supplies and an invoice of $551,000. Which of the following would be recorded upon receipt of the supplies and invoice? .

A) B) C) D)

103)

Debit Encumbrances Control for $550,000. Debit Encumbrances Control for $551,000. Debit Budgetary Fund Balance—Reserve for Encumbrances for $550,000. Debit Budgetary Fund Balance—Reserve for Encumbrances for $551,000.

Debt service expenditures for interest are:

A) Accrued. B) Recorded when due but may be accrued at year end if the debt service due date is less than 30 days after year end. C) Recorded when due but may be accrued at year end if the debt service due date is less than 60 days after year. D) Reported only in the government-wide statements.

104) When closing out the General Fund and Special Revenue Funds of a state or local governmental unit, the balance of the operating statement accounts are closed to:

A) B) C) D)

Budgetary Fund Balance—Reserve for Encumbrances. Appropriations Control. Other Financing Sources—Transfer Out. Fund Balance.

105) When the materials and supplies are received and the invoice is more than the related purchase order, this entry should be made:

A) B) C) D)

106) .

Debit Expenditures Control for the amount of the invoice. Debit Expenditures Control for the amount of the purchase order. Credit Accounts Payable for the amount of the purchase order. Credit Encumbrances Control for the amount of the invoice.

The term special item is defined as: 25

A) B) C) D)

107)

Frequent and unusual but within management’s control. Frequent and unusual and not within management’s control. Unusual or infrequent and not within management’s control. Unusual or infrequent but within management’s control.

Under which fund type would you debit expenditure when land is acquired?

A) B) C) D)

Proprietary. Governmental. Proprietary and Governmental. None of the choices are correct.

108) Which account would be debited when the City of Corfu issued purchase orders for materials and supplies?

A) B) C) D)

Encumbrances Control. Budgetary Fund Balance—Reserve for Encumbrance. Expenditures. Expenditures Control.

109) The expenditures account equals the amount of supplies purchased during a period under which of the following inventory methods?

A) B) C) D)

110)

Perpetual. Purchases. Periodic. Consumption.

Governmental fund financial statements are to be prepared on the:

A) B) C) D)

Accrual basis of accounting. Cash basis of accounting. Modified accrual basis of accounting. Tax basis of accounting.

111) Moving cash from the General Fund to a debt service fund for payment of debt service is an example of a (an):

A) Interfund transfer. B) Interfund loan. C) Interfund reimbursement. D) Quasi-external transaction.

112)

Which of the following General Fund accounts would be closed at year end?

A) B) C) D)

Due from State Government. Special Items—Proceeds from Sale of Land. Taxes Receivable – Delinquent. Deferred Inflows—Property Taxes.

113) $60,000 of property tax owed to the city of Akron will not be collected within 60 days after year end. The year-end journal entry to record this information would include a:

A) B) C) D)

A debit to Deferred Inflows—Property Taxes. A credit to Income Taxes Receivable. A debit to Revenues Control. A credit to Revenues Control.

114) Interfund transfers occur between individual funds in the same government system without the requirement of repayment. If the General Fund transferred money to the Debt Service Fund, how would the General Fund account for the transaction? .

A) B) C) D)

As a non-operating expense. As an operating expense. As a source of funds on the activities statement. As a use of funds on the activities statement.

115) The city of Canandaigua receives proceeds from the sale of land, the transaction is considered to be a special item. Where are the proceeds reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance?

A) B) C) D)

Separately after other financing sources and uses. As a revenue. As an item that changes the Fund Balance. The proceeds are not recorded but the gain on the sale is.

116) Which of the following occurs when uncollectible delinquent taxes are written off? (Ignore interest and penalties)

A) B) increased. C) D)

Delinquent Tax Receivable is increased. Accounts receivable goes down and the Estimated Uncollectible Taxes Account is Net Receivables are decreased. Uncollectible Delinquent Tax Expense is increased.

117) Purchase orders for items ordered by the General Fund totaled $ 205,000. Upon receipt, invoices for these items totaled $200,000. Which of the following will take place on the date the goods are received.

A) B) C) D)

An encumbrance is debited for $205,000. A liability is credited for $200,000. Budgetary Fund Balance—Reserve for Encumbrances is credited for $200,000. An expenditure is credited for $205,000.

118) The City of Akron increased its revenue budget by $75,000 and the appropriation for the Public Works Department was increased by $100,000. What is the journal entry to record this event in the General Fund?

A) Estimated Revenues Control

75,000

Fund Balance

25,000

Appropriations Control

100,000

B) Appropriations Control

100,000

Estimated Revenues Control

75,000

Budgetary Fund Balance

25,000

C) Estimated Revenues Control

75,000

Budgetary Fund Balance

25,000

Appropriations Control

100,000

D) Estimated Revenues Control Appropriations Control

75,000 75,000

119) GASB standards require which of the following to be reported separately after other financing sources and uses in the Statement of Revenues, Expenditures, and Changes in Fund Balance?

A) B) C) D)

120)

Interfund Transfers are flows of cash or other assets that:

A) B) C) D)

121)

Special items. Extraordinary items. Interfund transfers. Both special items and extraordinary items.

Require repayment. Are an exchange between funds of equal value. Do not require repayment. Are taxable.

Which of the following statements is false with respect to modified accrual accounting?

A) Generally, expenditures are recorded and fund liabilities are recognized when goods and services are received, but only to the extent that there are resources available in the fund. B) Many expenditures are accrued, even in governmental funds. C) Expenditures for claims and judgments, compensated absences, pensions and landfill closure and postclosure care costs of governmental funds should be recognized to the extent that the liabilities are going to be paid with available resources. D) Debt service expenditures for principal and interest are recorded when due. This means that debt service expenditures are not accrued, but are recognized and fund liabilities are recorded on the maturity date.

122)

Which of the following is true with respect to interfund loans?

A) Interfund loans are resources provided from one fund to another with the understanding that they do not have to repaid in the future. B) The fund providing the resources records a transfer in and the fund receiving the resources records a transfer out. C) Long-term loans use the terms Transfer to Other Funds and Transfer from Other Funds. D) Interfund loan receivables and payables are separately reported on the balance sheets of the affected funds.

123)

Interfund services:

A) Provided and used represent transactions involving sales and purchases of goods and services between funds. B) Are sometimes called quasi-external transactions. C) Are recorded as if they were transactions with parties outside the government. D) All of the choices apply to interfund services.

124)

Which of the following statements is true with respect to the use of budgetary accounts?

A) Once the budget is set, it may not be changed. B) GASB does not require governments to record budgets. C) Budgetary accounts are presented with actual results in the general purpose financial statements. D) GASBstandards require budgetary accounts for the General Fund.

125) In the current year, the Village of Cheshire collected delinquent taxes in the amount of $530,000, on which interest and penalties of $25,000 had been accrued at the end of 2019; further $4,000 additional interest was collected for the period from the first day of 2020 to the dates on which the delinquent taxes were collected. What is the journal entry to record the above?

Interest and Penalties Receivable

4,000

Revenue Control Cash

4,000 559,000

Taxes receivable

530,000

Interest and Penalties Receivable

29,000

B) Interest and Penalties Receivable

4,000

Interest revenue Cash

4,000 559,000

Taxes receivable

530,000

Interest and Penalties Receivable

29,000

C) Cash

555,000

Taxes receivable

555,000

D) Cash

534,000

Interest revenue

4,000

Taxes receivable

530,000

126) What is the difference between an extraordinary item and special item according to GASB standards?

A) Extraordinary items are significant transactions or events that are unusual or infrequent while a special item is a significant transaction that is unusual and infrequent but within management’s control. B) Extraordinary items are significant transactions or events that are unusual and infrequent which are within management’s control while a special item is a significant transaction that is unusual or infrequent but within management’s control. C) Extraordinary items are high dollartransactions or events that must be disclosed separately,while a special item is a uniquetransaction outside of the budget. D) Extraordinary items are significant transactions or events that are unusual and infrequent that are outside management’s control while a special item is a significant transaction that is unusual or infrequent but within management’s control.

127) With respect to reimbursement grant accounting, which of the following statements is true?

A) Under GASB, revenues are recorded when monies are received from the granting government. B) Under GASB, revenues are recorded at the same time that expenditures are incurred. C) Under GASB, excess cash at the end of the project must be returned to the granting government. D) Under GASB, the granting government makes an initial payment to the receiving government and then makes reimbursement payments thereafter.

128) What is false regarding the two methods for recording inventories in governmental funds?

A) The consumption method debits inventory when purchased and charges expenditures for the amount consumed. B) The purchases method debits expenditures when inventories are purchased and adjusts the inventory balance at year end. C) The amount of expenditure reported at year end will differ from method to method. D) The purchases method is preferable since it requires no adjustment to supplies expense when preparing the government-wide statements.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 129) What is the difference between reciprocal interfund activity and nonreciprocal interfund activity?

130)

What is the difference between an extraordinary and special item?

131)

Contrast the Consumption versus the Purchases methods of accounting for inventories

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 132) The Village of Stonybrook has $29,000 of purchase orders outstanding at the end of 2019 which will be honored. The goods and supplies were received during the second week of January, 2020. The invoice amounted to $28,800 What are the journal entries necessary to (a) re-establish the encumbrance and (b) record receipt of the supplies?

133) Prepare entries in general journal form to record the following transactions in General Fund general ledger accounts for fiscal year 2020. Use modified accrual accounting. (a) The legal budget for the year provided for $6,000,000 of estimated revenues and $5,960,000 appropriations.(b) Assume there are $ 210,000 of purchase orders outstanding at the end of last year and that these will be honored in the current year. Prepare the entries to re-establish the encumbrance.(c) Property taxes were levied in the amount of $3,300,000. It is estimated that 2 percent of the taxes will never be collected.(d) Purchase orders were issued for equipment and supplies in the amount of $4,000,000.(e) Supplies, relating to all of the prior year purchase orders ($240,000), were received along with invoices amounting to $231,000.(f) Collections of current property taxes amounted to $2,950,000. The uncollected taxes recorded as delinquent.(g) It was estimated that $210,000 in property taxes would be collected in the first 60 days of 2020 and that $145,000 would be collected in later periods.

134) The following transactions occurred in the General Fund of Smyth County. Prepare the journal entry(s) as instructed for each. Assume each item is independent of each other The total estimated revenue budget for 2020 is $11,000,000 and the total appropriations for 2020 are $9,500,000. Total planned transfer to debt service funds for 2020 is $800,000. Record the budget (without subsidiary ledger detail)Smyth County was able to get a Tax Anticipation Note that was secured by the county’s power to tax. The county borrowed $500,000 and planned to repay the loan as tax collections begin to exceed current disbursements for the year. Upon repayment of the loan the county must pay $12,600 in interest. – Record the Note payable and the later repayment of the note payableProperty taxes of $7,000,000 were levied for Smyth County. Assume that 1.5 percent of these taxes are estimated to be uncollectible due to local economic conditions. – Record the entry when the tax is levied.During 2020 the billing staff inappropriately had duplicate bills for the same properties in the amount of $23,000. Record the entry to correct this error.Upon examining the revenues and expenditures to date, the governing board decided to amend the budget. The revenue budget needs to be decreased by $85,000 and the appropriations should be increased by $65,000. – Record the amendments to the budget when legally approved.A review of the Tax Receivable subsidiary ledger indicates the following:$20,000 would be received 120 days after year-end$45,000 would be received 90 days after year-end$22,000 would be received 60 days after year-end$21,000 would be received 30 days after year-endRecord the property taxes to be deferred that is required by the GASBThe treasurer of Smyth County approved the write-off of delinquent taxes from 2020 totaling $10,200 and related interest and penalties of $750. - Record the write-off of uncollectible delinquent taxes .

135) The City of Stromfield had the following partial list of pre-closing account balances in its General Fund as of June 30, 2020. Debits Appropriations Control

$ 2,975,000

Budgetary Fund Balance

385,000

Budgetary Fund Balance — Reserve for Encumbrances Due to Other Funds

107,000

Encumbrances Control

40,000

107,000

Estimated Other Financing Uses Control

300,000

Estimated Revenues Control

3,660,000

Expenditures Control

2,877,000

Fund Balance

Other Financing Uses Control-Transfers Out

272,000

295,000

Revenues Control

Taxes Receivable-Delinquent Vouchers Payable

Credits

3,876,000

75,000 275,000

Required: Prepare, in good form, a Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund for the year ended June 30, 2020.

136) The City of Morganville had the following pre-closing account balances in its General Fund as of April 30, 2020. Debits and credits are not separated; each account had its “normal” balance. Among the expenditures recorded this year is an amount expended on supplies ordered at the end of the previous year. Assume that encumbrances do not lapse and that the City failed to make the journal entry(s) necessary to re-establish the encumbrance in the current year.

Cash

75,000

Estimated Revenues Control

5,900,000

Revenues Control

5,900,000

Appropriations Control

5,750,000

Estimated Other Financing Sources Control

250,000

Other Financing Uses Control-Transfers Out

375,000

Expenditures Control

5,375,000

Taxes Receivable

785,000

Fund Balance-Unassigned 5/1/2019

610,000

Estimated Other Financing Uses Control

600,000

Vouchers Payable

135,000

Encumbrances Control

33,000

Budgetary Fund Balance — Reserve for Encumbrances

33,000

Other Financing Sources Control-Transfers In

135,000

Budgetary Fund Balance (debit)

(100,000 )

Required: (a) Prepare all entries necessary to close the General Fund of the City of Morganville. (b) Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund for the City of Morganville for the Year Ended April 30, 2020. End with the ending fund balance. This is the GAAP operating statement.

137) The City of Smithville was awarded a federal grant on May 1, 2020 in the amount of $7,000,000 for the purpose of conducting a summer youth employment program. This was a reimbursement-type grant. On August 31, $6,320,000 of expenditures was recorded, and cash was paid out. On October 15 the $6,320,000 was received from the federal government. Record necessary entries as of July 1, August 31, September 30 and October 15.

138) The following information was available for the General Fund of the City of Thomasville for the Year Ended December 31, 2020: (a) Revenues for the year included property taxes in the amount of $6,890,000, fines and forfeits in the amount of $890,000, and miscellaneous in the amount of $400,000. These amounts are expected to be fully collectible. (b) Expenditures from current appropriations included: general government, $4,847,000; public safety, $1,884,000; culture and recreation, $1,204,000. (c) In addition to (b) above, expenditures related to prior year appropriations (encumbered last year) amounted to $40,000 (public safety). Encumbrances issued this year but not filled amounted to $60,000 (general government). (d) A transfer was made from the General Fund to a debt service fund in the amount of $500,000. A transfer was made from an enterprise fund to the General Fund in the amount of $450,000. (e) A sale of park land was made during the year, which was considered infrequent but not unusual and under the control of management. The proceeds amounted to $126,000, and the land had a basis of $90,000 reported in the government-wide Statement of Net Position the year before. (f) Beginning balances included Fund Balance in the amount of $379,000. Required: Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund for the City of Thomasville for the Year Ended December 31, 2020.

139) Center City’s General Fund has the following net resources at December 31, 2020: Total assets of $846,000 and liabilities of $137,500.$375,000 rainy day fund approved by the township governing board.$3,600 of supplies inventory.$22,000 state grant for snow removal.$120,000 contractual obligations for capital projects.$66,000 of outstanding encumbrances representing purchase orders which will be paid from the General Fund. Required: Prepare the fund balance section of the Balance Sheet.

Answer Key Test name: Chapter 4: Accounting for the General and Special Revenue Funds 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) TRUE 7) TRUE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) FALSE 18) TRUE 19) FALSE 20) TRUE 21) TRUE 22) TRUE 23) FALSE 24) FALSE 25) TRUE .

26) TRUE 27) TRUE 28) FALSE 29) TRUE 30) FALSE 31) FALSE 32) TRUE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) TRUE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) TRUE 43) TRUE 44) FALSE 45) TRUE 46) TRUE 47) FALSE 48) TRUE 49) A 50) B 51) C 52) B 53) B 54) D 55) C .

56) B 57) A 58) D 59) B 60) B 61) C 62) D 63) B 64) D 65) B 66) B 67) C 68) D 69) A 70) B 71) D 72) C 73) B 74) D 75) A 76) C 77) C 78) A 79) D 80) B 81) B 82) B 83) B 84) C 85) D .

86) D 87) C 88) C 89) D 90) A 91) B 92) A 93) C 94) B 95) C 96) A 97) C 98) B 99) C 100) D 101) D 102) C 103) B 104) D 105) A 106) D 107) B 108) A 109) B 110) C 111) A 112) B 113) C 114) D 115) A .

116) B 117) B 118) C 119) D 120) C 121) A 122) D 123) D 124) B 125) A 126) D 127) B 128) D 129) Reciprocal interfund activity is the internal counterpart to exchange and exchange-like transactions. Included in this category are interfund loans and interfund services provided and used. Nonreciprocal interfund activity involves funds which are transferred without expectation of repayment or reimbursement of one fund’s purchase which belongs in another fund. Included in this category are interfund transfers and interfund reimbursements. 130) Extraordinary items are significant transactions or other events that are both unusual and infrequent. Special items are significant transactions or other events that are either unusual or infrequent but within the control of management.

131) Under the consumption method, supplies inventory is debited when supplies are acquired. When supplies are consumed, the expenditure account is debited and the supplies inventory account is credited. At the end of the year, the expenditure account has the amount of supplies used. Under the purchases method, expenditures are debited when supplies are received. Expenditures are charged for purchases made during the year and at the end of the year the supplies inventory and Nonspendable Fund Balance are adjusted to reflect actual supplies on hand. The expenditure account reflects the amount of supplies purchased during the year. The consumption method is preferable over the purchase method since it requires no adjustment to supplies expense when preparing the government-wide statements 132) (a)

Encumbrances Control (2019)

29,000

Budgetary Fund Balance — Reserve for Encumbrances

(b)

29,000

Budgetary Fund Balance — Reserve for Encumbrances Encumbrances Control (2019)

29,000

Expenditures Control (2019)

28,800

29,000

Accounts payable

28,800

133) Debits a.

Estimated Revenues Control Appropriations Control

Credits

6,000,000 5,960,000

Budgetary Fund Balance

Encumbrances Control

40,000

210,000

Budgetary Fund Balance — Reserve for Encumbrances

Taxes Receivable

210,000

3,300,000

Estimated Uncollectible Taxes

66,000

Revenues Control

Encumbrances Control

3,234,000

4,000,000

Budgetary Fund Balance — Reserve for Encumbrances

4,000,000

Budgetary Fund Balance — Reserve for Encumbrances Encumbrances Control

240,000

Expenditures Control

231,000

240,000

Accounts Payable

Cash

231,000

2,950,000

Taxes Receivable

2,950,000

Taxes Receivable-Delinquent

350,000

Estimated Uncollectible Taxes

66,000

Taxes Receivable

350,000

Estimated Uncollectible Delinquent Taxes

66,000

Revenues Control

145,000

Deferred Inflows

145,000

134) Debits A)

Estimated Revenues Control

11,000,000

Appropriations Control

9,500,000

Estimated Other Financing Uses Control

800,000

Budgetary Fund Balance

700,000

Cash

500,000

Tax Anticipation Notes Payable Tax Anticipation Notes Payable Expenditures Control

500,000 500,000 12,600

Cash

Taxes Receivable

512,600

7,000,000

Estimated Uncollectible Taxes

105,000

Revenues Control

Revenues Control Taxes Receivable

Credits

6,895,000

23,000 23,000

Budgetary Fund Balance

150,000

Estimated Revenues Control

85,000

Appropriations

65,000

Revenues Control

65,000

Deferred Inflows – Property Taxes

Estimated Uncollectible Delinquent Taxes Estimated Uncollectible Interest and Penalties Taxes Receivable – Delinquent

65,000

10,200 750 10,200

Interest and Penalties Receivable on Taxes

750

135)

Revenues

CITY OF STROMFIELD GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE — YEAR ENDED JUNE 30, 2020 $ 3,876,000

Expenditures

2,877,000

Excess of Revenues over Expenditures

999,000

Other Financing Sources (Uses): Transfers Out

(295,000 ) (295,000 )

Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses

704,000

Fund Balance-July 1, 2019

272,000

Fund Balance-June 30, 2020

976,000

136) (a) Debit Appropriations Control Estimated Other Financing Uses Control

5,750,000 600,000

Budgetary Fund Balance

200,000

Estimated Revenues Control

5,900,000

Estimated Other Financing Sources Control

Budgetary Fund Balance — Reserve for Encumbrances Encumbrances Control

Revenues Control Other Financing Sources Control-Transfers In

Credit

250,000

33,000 33,000

5,900,000 135,000

Expenditures Control

5,375,000

Other Financing Uses Control-Transfers Out

375,000

Fund Balance

285,000

(b) CITY OF MORGANVILLE - GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE YEAR ENDED APRIL 30, 2020

Revenues

$ 5,900,000

Expenditures

5,375,000

Excess of Revenues Over Expenditures

525,000

Other Financing Sources (Uses): Transfers In Transfers Out

135,000 (375,000 )

(240,000 )

Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses

285,000

Fund Balance- May 1, 2019

610,000

Fund Balance- April 30, 2020

895,000

137) Debits

Credits

May 1 Memo entry only

August 31 Expenditures Control

6,320,000

Cash

Due from Federal Government Revenues Control

6,320,000

6,320,000 6,320,000

October 15 Cash

6,320,000

Due from Federal Government

6,320,000

138) CITY OF THOMASVILLE - GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE YEAR ENDED DECEMBER 31, 2020 Revenues: Property Taxes

$ 6,890,000

Fines and Forfeitures

890,000

Miscellaneous

400,000 $ 8,810,000

Expenditures: General Government

4,847,000

Public Safety

1,924,000

Culture and recreation

1,204,000 7,975,000

Excess of Revenues Over Expenditures

205,000

Other Financing Sources (Uses): Transfers In Transfers Out Special Item: Proceeds from Sale of Land

450,000 (500,000 )

(50,000 ) 126,000

Net Change in Fund Balance

281,000

Fund Balance- January 1, 2020

379,000

Fund Balance- December 31, 2020

660,000

139) Center City Partial Balance Sheet-General Fund As of December 31, 2020 Fund Balances Nonspendable: Supplies inventory

3,600

Restricted: Intergovernmental grants

22,000

Committed: Rainy day fund

375,000

Capital projects

120,000

Assigned: Miscellaneous Unassigned Total Fund Balance

66,000 121,900 708,500

Chapter 5:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Because capital project, debt service, and permanent funds use modified accrual accounting, these funds would typically record budgets. ⊚ ⊚

true false

2) Because debt service and permanent funds use modified accrual accounting, these funds would typically record encumbrances. ⊚ ⊚

true false

Capital Projects funds recognize expenses, but not encumbrances. ⊚ ⊚

true false

4) Debt service funds should accrue interest and report principle payments due within the next 12 months following year end. ⊚ ⊚

true false

5) Unmatured principal installments and accrued interest which is due shortly after year end are required to be reported as liabilities in the debt service fund at year end. ⊚ ⊚

true false

6) All of the governmental funds except permanent funds use the modified accrual basis of accounting. ⊚ ⊚

true false

7) Positive fund balances of capital projects funds are classified as nonspendable, restricted, committed, or assigned. ⊚ ⊚

true false

8) Unexpended resources transferred to the debt service fund from the General Fund would typically be classified as Restricted Fund Balance. ⊚ ⊚

true false

9) If a sinking fund is required by creditors or law, the unexpended resources would be classified as Restricted Fund Balance. ⊚ ⊚

true false

10) Unexpended intergovernmental grants and taxes dedicated to capital improvements in a capital projects fund are likely to be classified as Committed Fund Balance. ⊚ ⊚

true false

11) Unexpended intergovernmental grants and taxes dedicated to capital improvements in a capital projects fund are likely to be classified as Restricted Fund Balance. ⊚ ⊚

true false

12) The residual classification for governmental fund balances other than the General Fund is Assigned. ⊚ ⊚

true false

13) Fund balances of debt service funds are classified among the categories of Restricted and Unrestricted. ⊚ ⊚

14)

true false

The principal of permanent funds is classified as Nonspendable Fund Balance. ⊚ ⊚

true false

15) The fund balance of permanent funds should be classified as Nonspendable, Spendable, and Committed. ⊚ ⊚

16)

true false

Any governmental fund may have a positive Unassigned Fund Balance. ⊚ ⊚

true false

17) Net assets represented by supplies and prepaid expenses are classified in governmental funds as Nonspendable Fund balance. ⊚ ⊚

true false

18) Bond refunding is repurchasing bonds from bondholders using residual money left over after a capital project has been completed. ⊚ ⊚

true false

19)

The principal of permanent funds must be classified as Restricted Fund Balance. ⊚ ⊚

true false

20) The portion of a permanent fund which is spendable should be reported as Unassigned Fund Balance. ⊚ ⊚

true false

21) When bonds are sold to construct a capital asset through a capital projects fund, an entry would be made to debit Cash and credit Bonds Payable in the capital projects fund. ⊚ ⊚

true false

22) Capital projects funds use the financial resources measurement focus and accrual basis of accounting. ⊚ ⊚

23)

true false

Capital projects funds are always included in the Budgetary Comparison Schedule. ⊚ ⊚

true false

24) Debt service funds are used to account for the payment of principal and interest of both general and enterprise related long-term debt of a state or local governmental unit. ⊚ ⊚

true false

25) When accounting for interest expenditures through debt service funds, interest is required to be accrued at year-end.

⊚ ⊚

26)

true false

Interest revenues should be accrued at year-end on investments held by a permanent fund. ⊚ ⊚

true false

27) The current and long-term portions of General Long-term Debt are normally reported in a debt service fund. ⊚ ⊚

true false

28) Funds whose earnings benefit individuals, private organizations, or other governments are reported in private-purpose trust funds. ⊚ ⊚

true false

29) An encumbrance in a capital project fund is created when the contract for the work is signed or issued. ⊚ ⊚

true false

30) If a government issues new debt, and places the proceeds in an escrow account pending the maturity date of existing debt, the existing debt is said to be defeased. ⊚ ⊚

true false

31) When a government receives a gift that must be invested permanently and the investment proceeds are used to benefit the government or its citizens, it would be appropriate to account for that gift in a private-purpose trust fund.

⊚ ⊚

true false

32) Investments of permanent funds should be reported at fair value, if determinable, and unrealized gains reported along with realized gains as "Investment Income-Net Increase in Fair Value of Investments." ⊚ ⊚

true false

33) Capital outlay expenditures of capital projects funds will typically result in additions to the general fixed assets reported in the governmental fund Balance Sheet. ⊚ ⊚

true false

34) In a Statement of Revenues, Expenditures, and Changes in Fund Balances, Transfers In are reported within Total Revenues. ⊚ ⊚

true false

35) Premiums generated from the issuance of bonds for a capital projects fund are generally transferred to the Debt Service Fund. ⊚ ⊚

36)

true false

Capital assets are not reported in governmental funds. ⊚ ⊚

true false

37) Capital project funds exist for the duration of the project for which it is created and are then closed.

⊚ ⊚

true false

38) A nonexpendable trust which benefits a government or its citizenry and which stipulates that earnings only (not principal) may be used for its prescribed purpose would be reported in a Special Revenue Fund. ⊚ ⊚

true false

39) Private-purpose Trust Funds benefit individuals, private organizations, or other governments. ⊚ ⊚

true false

40) When using debt service accounting, interest on long term debt is not to be accrued unless the payment is due in no more than one month and the government has resources available for payment. ⊚ ⊚

41)

Budgets are typically recorded for Capital Projects Funds. ⊚ ⊚

42)

true false

Budgets are typically recorded for Debt Service Funds. ⊚ ⊚

43)

true false

Budgets are typically not recorded for Special Revenue Funds.

⊚ ⊚

true false

44) Permanent funds account for resources that are donor restricted to the extent earnings (but not principal) may be used to support government programs. ⊚ ⊚

45)

Encumbrance accounting is typically not used for Permanent Funds. ⊚ ⊚

46)

true false

General Funds and special revenue funds typically record budgets. ⊚ ⊚

47)

true false

Budgets are typically recorded for capital projects, debt service, and permanent funds. ⊚ ⊚

true false

48) If taxes are levied specifically for payment of interest and principal on long-term debt, those taxes are recognized as revenues of the debt service fund. ⊚ ⊚

true false

49) An annuity serial bond is one where the amount of the principal increases each year by the same amount that the interest payments decrease. ⊚ ⊚

true false

50) A Debt Service Fund is a fund type that is used to account for revenues and other financing sources that are intended to service debt. ⊚ ⊚

51) debt.

true false

A major source of funding for Capital Project Funds include the issuance of long term

⊚ ⊚

true false

52) Fund basis financial statements in which capital projects funds are reported are the Governmental Funds Balance Sheet and the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. ⊚ ⊚

53)

true false

Fixed assets of completed projects are recorded in the accounts of capital projects funds. ⊚ ⊚

true false

54) A gift of $1,000,000 to a city, to be invested permanently, with the proceeds to be used to maintain the city war memorials should be accounted for in a special revenue fund. ⊚ ⊚

true false

55) A gift of $1,000,000 to a city, to be invested permanently, with the proceeds to be used to maintain the city war memorials should be accounted for in a special projects fund. ⊚ ⊚

true false

56) If a government has debt service due no more than one month after the end of a fiscal year and has the resources available, then it is permitted to accrue expenditures and a fund liability for the debt service. ⊚ ⊚

true false

57) Since long-term liabilities are not recorded in the governmental funds, payments of debt principal are recorded as expenditures, rather than reductions of outstanding liabilities. ⊚ ⊚

true false

58) Permanent funds reflect resources that are restricted so that principal may not be expended and earnings are used to benefit the government or its citizenry. ⊚ ⊚

59)

Permanent funds may spend both earnings and principal. ⊚ ⊚

60)

true false

Capital project funds have indefinite lives. ⊚ ⊚

true false

61) Debt service funds may be required to account for resources used for interest and principal payments on term and serial bonds, notes, capital leases, or warrants. ⊚ ⊚

true false

62) Debt service funds are used to account for financial resources that are intended to provide payments of principal only as they come due. ⊚ ⊚

true false

63) Debt service funds are created for debt issues where the activities of proprietary funds generate sufficient cash to make interest and principal payments. ⊚ ⊚

true false

64) If taxes are levied specifically for payment of interest and principal on long-term debt, those taxes are recognized as transfers in for the debt service fund. ⊚ ⊚

true false

65) Expenditures of capital projects funds are reported in the capital outlay character classification in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. ⊚ ⊚

true false

66) Capital outlay expenditures of a capital projects fund result in additions to the general fixed assets reported in the government-wide Statement of Net Position. ⊚ ⊚

true false

67) Taxes or other revenues raised specifically for a capital project are recorded as transfers in the capital projects fund.

⊚ ⊚

true false

68) Grants, entitlements, or shared revenues received by a capital projects fund from another governmental unit are considered revenues of the capital projects fund, as is interest earned on temporary investments of the capital projects fund. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 69) Budgets are most commonly recorded for which of the following:

A) B) C) D)

70)

Encumbrance accounting is only typically used for:

A) B) C) D)

71)

Permanent Funds. Debt Service Funds. Capital Projects Funds. None of the choices are correct.

Which of the following funds typically record budgets?

A) B) C) D)

Special Revenue Funds. Capital Projects Funds. Debt Service Funds. All of the choices are correct.

General Funds, special revenue funds, capital projects, debt service, and permanent. Only General Funds. General Funds and permanent funds. General Funds and special revenue funds.

72) What is the correct debit or credit for the following scenario: A contract was issued for the major part of work to be done by a private contractor in the amount of $1,200,000 for a new County court house?

A) B) C) D)

Debit: Budgetary Fund Balance—Reserve for Encumbrances. Debit: Construction expenditures. Credit: Cash. Debit: Encumbrances Control.

73) When taxes are levied specifically for payment of interest and principal on long-term debt, those taxes are recognized:

A) As revenues in the General Fund with transfers made to the debt service funds for payments. B) As Other Financing Sources in the debt service fund. C) As revenues in the capital projects fund with transfers made to the debt service funds for payments. D) As revenues in the debt service fund.

74)

Capital project funds:

A) B) C) D)

75)

Receive all of their money from tax revenues. Exist only for the duration of the project for which they are created. Record debt issuances as revenues. All of the choices are correct.

Which of the following is a source of funding for capital projects funds?

A) B) C) D)

76)

An encumbrance in a capital project fund is created:

A) B) C) D)

77)

Gifts from individuals and corporations. Proceeds from issuance of Long-term debt. Grants. All of the choices are correct.

When the project is paid for in full. When the work on the project begins. When the work on the project is finished. When a contract is signed or issued.

Which of the following statements is false?

A) Unexpended intergovernmental grants and taxes dedicated to capital improvements in a capital projects fund are likely to be classified as Assigned Fund Balance. B) The residual classification for funds other than the General Fund is Assigned. C) If a bond sinking fund is required by creditors or law, the unexpended resources would be classified as Restricted. D) The corpus (principal) from a permanent fund should be classified as Nonspendable.

78)

Which of the following statements is true?

A) Fund balances of debt service funds are classified as Restricted and Unrestricted. B) The fund balance of permanent funds should be classified as Nonspendable, Spendable, and Committed Net Position. C) The principal of permanent funds are classified as Nonspendable Fund Balance. D) Any governmental fund may have an Unassigned Fund Balance.

79)

Which of the following statements is false?

A) Resources representing supplies and prepaid items are classified in governmental funds as Nonspendable Fund balance. B) Capital Projects, debt service, and permanent funds do not typically record budgets. C) Debt service and permanent funds do not record encumbrances. D) Principal of permanent funds is classified as Committed Fund Balance.

80)

With respect to Capital Projects Funds, which of the following is correct?

A) These funds commonly account for resources provided by long-term debt issues or dedicated taxes. B) Capital assets appear in both the government-wide and the fund basis financial statements. C) Both of the choices are correct. D) Neither of the choices is correct.

81)

With respect to Debt Service Funds, which of the following is not correct?

A) Typically, resources are provided through transfers from the General or other funds. B) Encumbrances are recorded to reflect principal payments that are expected to come due within the current accounting period. C) There are two types of debt service expenditures: interest and principal. D) In most cases, interest and principal payments are not recorded until payment is due.

82) If a trust is to be used for the benefit individuals, private organizations, or other governments, the following fund(s) should be used:

A) B) C) D)

A. Special revenue fund. B. Permanent fund. C. Private-purpose fund. D. Either A or B choice, depending upon whether the principal must be maintained.

83)

With respect to Permanent Funds, which of the following is not true?

A) The principal is classified as Nonspendable Fund balance. B) Permanent Funds are included in the government-wide statements. C) Permanent Funds are fiduciary funds and not reported in the government-wide statements. D) Permanent Funds use the current financial resources measurement focus.

84) Which of the following fund(s) should be used if resources are provided by a donor with the stipulation that they be used for the benefit of the citizenry?

A) B) C) D)

85)

A. Special revenue fund. B. Permanent fund. C. Private-purpose fund. D. Either A or B choice, depending upon whether the principal must be maintained.

Which of the following statements is false?

A) Debt service funds are required to report accrued interest payable. B) General fixed assets that are acquired with governmental fund resources are recorded as expenditures in the governmental funds but are displayed as capital assets in the governmental-wide financial statements. C) Permanent funds reflect resources that are legally restricted so that principal may not be expended and earnings are used to benefit the government or its citizenry. D) All use the modified accrual basis of accounting.

86)

Which of the following is a common source of funding for capital projects?

A) Issuance of long term debt. B) Proceeds of dedicated taxes. C) Grants from other governments. D) All of the choices are sources of funding for capital projects.

87)

With respect to Debt Service Funds, which of the following is true?

A) Payments under capital lease obligations may be reported in debt service funds. B) Debt service funds use accrual accounting. C) Each separate long-term obligation must be accounted for in a separate debt service fund. D) All of the choices are true.

88)

Which of the following statements regarding serial bonds is false?

A) The principal on serial bonds is paid over the term of the bonds. B) The assets of a debt service fund may include Cash with Fiscal Agent. C) If the first payment is delayed for more than a year with equal payments thereafter, the bonds are deferred serial bonds. D) The principal repayment on an annuity serial bonds decreases each year as the outstanding balance decreases.

89)

Which of the following is true with respect to long-term debt?

A) Term bonds mature in equal installments over the term of the bond. B) If a sinking fund is required by creditors or law, the unexpended resources of its debt service fund would be classified as assigned. C) Resources transferred to the debt service fund from the General Fund would typically be classified as Other Financing Sources by the debt service fund. D) If bonds supporting a capital project are issued at a premium, typically the premium may be used on capital expenditures.

90)

Which of the following is correct regarding Government Trust Accounting?

A) If a trust is to benefit individuals, private organizations, or other governments, it should be accounted for in a private-purpose trust fund. B) The journal entry to establish a permanent fund would include a credit to Restricted Fund Balance. C) Trust funds accounted for in a permanent fund use accrual accounting. D) If a trust is to benefit individuals, private organizations, or other governments, it may be accounted for in a permanent or special revenue fund, depending upon whether the principal must be maintained.

91) Which of the following projects would normally be accounted for in a capital projects fund?

A) B) C) D)

A. The construction of a police station addition. B. The construction of a parking garage operated as an enterprise fund. C. Payment of interest on bonds issued to finance the construction of a new city hall. D. Both A and B choices would be accounted for in a capital projects fund.

92) General fixed assets that are acquired with governmental fund resources are reported as assets in the:

A) B) C) resources. D)

General Fund. Capital Projects Fund. General Fund or Capital Projects Fund, depending upon which fund provided the None of the choices are correct.

93) When a purchase order is issued under a Capital Projects fund, how should the transaction be recorded?

A) Debit Encumbrances Control and credit Budgetary Fund Balance—Reserve for Encumbrances. B) Debit Expenditures and credit Vouchers payable. C) Debit Encumbrances Control and credit Vouchers payable. D) Debit Expenditures and credit Budgetary Fund Balance—Reserve for Encumbrances.

94) If taxes are levied specifically for payment of interest and principal on long-term debt, those taxes are:

A) B) C) D)

A. Included as a liability of the General Fund. B. Recorded as operating transfers to the debt service fund. C. Included as revenues of the debt service fund. D. Both A and B choices are correct.

95) Which of the following bond types has a payment schedule in which the amount of annual principal repayment is scheduled to increase each year by approximately the same amount that interest payments decrease?

A) Regular. B) Deferred. C) Annuity. D) Irregular.

96) Governmental funds, other than the General Fund, are considered major if:I. Total Assets, Liabilities, Revenues, or Expenditures of that individual governmental fund are at least 10% of the corresponding total (assets, liabilities, and so forth) for all governmental funds.II. Total Assets, Liabilities, Revenues, or Expenditures of the individual governmental fund are at least 5% of the corresponding total for all governmental and enterprise funds combined.

A) I only. B) II only. C) Either I or II, but need not be both. D) Both I and II.

97) On October 1, 2019, the City of Mizner issued $6,000,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $5,968,750 was used to construct the addition, which was completed prior to June 30, 2020. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2019, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $250,000 is due October 1, 2020. The fiscal year for Mizner is July 1- June 30. In addition to a $6,000,000 liability in the government-wide Statement of Net Position, how would the bond sale be reported?

A) As a $6,000,000 revenue in the capital projects fund, a $60,000 revenue in the debt service fund, and a $6,000,000 expenditure in the debt service fund. B) As a $6,000,000 other financing source in the capital projects fund, a $60,000 other financing source in the debt service fund, and as a $6,000,000 liability in the debt service fund. C) As a $6,060,000 other financing source in the capital projects fund, a $60,000 other financing use in the capital projects fund, and a $60,000 other financing source in the debt service fund. D) As a $5,968,750 revenue in the capital projects fund and a $60,000 revenue in the debt service fund.

98) On October 1, 2019, the City of Mizner issued $6,000,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $5,968,750 was used to construct the addition, which was completed prior to June 30, 2020. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2019, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $250,000 is due October 1, 2020. The fiscal year for Mizner is July 1- June 30. How would the construction costs of $5,968,750 be reported at year-end?

A) As a capital asset in the Statement of Net Position only. B) As an expenditure of the capital projects fund and an expense in the governmentwide Statement of Activities. C) As an expenditure of the capital projects fund and a capital asset in the governmentwide Statement of Net Position. D) As an expenditure of the capital projects fund only.

99) On October 1, 2019, the City of Mizner issued $6,000,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $5,968,750 was used to construct the addition, which was completed prior to June 30, 2020. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2019, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $250,000 is due October 1, 2020. The fiscal year for Mizner is July 1- June 30. What amount would be reported as debt service expenditures in the year ended June 30, 2020?

A) B) C) D)

$60,000. $120,000. $300,000. $420,000.

100) On October 1, 2019, the City of Mizner issued $6,000,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $5,968,750 was used to construct the addition, which was completed prior to June 30, 2020. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2019, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $250,000 is due October 1, 2020. The fiscal year for Mizner is July 1- June 30. What would be the amount of debt service expenditures reported in the fiscal year ended June 30, 2021?

A) B) C) D)

$534,000. $540,000. $240,000. $420,000.

101) On October 1, 2019, the City of Mizner issued $6,000,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $5,968,750 was used to construct the addition, which was completed prior to June 30, 2020. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2019, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $250,000 is due October 1, 2020. The fiscal year for Mizner is July 1- June 30.

How would the government account for the unused bond proceeds?

A) As an other financing source in the government-wide Statement of Activities. B) As an other financing source in the debt service fund and as an other financing use in the capital projects fund. C) As a revenue in the debt service fund and as an expenditure in the capital projects fund. D) As an other financing source in the capital projects fund and as an other financing use in the debt service fund.

102)

Which of the following would be accounted for as a permanent fund?

A) An intergovernmental grant of $500,000 to a city to be used for low income housing. B) A gift of $500,000 to a city, to be invested permanently, with the proceeds to be distributed as scholarships. C) A gift of $500,000 to a city, to be invested permanently, with the proceeds to be used to maintain the city cemetery. D) A gift of $500,000 to a city to be used for a new caretaker’s residence at the local cemetery.

103) Siler City receives a trust donation for the purpose of maintaining flower beds in city parks, but the donor does not specify that the principal must be maintained. This type of trust would be most appropriately accounted for in a:

A) B) C) D)

104)

Proceeds of tax supported bonds are recognized in a capital projects fund as a(an):

A) B) C) D)

105)

Private-Purpose Trust Fund. Special Revenue Fund. Permanent Fund. Capital Project Fund.

Revenue. Liability. Other Financing Source. Other Financing Use.

Which of the following is true regarding capital projects funds?

A) Capital projects funds are considered to be governmental funds. B) Capital projects funds use the economic resources measurement focus and accrual basis of accounting. C) Encumbrance accounting is not used. D) Fixed assets are depreciated in capital projects funds.

106) If bonds issued to fund a capital project are sold at a premium, the additional money received is:

A) A. Recorded as Other Financing Sources—Premium on Bonds in the capital projects fund. B) B. Transferred from the capital projects fund to the debt service fund. C) C. Transferred from the capital projects fund to the General Fund. D) D. Both A and B choices are correct.

107) When a payment is due to a contractor from capital projects fund resources, the debit would be to:

A) B) C) D)

A capital asset account. Encumbrances Control. Expenditures—Capital Outlay. None of the choices are correct, no entry is made until payment.

108) When a capital project has been constructed entirely with bond proceeds and funds are left over at the end of the project, which of the following would normally take place?

A) The funds would be transferred to a debt service fund; the capital projects fund would debit Expenditures and the debt service fund would credit Other Financing Sources— Transfers In. B) The funds would be transferred to the General Fund and expended for any purpose desired by the management of the government. C) The funds would be returned to the bondholders. D) The funds would be transferred to a debt service fund; the capital projects fund would debit Other Financing Uses—Transfers Out and the debt service fund would credit Other Financing Sources—Transfers In.

109)

Debt service funds use the same measurement focus and basis of accounting as:

A) Internal service funds. B) Special revenue funds. C) Both of the choices are correct. D) Neither of the choices is correct.

110) Grant proceeds received from the state for a capital project would be recorded in a capital projects fund of a city government as a (an):

A) B) C) D)

Revenue. Other Financing Source. Direct addition to Fund Balance. Other Financing Use.

111) Cash provided by the General Fund for a capital project would be recorded in a capital projects fund as a (an):

A) B) C) D)

Revenue. Other Financing Use. Direct addition to Fund Balance. Other Financing Source—Transfer In.

112) A transfer from the General Fund to a debt service fund to make annual payments on principal and interest would be recorded in the debt service fund as a (an):

A) B) C) D)

113)

Other Financing Source. Revenue. Direct addition to Fund Balance. Other Financing Use.

Which of the following would be accounted for as a permanent fund?

A) A. A gift of $65,000 to a school district, to be invested permanently, with the proceeds to be awarded as college scholarships to graduating seniors. B) B. A gift of $65,000 to a school district, to be used for landscaping improvements. C) C. A gift of $65,000 to a city to be invested permanently, with the proceeds to be used to buy books for the city library. D) D. Both A and C choices are correct.

114)

Which of the following should be accounted for in a permanent fund?

A) A gift of $300,000 to a school board, to be given out $10,000 a year to the class valedictorian as a college scholarship. B) A gift of $300,000 to a city, to be expended next year to purchase books for the city library. C) A gift of $3,000,000 to a city, to be invested permanently, with the proceeds to be used to distribute to one or more nonprofit groups. D) A gift of $3,000,000 to a city, to be invested permanently, with the proceeds to be used to maintain the city war memorials.

115)

Which of the following is not true regarding permanent funds?

A) Permanent funds are considered governmental funds. B) Permanent funds use the current financial resources measurement focus and modified accrual basis of accounting. C) Permanent funds are appropriate when the proceeds of a gift must be used to benefit individuals or organizations. D) Major permanent funds would be reported in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances.

116)

Which of the following is true regarding accounting for investments of permanent funds?

A) Gains and losses on investments would not be reported in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances but are reported in the government-wide Statement of Activities. B) Investments with determinable fair values must be reported at fair value. C) Both of the choices are true. D) Neither of the choices is true.

117) On April 1, 2020, the City of Southern Ponds issued $5,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $4,990,000 was used to construct the police station, which was completed before December 31, 2020, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2020, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $250,000 is due April 1, 2021. In addition to reporting Bonds Payable and (unamortized) Bond Premium in the governmentwide Statement of Net Position, how would the bond sale be reported?

A) The $5,000,000 liability in the governmental funds Balance Sheet and the $50,000 would also be recorded as a bond premium in the Balance Sheet. B) A $5,050,000 other financing source in the capital projects fund, a $50,000 other financing use in the capital projects fund, and a $50,000 other financing source in the debt service fund. C) As a $5,000,000 liability in the government-wide Statement of Net Position and as a $5,000,000 other financing source in the debt service fund. D) As a $5,050,000 liability in the government-wide Statement of Net Position, as a liability of $5,050,000 in the capital projects fund, and as an other financing source of $5,050,000 in the capital projects fund.

118) On April 1, 2020, the City of Southern Ponds issued $5,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $4,990,000 was used to construct the police station, which was completed before December 31, 2020, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2020, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $250,000 is due April 1, 2021. How would the $4,990,000 be accounted for?

A) A. As an expenditure in the capital projects fund and as an expense in the government-wide Statement of Activities. B) B. As a capital asset in the government-wide Statement of Net Position. C) C. As an expenditure in the capital projects fund. D) D. Both B and C choices are correct.

119) On April 1, 2020, the City of Southern Ponds issued $5,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $4,990,000 was used to construct the police station, which was completed before December 31, 2020, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2020, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $250,000 is due April 1, 2021. What amount would be reported as debt service expenditures for the year ended December 31, 2020?

A) B) C) D)

$100,000. $195,000. $345,000. $95,000.

120) On April 1, 2020, the City of Southern Ponds issued $5,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $4,990,000 was used to construct the police station, which was completed before December 31, 2020, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2020, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $250,000 is due April 1, 2021. What amount would be reported as debt service expenditures for the year ended December 31, 2021?

A) B) C) D)

121)

Premiums generated from the issuance of bonds for a capital projects fund are generally:

A) B) C) D)

122)

Transferred to the General Fund. Retained in the capital projects fund. Transferred to the debt service fund. None of the choices are correct.

The following are sources of funds for the debt service fund except:

A) B) C) D)

123)

$445,000. $450,000. $345,000. $350,000.

Tax levies specifically designed for debt service. General taxes levied by the General Fund and transferred to the debt service fund. Special assessments levied against property. All of the choices are sources of funds for the debt service fund.

Which of the following is/are true regarding Capital Projects Funds?

A) A major source of funding for capital projects funds is the issuance of long-term debt. B) Capital project funds only exist for the duration of the project for which it is created. C) Capital Project funds use the Modified Accrual Basis of Accounting. D) All of the choices are true.

124) A nonexpendable trust which benefits a government or its citizenry and which stipulates that earnings only (not principal) may be used for its provided purpose should be reported in a:

A) Permanent Fund. B) Special Revenue Fund. C) Private-purpose Trust Fund. D) Any of the these accounts may be used at the discretion of the recipient organization.

125) The following description provides the best definition for which fund: Accounts for resources that are legally restricted and both earnings and principal may be used to support government programs.

A) B) C) D)

Capital projects. Special Revenue. General Fund. Permanent.

126) A construction contract was issued for an addition to the county jail in the amount of $2,300,000. When the project was approximately half finished, the contractor submitted an invoice for payment of $1,150,000. Which partial entry below is not required to record this transaction?

A) B) C) D)

Credit Contracts Payable $1,150,000. Debit Expenditures—Capital Outlay $1,150,000. Credit Encumbrances Control $2,300,000. Credit Encumbrances Control $1,150,000.

127) Which of the following serial bonds has the first scheduled installment delayed for a period of more than 1 year after the date of the issue?

A) B) C) D)

128)

Annuity Serial Bonds. Regular Serial Bonds. Irregular Serial Bonds. Deferred Serial Bonds.

Capital project funds record the proceeds of debt issued as:

A) B) C) D)

Liabilities. Other Financing Sources. Revenues. Expenses.

129) The journal entry for the Debt Service fund upon the receipt of money from the General Fund would be:

A) B) C) D)

Debit to Cash and credit to Other Financing Uses—Transfer Out. Debit to Cash and a credit to Transfers Payable. Debit to Other Financing Sources—Transfer In and credit to Cash. Debit to Cash and credit to Other Financing Sources—Transfer In.

130) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021. How would the bond sale be recorded?

A) B) C) D)

As an other financing source in the debt service fund. As a liability in the debt service fund. As a liability in the capital projects fund. As an other financing use in the capital projects fund.

131) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021. The amount of capital outlay expenditures reported by the capital projects fund would be:

A) B) C) D)

$1,990,000. $2,010,000. $2,030,000. $2,000,000.

132) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021. How would the government account for the transfer of the unused bond proceeds? .

A) As an other financing source in the debt service fund and as an other financing use in the capital projects fund. B) As a revenue in the debt service fund and as an expenditure in the capital projects fund. C) As an other financing source in the capital projects fund and as an other financing use in the debt service fund. D) As a special item in both the debt service and capital project funds.

133) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021.

How would receipt of the $40,000 premium be accounted for?

A) B) C) D)

As an other financing source in the capital project fund. Amortized to interest expenditure in the debt service fund. Both of the choices are correct. Neither of the choices is correct.

134) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021. What would be the amount of expenditures recorded by the debt service fund for the fiscal year ended December 31, 2020?

A) B) C) D)

$150,000. $100,000. $95,000. $50,000.

135) During the fiscal year ended December 31, 2020, the City of Johnstown issued 5% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,990,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $10,000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2020 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2021.

What would be the amount of expenditures recorded by the debt service fund for the fiscal year ended December 31, 2021?

A) B) C) D)

136)

$200,000. $245,000. $250,000. $295,000.

Which of the following is not correct with respect to the General Fund?

A) There can only be one general fund. B) Only the general fund has a positive unassigned fund balance. C) The general fund may be combined with funds that are insignificant in amount for presentation purposes. D) The general fund has an indefinite life.

137)

Regarding capital projects funds, which of the following is correct?

A) Capital projects funds exist only for the duration of the project for which it is created. B) Expenditures are recorded as temporary assets until the project is completed. C) Capital projects funds use accrual accounting. D) Monies received from the general fund are recorded as revenues in the capital projects funds.

138)

Regarding Capital Projects Funds, which of the following is incorrect?

A) Expenditures of capital projects funds are reported in the capital outlay character classification in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. B) Capital outlay expenditures result in additions to the governmental fixed assets reported in the government-wide Statement of Net Position. C) Taxes or other revenues raised specifically for a capital project are recorded as transfers in the capital projects fund. D) Grants, entitlements, or shared revenues received by a capital projects fund from another governmental unit are considered revenues of the capital projects fund, as is interest earned on temporary investments of the capital projects fund.

139)

With respect to Debt Service Funds, which of the following is incorrect?

A) Debt service funds are used to account for financial resources that are intended to provide payments of interest and principal on general long-term debt as they come due. B) Debt service funds are not created for debt issues where the activities of proprietary funds are intended to generate sufficient cash to make interest and principal payments. C) If taxes and/or special assessments are levied specifically for payment of interest and principal on long-term debt, those taxes are recognized as revenues of the debt service fund. D) Interest on long-term debt is generally accrued; it is recognized as an expenditure in the year in which the interest liability is incurred.

140)

With respect to Debt Service Funds, which of the following is correct?

A) Debt service funds may be required to service term and serial bonds, notes, capital leases, or warrants. B) Debt service funds are used to account for financial resources that are intended to provide payments of principal only as they come due. C) Debt service funds are created for debt issues where the activities of proprietary funds generate sufficient cash to make interest and principal payments. D) If taxes and/or special assessments are levied specifically for payment of interest and principal on long-term debt, those taxes are recognized as transfers in for the debt service fund.

141)

Which of the following statements is correct?

A) All the expenditures of a capital project fund are for capital assets and are recorded as restricted fund balance in the fund-basis statements. B) The principal of a permanent fund is classified as nonspendable fund balance. C) Long-term assets are depreciated in the capital projects fund. D) Interest on bonds issued for a school building would be paid by the capital projects fund.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 142) Write yes or no in each box to indicate whether each property applies to the following funds: Fund Name

Modified Accrual Basis

Financial Resource Focus

Record Budgets

Use Encumbrances

Indefinite Life

General Fund Special Revenue Capital Projects Debt Service Permanent

143) The General Fund is always considered to be a major fund. When are other governmental funds considered major?

144)

What is the difference between Permanent Funds and Private Purpose Trust Funds?

145)

What is a bond refunding and why do governments refund bonds?

146)

What is the difference between a current refunding and advance refunding?

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 147) On 9/1/2020 Steuben County sold bonds at par value in the amount of $9,000,000 to finance construction of a new library. On 10/10/2020 Steuben County entered into a contract with a private contractor to build a new library building in the amount of $8,600,000. On 12/1/2020, when the contract was partially finished, the contractor submitted a bill for $4,500,000. The bill was paid on 12/15/2020 less Steuben's standard 5% retention to assure any construction deficiencies are corrected. Steuben County operates on a December 31 fiscal year.Required:Prepare the journal entries required in the Capital Projects Fund for the above transactions including closing entries.

148) On January 1, 2020, the Town of Walton issued $ 4,000,000 of 4% tax supported bonds. The bonds are dated January 1, 2020 with interest payment dates of June 30 and December 31. The first of 10 annual principal payments is due on December 31, 2020. The bonds were sold at a $38,400 premium that was transferred to the Debt Service Fund from the capital projects fund to be used to fund the first payment. Cash sufficient to cover interest and principal payments for the year less the premium is transferred from the General Fund on June 1st.Required:Record any and all entries to be made by the Debt Service Fund for the bond issued for the year 2020 (including closing entries)

149) The Village of Little River had the following transactions related to the construction of a new courthouse.(a) 1/2/2020: 20 year 4% General Obligation Serial Bonds with a face value of $3,000,000 are issued at 101. Interest and principle payments are made on Jan. 1 and July 1 of each year. The premium was transferred into the Debt Service Fund. The General Fund will fully fund each payment as they become due.(b) 3/1/2020: Land is purchased for a new park at a cost of $175,000.(c) 3/1/2020: A contract is signed for landscaping and construction of various structures in the park in the amount of $2,600,000.(d) 6/15/2020: $135,000 is transferred from the General Fund for the 7/1 payment due on the courthouse fund serial bonds.(e) 7/1/2020: Interest ($60,000) and principal ($75,000) are paid on the courthouse fund serial bonds.(f) 12/1/2020: Receive an invoice for progress completed to date on the courthouse construction project in the amount of $1,716,000.(g) 12/27/2020: $58,500 is transferred from the General Fund for the 1/1/21 interest payment due on the courthouse fund serial bonds. Interest is accrued as of 12/31/2020, following the exception permitted by GASB.Required: Prepare a Statement of Revenues, Expenditures and Changes in Fund Balance for the Capital Projects and Debt Service Funds. Assume this is the first year for each fund (beginning fund balances are zero) and the Village has no other long-term debt than that described above. Assume that the Village does not retain a percentage of construction costs and the invoice is paid in full. Use separate columns for the two funds.

150) The City of Dundee received a gift of $605,000 from a local resident on April 1, 2020 and signed an agreement that the funds would be invested permanently and that the income would be used to maintain the city cemetery. The following transactions took place during the year ended December 31, 2020.(a) The gift was recorded on April 1.(b) On April 1, 2020, XYZ Company bonds were purchased in the amount of $600,000, at par. The bonds carry an annual interest rate of 4 percent, payable semiannually on October 1 and April 1.(c) On October 1, the semiannual interest was received.(d) From October 1 through December 1, payments were made totaling $15,900 to a lawn service company.(e) On December 31, an accrual was made for interest.(f) Also, on December 31, a reading of the financial press indicated that XYZ bonds had a fair value of $ 603,000, exclusive of accrued interest.(g) The books were closed.Required: A. Record the transactions on the books of the Cemetery Perpetual Care Fund. B. Prepare a separate Statement of Revenues, Expenditures, and Changes in Fund Balances for the Cemetery Perpetual Care Fund for the Year Ended December 31, 2020.

151) The Town of Presho had the following transactions related to the construction of a new courthouse.(a) 1/2/2020: 20 year 4% General Obligation Serial Bonds with a face value of $6,000,000 are issued at 101. Interest and principle payments are made on Jan. 1 and July 1 of each year. The premium was transferred into the Debt Service Fund. The General Fund will fully fund each payment as they become due.(b) 3/1/2020: Land is purchased for a new courthouse at a cost of $250,000.(c) 3/1/2020: A contract is signed for construction of the new courthouse in the amount of $5,400,000.(d) 6/15/2020: Cash ($210,000) sufficient to cover interest and principal payments for the year less the premium is transferred from the General Fund.(e) 7/1/2020: Interest ($120,000) and principal ($150,000) are paid on the courthouse fund serial bonds.(f) 12/1/2020: Receive an invoice for progress completed to date on the courthouse construction project in the amount of $4,700,000.(g) 12/27/2020: $117,000 is transferred from the General Fund for the 1/1/2020 interest payment due on the courthouse fund serial bonds. Interest is accrued as of 12/31/2020, following the exception permitted by GASB.Required: Prepare a Statement of Revenues, Expenditures and Changes in Fund Balance for the Capital Projects and Debt Service Funds. Assume this is the first year for each fund (beginning fund balances are zero) and the City has no other long-term debt than that described above. Use separate columns for the two funds.

152) The City of St. David received a gift of $2,000,000 from a local resident on April 1, 2020 and signed an agreement that the funds would be invested permanently and that the income would be used to maintain the city cemetery. The following transactions took place during the year ended December 31, 2020.(a) The gift was recorded on April 1.(b) On April 1, 2020, XYZ Company bonds were purchased in the amount of $1,950,000, at par. The bonds carry an annual interest rate of 5 percent, payable semiannually on October 1 and April 1.(c) On October 1, the semiannual interest was received.(d) From October 1 through December 1, payments were made totaling $16,000 to a lawn service.(e) On December 31, an accrual was made for interest.(f) Also, on December 31, a reading of the financial press indicated that XYZ bonds had a fair value of $1,945,000, exclusive of accrued interest.(g) The books were closed.Required: A. Record the transactions on the books of the Cemetery Perpetual Care Fund. B. Prepare a separate Statement of Revenues, Expenditures, and Changes in Fund Balances for the Cemetery Perpetual Care Fund for the Year Ended December 31, 2020. C. Prepare the Balance Sheet for the Cemetery Perpetual Care Fund for the year ended December 31, 2020.

153) In 2020, the Town of Alfred issued $ 1,500,000 of 4% tax supported bonds. The bonds are dated January 1, 2020 with interest payment dates of June 30 and December 31. The first of 10 annual principal payments is due on December 31, 2020. The bonds were sold at a $16,000 discount. Cash sufficient to fully fund interest and principal payments for the year is transferred from the General Fund on June 1st. Required: Record any and all entries to be made by the Debt Service Fund for the bond issued for the year 2020 (including closing entries)

Answer Key Test name: Chapter 5: Accounting for Other Governmental Fund Types: Capital Projects, Debt 1) FALSE 2) FALSE 3) FALSE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) FALSE 16) FALSE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) FALSE 24) FALSE 25) FALSE .

26) TRUE 27) FALSE 28) TRUE 29) TRUE 30) TRUE 31) FALSE 32) TRUE 33) FALSE 34) FALSE 35) TRUE 36) TRUE 37) TRUE 38) FALSE 39) TRUE 40) TRUE 41) FALSE 42) FALSE 43) FALSE 44) TRUE 45) TRUE 46) TRUE 47) FALSE 48) TRUE 49) TRUE 50) TRUE 51) TRUE 52) TRUE 53) FALSE 54) FALSE 55) FALSE .

56) TRUE 57) TRUE 58) TRUE 59) FALSE 60) FALSE 61) TRUE 62) FALSE 63) FALSE 64) FALSE 65) TRUE 66) TRUE 67) FALSE 68) TRUE 69) A 70) C 71) D 72) D 73) D 74) B 75) D 76) D 77) A 78) C 79) D 80) A 81) B 82) C 83) C 84) D 85) A .

86) D 87) A 88) D 89) C 90) A 91) A 92) D 93) A 94) C 95) C 96) D 97) C 98) C 99) B 100) A 101) B 102) C 103) B 104) C 105) A 106) D 107) C 108) D 109) B 110) A 111) D 112) A 113) C 114) D 115) C .

116) B 117) B 118) D 119) A 120) A 121) C 122) D 123) D 124) A 125) B 126) C 127) D 128) B 129) D 130) D 131) A 132) A 133) A 134) D 135) D 136) C 137) A 138) C 139) D 140) A 141) B 142) Fund Name

General Fund

Modified Accrual Basis Yes

Financial Resource Focus Yes

Record Budgets

Use Encumbrances

Indefinite Life

Yes

Special Revenue Capital Projects Debt Service Permanent

Yes

143) Other governmental funds are considered major if both the following criteria exist:Total assets, liabilities, revenues, or expenditures of that individual governments fund are at least 10% of the corresponding total for all governmental fundsTotal assets, liabilities, revenues, or expenditures of the individual governmental fund are at least 5% of the corresponding total for all governmental and enterprise funds combined. 144) Permanent Funds and Private Purpose Trust funds differ in both purpose and accounting treatment. The purpose of a Private Purpose trust fund is to generate income to benefit individuals, private organizations, or other governments. The purpose of a Permanent Fund is to provide income to benefit the government and its citizenry. This difference in purpose results in significant differences in the accounting. Permanent Funds are accounted for using the modified accrual basis and current financial resources measurement focus while Private Purpose Trust Funds are accounted for on the accrual basis and the economic resources measurement focus. Additionally, Permanent Fund balances are included in the government-wide financial statements, while Private Purpose Trust Funds (like all Fiduciary funds) are not. 145) A Bond refunding is issuing new debt to replace old debt. Examples of reasons why governments would refund debt are to obtain better interest rates, get out from under onerous debt covenants or change the maturity of the debt.

146) Current refunding exists when new debt is issued and the proceeds are used to call the existing debt. Advance refunding exists when the proceeds are placed in an escrow account pending the call date or the maturity date of the existing debt. 147) 9/1/2020: Cash

$ 9,000,000

Other financing sources: proceeds of bonds

$ 9,000,000

10/10/2020: Encumbrances control

$ 8,600,000

Budgetary Fund Balance — Reserve for encumbrances

$ 8,600,000

12/1/2020: Budgetary Fund Balance — Reserve for encumbrances Construction expenditures control

$ 4,500,000 $ 4,500,000

Encumbrances control

$ 4,500,000

Contracts payable

$ 4,500,000

12/15/2020: Contracts payable

$ 4,500,000

Cash

$ 4,275,000

Contracts payable – retained percentage

225,000

Closing: Budgetary Fund Balance — Reserve for encumbrances Encumbrances control

$ 4,100,000 $ 4,100,000

(This entry will be reversed in 2020 to re-establish the encumbrance)

Other financing sources: Proceeds of bonds

$ 9,000,000

Construction expenditures control

$ 4,500,000

Fund Balance (Restricted)

$ 4,500,000

148) 1/1/2020 Cash

38,400

Other Financing Sources-Transfer In

38,400

(Transfer of Premium on Bonds from CPF)

6/1/2020 Cash

521,600

Other Financing Sources-Transfer In

521,600

Interest, June 30 (4,000,000 × .04 × 1/2)

80,000

Interest, Dec. 31 (4,000,000 × .04 × 1/2)

80,000

Principal, Dec. 31 (4,000,000/10)

400,000

TOTAL CASH NEEDED

560,000

Less: Premium

(38,400 )

Cash Needs (Net)

521,600

6/30/2020 Expenditure-Bond Interest

80,000

Cash

80,000

12/31/2020 Expenditure-Bond Interest

80,000

Expenditure-Bond Principal

400,000

Cash

480,000

Closing Entries: Other Financing Sources-Premium on Bonds

38,400

Other Financing Sources-Transfers In

521,600

Expenditures-Bond Interest

160,000

Expenditures-Bond Principal

400,000

149) VILLAGE OF LITTLE RIVER CAPITAL PROJECTS AND DEBT SERVICE FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE YEAR ENDED DEC. 31, 2020

Courthouse Capital Projects Fund Revenues

Courthouse Bonds Debt Service Fund $ 0

Expenditures: Capital Outlay

1,891,000

Debt Service Interest

118,500

Principal

75,000

Total Expenditures

1,891,000

193,500

Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses):

(1,891,000 )

(193,500 )

Proceed of Bonds

3,030,000

Transfers In (out)

(30,000 )

223,500

Total Other Financing Sources

3,000,000

223,500

Net Change in Fund Balance

1,109,000

30,000

Fund Balance- Jan. 1, 2020

Fund Balance- Dec. 31, 2020

1,109,000

30,000

150) A. CITY OF DUNDEE CEMETERY PERPETUAL CARE FUND GENERAL JOURNAL Debits 1. Cash

Credits

605,000

Revenues-Additions to Permanent Endowments

2. Investments-XYZ Company Bonds

605,000

600,000

Cash

600,000

12,000

Revenues-Investment Income-Interest

4. Expenditures-Cemetery

12,000

15,900

Cash

5. Accrued Interest Receivable

15,900

6,000

Revenues-Investment Income-Interest

6. Investment-XYZ Company Bonds

6,000

3,000

Revenues-Investment Income-Net Increase in Fair Value of Investments

7. Revenues-Additions to Permanent Endowments

3,000

605,000

Revenues-Investment Income-Interest

18,000

Revenues-Investment Income-Net Increase in Fair Value of Investments Expenditures-Cemetery

3,000 15,900

Fund Balance-Restricted for Other Purposes

10,100

Fund Balance Nonspendable – (corpus)

600,000

B. CITY OF DUNDEE-PERPETUAL CARE FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2020 Revenues: Addition to Permanent Endowment

$ 605,000

Investment Income: Interest

18,000

Net Increase in Fair Value of Investments

3,000

Total Revenues

626,000

Expenditures: Maintenance of City Cemetery

15,900

Excess of Revenues Over Expenditures

610,100

Fund Balance-Beginning

Fund Balance-Ending

$ 610,100

151) TOWN OF PRESHO CAPITAL PROJECTS AND DEBT SERVICE FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE YEAR ENDED DEC. 31, 2020 Courthouse Capital Projects Fund Revenues

Courthouse Bonds Debt Service Fund $ 0

Expenditures: Capital Outlay

4,950,000

Debt Service Interest

237,000

Principal

150,000

Total Expenditures

4,950,000

387,000

Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses):

(4,950,000 )

(387,000 )

Proceed of Bonds

6,060,000

Transfers In (out)

(60,000 )

387,000

Total Other Financing Sources

6,000,000

387,000

Net Change in Fund Balance

1,050,000

Fund Balance- Jan. 1, 2020

Fund Balance- Dec. 31, 2020

1,050,000

152) A. CITY OF ST. DAVID CEMETERY PERPETUAL CARE FUND GENERAL JOURNAL Debits a. Cash

2,000,000

Revenues-Additions to Permanent Endowments

b. Investments-XYZ Company Bonds Cash

Credits

2,000,000

1,950,000 1,950,000

Cash

48,750

Revenues-Investment Income-Interest

d. Expenditures-Cemetery

48,750

16,000

Cash

16,000

e. Accrued Interest Receivable

24,375

Revenues-Investment Income-Interest

24,375

Investment Income - Net Decline in Fair Value of Investments Investment-XYZ Company Bonds

5,000

g. Revenues-Additions to Permanent Endowments

2,000,000

Revenues-Investment Income-Interest

5,000

73,125

Investment Income - Net Decline in Fair Value of Investments Expenditures-Cemetery Fund Balance

5,000 16,000 2,052,125

B. CITY OF ST. DAVID-PERPETUAL CARE FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2020 Revenues:

Addition to Permanent Endowment

$ 2,000,000

Investment Income: Interest

73,125

Total Revenues

2,073,125

Investment income (loss) − Net Decline in Value of Investments Net Revenues

(5,000 ) 2,068,125

Expenditures: Maintenance of City Cemetery Excess of Revenues Over Expenditures

16,000 2,052,125

Fund Balance-Beginning Fund Balance-Ending

0 $ 2,052,125

C. CITY OF ST. DAVID-PERPETUAL CARE FUND BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 2020 Assets Cash Investments Interest receivable Total Assets

82,750 1,945,000 24,375 2,052,125

Liabilities & Fund Balance Fund Balance: Nonspendable: Permanent Fund Principal

2,000,000

Assigned: Cemetery Care

52,125

Total Fund Balance Total Liabilities and Fund

2,052,125 $

2,052,125

153) 1/1/2020 No entry required

6/1/2020 Cash

210,000

Other Financing Sources-Transfer In

210,000

Interest, June 30 (1,500,000 × .04 × 1/2)

30,000

Interest, Dec. 31 (1,500,000 × .04 × 1/2)

30,000

Principal, Dec. 31 (1,500,000/10)

150,000

TOTAL CASH NEEDED

210,000

6/30/2020 Expenditure-Bond Interest Cash

30,000 30,000

12/31/2020

Expenditure-Bond Interest

30,000

Expenditure-Bond Principal

150,000

Cash

180,000

Closing Entries: Other Financing Sources-Transfers In

210,000

Expenditures-Bond Interest

60,000

Expenditures-Bond Principal

150,000

Chapter 6:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Proprietary funds use the modified accrual basis of accounting. ⊚ ⊚

true false

2) Enterprise Funds and Internal Service Funds are part of the larger category of Proprietary Funds. ⊚ ⊚

true false

3) Internal Service Funds account for activities that produce goods or services to be provided to outside customers on a cost-reimbursement basis. ⊚ ⊚

true false

4) Enterprise funds are used to account for activities similar to those engaged in profitseeking businesses. ⊚ ⊚

true false

5) Financial statements for proprietary funds are prepared using accrual basis of accounting and the economic resources measurement focus. ⊚ ⊚

Budgetary comparison schedules are not required for proprietary funds. ⊚ ⊚

true false

7) An enterprise fund should be used when the government has a policy to establish fees to cover the costs of providing services for an activity. ⊚ ⊚

true false

An enterprise fund should be used when debt is back solely by fees and charges. ⊚ ⊚

true false

9) An enterprise fund should be used when a legal requirement exists that the cost of providing services are to be recovered through fees or charges. ⊚ ⊚

true false

10) Proprietary Funds use the accrual basis of accounting and the economic resources measurement focus. ⊚ ⊚

11)

Enterprise funds are reported in the fund-basis statements only. ⊚ ⊚

12)

true false

Internal Service funds are reported in the fund-basis statements only. ⊚ ⊚

true false

13) Activities that produce goods or services to be provided to other departments or other governmental units on a cost-reimbursement basis are accounted for by enterprise funds.

⊚ ⊚

14)

true false

The excess of assets over liabilities of proprietary funds is termed "Net Position." ⊚ ⊚

true false

15) Enterprise funds use the economic resources measurement focus and accrual basis of accounting. ⊚ ⊚

true false

16) An enterprise fund is required if there is a legal requirement that the cost of providing services for an activity, including capital costs, be recovered through fees or charges. ⊚ ⊚

true false

17) An internal service fund is required whenever an activity is funded by fees or charges from other government departments. ⊚ ⊚

true false

18) Unlike enterprise funds, it is frequently desirable for internal service funds to operate at a profit. ⊚ ⊚

true false

19) The most numerous and important enterprise services rendered by local governments are public utilities.

⊚ ⊚

20)

true false

The term "proprietary funds" includes enterprise and internal service funds. ⊚ ⊚

true false

21) Proprietary funds use the economic resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

22) Fund-basis financial statements prepared for proprietary funds include the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position, and the Statement of Cash Flows. ⊚ ⊚

true false

23) Proprietary funds do not record capital assets, depreciation on those capital assets, and long-term debt. ⊚ ⊚

true false

24) Investment pools are an example of an activity that may be accounted for in an internal service fund. ⊚ ⊚

true false

25) Cash flow statements of proprietary funds must use the direct method for recording cash flows from operations.

⊚ ⊚

true false

26) Municipal solid waste landfills, when accounted for as proprietary funds, record a liability for closure and post-closure care costs; recording expenses on a units of production basis. ⊚ ⊚

true false

27) The Proprietary Fund Statement of Net Position may choose whether to classify assets and liabilities between current and long-term. ⊚ ⊚

true false

28) When estimating uncollectible accounts, an enterprise fund will record a debit to Bad Debt Expense and a credit to Accumulated Provision for Uncollectible Accounts. ⊚ ⊚

true false

29) Impact fees charged to real estate developers are recorded in an enterprise fund as capital contributions, a nominal account that will increase Net Position, but is reported separately in the statement of Revenues, Expenses, and Changes in Fund Net Position. ⊚ ⊚

true false

30) Post-closure costs are recorded in a solid waste landfill enterprise fund at the present value of estimated future costs. ⊚ ⊚

true false

31) Long term liabilities of an enterprise fund are reported in the proprietary fund statement and in government-wide statements. ⊚ ⊚

true false

32) Capital assets constructed by an internal service fund are recorded in a capital projects fund. ⊚ ⊚

true false

33) The Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position must include a performance indicator, such as operating income. ⊚ ⊚

true false

34) GASB requires that the reconciliation of income and cash flows from operations starts with an enterprise fund’s operating income. ⊚ ⊚

true false

35) FASB requires that the reconciliation of income and cash flows from operations starts with operating income. ⊚ ⊚

true false

36) The four categories on the Statement of Cash Flows for a proprietary fund are operating, noncapital financing activities, capital, and related financing activities, and investing activities. ⊚ ⊚

true false

37)

An Enterprise Fund has an indefinite life. ⊚ ⊚

true false

38) The Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balances are required for Proprietary funds. ⊚ ⊚

true false

39) Proprietary funds are required to have a Statement of Revenues, Expenses, and Change in Fund Net Position, a Statement of Net Position, but not a Statement of Cash Flows. ⊚ ⊚

true false

40) GASB Cash Flow Statements require the indirect method to determine cash flows from operating activities. ⊚ ⊚

true false

41) GASB Cash Flow Statements require the following classification of cash flows: Operating, Investing, and Financing. ⊚ ⊚

true false

42) The reconciliation on the statement of cash flows for a proprietary fund under GASB requirements is between operating income and cash flows from operating activities. ⊚ ⊚

true false

43) Proprietary funds use the current financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

44) Long term debt serviced from proprietary funds is recorded in the Long Term Debt Account Group. ⊚ ⊚

true false

45) Long term debt serviced from proprietary funds is reported only in the government-wide Statement of Net Position. ⊚ ⊚

true false

46) According to GASB, restricted Net Position does not include net resources under constraints imposed by creditors, grantors, contributors, laws or regulations of other governments. ⊚ ⊚

true false

47) According to GASB, restricted Net Position include those that are the results of constraints imposed by law through constitutional provisions or enabling legislation. ⊚ ⊚

true false

48) Proprietary funds report using the economic resources measurement focus and the accrual basis of accounting. ⊚ ⊚

true false

49) Proprietary funds use the current financial resources measurement focus and modified accrual basis of accounting. ⊚ ⊚

true false

50) Unlike internal service funds, it is frequently desirable for enterprise funds to operate at a profit. ⊚ ⊚

true false

51) If the accounting treatment for a given transaction is not specified by a GASB pronouncement, a government may use nonauthoritative sources for guidance, including FASB standards dealing with similar events. ⊚ ⊚

true false

52) The required financial statements of proprietary funds include a Statement of Net Position, a Statement of Revenues, Expenses, and Changes in Fund Net Position. The Statement of Cash Flows is recommended, but not required. ⊚ ⊚

true false

53) With respect to proprietary funds, the net position (i.e., fund equity) section of the Statement of Net Position is displayed within two categories: Restricted and Unrestricted Net Position. ⊚ ⊚

true false

54) Proprietary funds must prepare the Statement of Cash Flows using the direct method and includes cash flows from operating activities, investing activities, capital and related financing activities, and noncapital-related financing activities. ⊚ ⊚

true false

55) As was true for governmental funds, major enterprise funds are to be presented, along with columns for nonmajor funds and total enterprise funds, where appropriate. ⊚ ⊚

56)

true false

Major enterprise funds are to be presented in the aggregate with all funds combined. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 57) Which of the following statements is true regarding proprietary funds?

A) Accruals and deferrals common to business accounting are recorded in proprietary funds. B) GASB standards require budget-actual reporting for proprietary funds. C) The purchase of a capital asset is recorded as an expenditure in proprietary funds. D) Proprietary funds use the modified accrual basis of accounting.

58) Centralized purchasing, computer services, and janitorial services are examples of activities that are commonly reported in:

A) Enterprise funds. B) Capital project funds. C) Debt service funds. D) Internal service funds.

59)

Internal service funds account for:

A) Activities that produce goods or services to be provided to other governmental units on a cost-reimbursement basis. B) Activities that produce goods or services to be provided to outside consumers units on a cost-reimbursement basis. C) Both of the choices are correct. D) Neither of the choices is correct.

60) An example of an activity that would not normally be accounted for in an internal service fund would be:

A) B) C) D)

Print shop. Garbage collection. Central storeroom. Motor pool.

61) An example of an activity that would not normally be accounted for in an enterprise fund would be:

A) B) C) D)

62)

Lottery. Swimming pool. Centralized government motor pool. Airport.

Which financial statements are required for a proprietary fund?

A) Statement of Revenues, Expenses, and Changes in Fund Net Position and Statement of Net Position. B) Income statement, Statement of Net Position and Statement of Cash Flows. C) Statement of Revenues, Expenses, and Changes in Fund Net Position, Statement of Net Position and Statement of Cash Flows. D) Income statement and Statement of Cash Flows.

63)

Which of the following is correct with respect to Internal Service Funds?

A) Internal service funds use modified accrual accounting and the current financial resources measurement focus. B) Net position is to be reported in two categories: assigned and unassigned. C) Internal service funds account for long-term debt but not capital assets. D) All of the choices are false statements.

64) The categories of Net Position for a proprietary fund are classified within which of the following categories?

A) Committed Net Position, Assigned Net Position, and Unassigned Net Position. B) Net Investment in Capital Assets, Restricted Net Position, and Unrestricted Net Position. C) Spendable Net Position and Spendable Net Position. D) Restricted Fund balance, Committed Fund balance, Assigned Fund Balance, and Nonspendable Fund Balance.

65)

Restricted Net Position for a proprietary fund is:

A) net resources whose use is restricted by users of the services. B) reported net of depreciation. C) reported net of accumulated depreciation and any outstanding debt used to acquire the asset. D) net resources whose use is restricted by creditors, grantors, laws or regulations of other governments.

66)

Which of the following is not true regarding proprietary funds?

A) Enterprise funds are used by governments to account for services provided to the general public on a user-charge basis. B) General obligation bonds that will be paid from enterprise revenues must be reflected in the accounts of enterprise funds. C) Internal service self-insurance should set fees based on anticipated charges or a long-range plan to break even over time. D) The operation of internal service funds has no impact on other funds because it is run as a business and provides services that would have been purchased elsewhere by the other funds.

67)

GASB requires enterprise funds to be used under which of the following circumstances?

A) When the legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees or charges. B) When debt is backed solely by fees and charges. C) When a government has a policy to establish fees and charges to cover the cost of providing services for an activity. D) All of the choices are correct.

68) According to GASB, restricted net position are resources that are the result of constraints from:

A) Imposed by law though constitutional provisions. B) Imposed by enabling legislation. C) Imposed by creditors or grantors. D) All of the choices are correct.

69)

Proprietary funds:

A) are required to present budget-actual statements in the fund statements. B) are required to present a reconciliation between the Statement of Revenues, Expenses, and Changes in Fund Net Position and the Cash Flow Statement. C) are not required to accrue interest due more than 30 days after the end of the fiscal year. D) are required to present a Statement of Revenues and Expenses and Balance sheet.

70) When governments operate landfills as enterprise funds, which of the following is correct?

A) GASB requires that certain post-closure costs be estimated and accrued during the period the landfills receive solid waste. B) GASB requires that a portion of future estimated costs be charged as an expense and liability of the landfill using units-of-production method as waste is accepted. C) The purpose of recording post-closure expenses and liabilities is to match the estimated costs with the revenues during the period of time the waste is accepted. D) All of the choices are correct.

71) The Statement of Cash Flows for a proprietary fund would include which of the following?

A) B) C) D)

Operating, investing, financing. Operating, capital and related financing, investing. Operating, investing, fiduciary and capital related financing activities. Operating, investing, capital and related financing and noncapital related financing.

72)

Pollution remediation costs:

A) are to be accrued as a liability in the financial statements. B) are recorded as expenses if they will be paid from current resources. C) are not an issue as the state or local government merely used (but did not operate) the polluted site. D) All of the choices are correct.

73)

Proprietary funds utilize what basis of accounting?

A) B) C) D)

Modified accrual. Accrual. Cash. Budgetary.

74) Which of the following are best described as proprietary funds? I. Pension fundsII. Enterprise fundsIII. Recording and reporting transactions of internal service funds

A) I only. B) II and III. C) I and III. D) I, II, and III.

75) Activities that produce goods or services to be provided to other departments or other governmental units would be reported in which fund?

A) Internal service fund. B) Advance fund. C) Enterprise fund. D) Custodial fund.

76) Governmental units use which fund type to account for services provided to the general public on a user-charge basis?

A) B) C) D)

77)

Solid waste landfills are required to estimate the cost of closure which include:

A) B) C) D)

78)

General Fund. Internal service fund. Permanent fund. Enterprise fund.

cost of equipment used. cost of landfill cover. cost of caring for the site for 30 years. All of the choices are correct.

The estimated costs of closure of solid waste landfills are measured using:

A) B) C) D)

Estimated future costs. Current costs. Historical costs. Actual closure costs.

79) For landfills accounted for as enterprise funds, a portion of the estimated cost of closure of solid waste landfills should be charged as an expense and a liability of the landfill operation each year on a:

A) B) C) D)

Actual cost method. Units-of-production method. Estimated cost method. None of the choices are correct.

80)

Which of the following is true of the Statement of Net Position for proprietary funds?

A) A classified format is used in which current assets, noncurrent assets, current liabilities, and noncurrent liabilities are presented separately. B) Separate disclosure is required for major enterprise funds and a total for all nonmajor enterprise funds. C) Both of the choices are correct. D) Neither of the choices is correct.

81) Impact fees imposed on commercial developers by an enterprise fund and not associated with specific projects or improvements are recorded as:

A) B) C) D)

capital contributions to the enterprise fund. operating revenues to the enterprise fund. unearned revenue to the enterprise fund. transfers from the enterprise fund to a capital projects fund.

82) GASB requires the ________ method to report cash flows from operating activities in the Statement of Cash Flows.

A) B) C) D)

83)

indirect. direct. modified accrual. full accrual.

Which of the following is false regarding proprietary fund accounting?

A) The economic resources measurement focus and accrual accounting are used. B) Capital assets are recorded in the accounts and depreciated over their useful lives. C) The Statement of Net Position must be in a classified format, with current assets separated from noncurrent assets and current liabilities separated from noncurrent liabilities. D) In the Statement of Net Position, the Net position is reported as either reserved or unreserved.

84) Montgomery County operates a landfill as an enterprise fund. The closure and postclosure care costs are estimated to be $40 million. It is estimated that the capacity of the landfill is 16 million tons of waste and that waste will be accepted for 6 years. During 2020, 4 million tons of waste was accepted. The charge for closure and post-closure care costs for 2020 would be:

A) B) C) D)

$2.5 million. $8 million. $6.67 million. $10 million.

85) An internal service fund provided services to a General Fund department. At the time of billing, the credit entry in the internal service fund would be:

A) B) C) D)

Operating Revenues—Charges for Sales and Services. Other Financing Sources—Charges for Services. Due from General Fund. Other Financing Sources—Transfers In.

86) Revenue bonds sold by a water utility fund, upon sale, would be recorded in an enterprise fund as:

A) B) C) D)

Other Financing Sources—Proceeds of Bonds. A liability. A direct addition to Net Position. Nonoperating Revenues—Proceeds of Bonds.

87) Which of the following is true regarding the recording of long term debt in an enterprise fund?

A) When revenue bonds are sold at par, Cash is debited and Bonds Payable is credited. B) The bonds would be reported in both an enterprise fund and in the government-wide statements. C) Both of the choices are correct. D) Neither of the choices is correct.

88) Norton County operated a landfill, and accounted for it as an enterprise fund. The closure and post-closure care costs are estimated to be $20,000,000. It is estimated that the capacity of the landfill is 5 million tons of waste and that waste will be accepted for 10 years. During 2020, 750,000 tons of waste was accepted by the landfill. The charge for closure and post-closure care costs for 2020 would be:

A) $750,000. B) $2,000,000. C) $3,000,000. D) Impossible to determine from the information given.

89)

Which of the following is false regarding the cash flow statements of a proprietary fund?

A) A reconciliation is required between the Statement of Revenues, Expenses, and Changes in Fund Net Position and the cash flows from operating activities section of the Cash Flow Statement. B) Interest payments are reported as increases in cash flows from either capital and related financing or noncapital financing activities, whichever is appropriate. C) Purchases of equipment are reported in the investing section. D) All of the choices are false.

90)

Capital assets of an enterprise fund should be reported in the:

A) Government-Wide Statement of Net Position only. B) Proprietary Fund Statement of Net Position only. C) General Fixed Asset Account Group only. D) Government-Wide Statement of Net Position and Proprietary Funds Statement of Net Position.

91) Which of the following is true regarding the Statement of Cash Flows required by the GASB for proprietary funds?

A) Either the direct or indirect method may be used. B) Interest payments would be recorded as investing activities. C) Acquisition of capital assets with bond proceeds would be a decrease in cash provided by capital and related financing activities. D) Interest received on investments is reported as cash flows from operating activities.

92)

Which of the following is not true regarding proprietary funds?

A) Accrual accounting and the economic resource measurement focus are used. B) Statements required are the Balance Sheet, the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the Statement of Cash Flows. C) Long Term debt is recorded directly in the accounts. D) Proprietary funds financial reports include the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position, and Statement of Cash Flows.

93) Which of the funds listed below would include capital assets in its Statement of Net Position?

A) Permanent. B) Special Revenue. C) Internal Service. D) None of the choices are correct; no funds in governmental accounting have capital asset accounts.

94)

Long-term liabilities of an enterprise fund should be reported in the: Proprietary Fund Statements Government-Wide Statements

A) B) C) D)

No Yes Yes No

A) B) C) D)

No Yes No Yes

Option A Option B Option C Option D

95) Which of the following would generally be included in the Statement of Net Position of an Enterprise Fund? Reserve for Encumbrances No Yes Yes No

A) B) C) D)

Revenue Bonds Payable No Yes No Yes

Option A Option B Option C Option D

96) How should customer deposits held for water meters that cannot be spent for operating purposes be classified?

A) B) C) D)

97)

As restricted cash in an Enterprise Fund. As both cash and a liability in a Custodial fund. As Nonspendable fund balance in a Permanent Fund. Any of the choices are acceptable alternatives.

Which of the following is true regarding internal service funds?

Internal service funds provide services primarily to external users on a user-charge

basis. B) Internal service funds normally record the annual budget in the accounts. C) Internal service funds' capital assets are not accounted for in the accounts. D) Internal service funds use accrual accounting and the economic resources measurement focus.

98)

Indicate which of the following would not be an example of an internal service fund:

A) B) C) D)

City Self-Insurance Fund. City Print Shop. City Airport. City Data Processing Service Center.

99) If a government decides to account for its risk management activities in a single fund, it must use:

A) B) C) D)

100)

a Proprietary Fund. a Fiduciary Fund. a Special Revenue Fund. Either the General Fund or an Internal Service fund.

Capital assets of internal service funds should be reported:

A) B) C) D)

in the internal service funds only. in the government-wide statements only. in both the internal service funds and the government-wide statements. None of the choices are correct, they are not reported.

101) An internal service fund provided services to a General Fund department. At the time of billing, the debit entry in the General Fund would be:

A) B) C) D)

102)

other Financing Sources-Transfers Out. expenditures. operating Revenues-Charges for Services. expenses.

Revenue bonds sold by a water utility fund, upon sale, would be recorded:

A) B) C) D)

in an enterprise fund as "Other Financing Source". in the general long-term debt accounts as a liability. in an enterprise fund as a liability. in an enterprise fund as an addition to Net Position.

103) According to GASB, enterprise funds must be used in which of the following circumstances?

A) When debt is backed solely by fees and charges. B) When services are provided to other governmental units for a fee. C) When the activities are expected to make a profit to be used to fund other government programs. D) None of the choices are correct; enterprise funds are optional.

104)

The City of Thomasville had the following debt outstanding:

General obligation bonds to be paid from a debt service $ 2,900,000 fund General obligation bonds to be paid from utility $ 3,100,000 revenues Revenue bonds to be paid from utility revenues $ 3,400,000

The amount that should be shown as debt in the utility (enterprise) fund would be:

A) B) C) D)

105) .

$9,400,000. $6,500,000. $3,400,000. $3,100,000.

Which of the following is not true regarding enterprise funds? 24

A) B) C) D) Balance".

106)

Enterprise funds record long-term debt directly in the fund accounts. Enterprise funds record capital assets directly in the fund accounts. Enterprise funds report a Statement of Cash Flows. The difference between assets and liabilities of enterprise funds is termed "Fund

Which of the following is not true regarding enterprise funds?

A) Similar to commercial businesses, enterprise funds equity accounts include both contributed capital and retained earnings. B) A Statement of Revenues, Expenses, and Changes in Fund Net Position would be the primary operating statement for enterprise funds. C) Enterprise funds' Cash Flow Statements could have up to four categories. D) None of the choices; all are true.

107)

Which of the following would not be true regarding internal service funds?

A) Internal service funds use the economic resources measurement focus and accrual basis of accounting. B) Examples of internal service funds would include self-insurance funds, motor pool funds, and print shop funds. C) In the government-wide financial statements, internal service funds are most commonly reported in the business-type activities column. D) None of the choices; all are true.

108)

Which of the following would not be true regarding internal service funds?

A) Internal service funds use the economic resources measurement focus and accrual basis of accounting. B) Examples of internal service funds would include self-insurance funds, motor pool funds, and print shop funds. C) In the basic financial statements, internal service funds are reported in the proprietary funds financial statements. D) None of the choices; all are true.

109) In addition to a Statement of Net Position and Statement of Revenues, Expenses, and Changes in Fund Net Position, which of the following statements is (are) required for proprietary funds?

A) B) C) D)

Statement of Cash Flows. Budgetary Comparison Schedule. Neither of the choices is required. Both of the choices are required.

110) What is the appropriate accounting for the signing of a contract to build a new water treatment facility by an Enterprise Fund?

A) B) C) D)

111)

Which of the following is an example of an Internal Service Fund?

A) B) C) D)

Debit Encumbrances. Credit Budgetary Fund Balance - Reserve for encumbrances. Both of the choices are correct. No entry is required.

State Risk Management Fund. County Water and Sewer Utilities. State Lotteries. Municipal Golf Courses.

112)

Which of the following is not an example of an Enterprise Fund?

A) B) C) D)

Electric and Water Utilities. Public Libraries. Municipal Sports Stadiums. Computer Services.

113) Which fund accounts for activities that produce goods or services to be provided to other departments or other governmental units?

A) B) C) D)

114)

Enterprise fund. Internal Service fund. Special Revenue fund. Debt Service fund.

According to GASB, Enterprise funds must be used when:

A) debt is backed solely by fees and charges. B) a legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees or charges. C) a government has a policy to establish fees and charges to cover the cost of providing services for an activity. D) All the choices are correct.

115)

Which financial statements are required for proprietary funds?

A) Statement of Net Position; Statement of Revenues, Expenses, and Changes in fund Net Position; Statement of Cash Flows. B) Budgetary comparison schedule; Statement of revenues, expenditures, and changes in fund balance; Statement of Net Position. C) Statement of Net Position; Statement of revenues, expenditures, and changes in fund balances; Statement of Cash Flows. D) Statement of Net Position; Statement of Revenues, Expenses, and Changes in fund net position.

116)

All of the following are true about proprietary funds EXCEPT:

A) B) C) D)

They include Internal Service Funds and Enterprise Funds. A Statement of Cash Flows is required in accordance with FASB standards. The economic resources measurement focus is used. Accrual accounting is used as the basis of accounting.

117) When preparing the Statement of Cash Flows for the Proprietary Funds, cash flows from noncapital financing activities include all of the following EXCEPT:

A) B) C) D)

118)

The two types of proprietary funds include:

A) B) C) D)

Receipts from customers. Proceeds and repayment of debt not clearly related to capital outlay. Grants received from and paid to other governments for noncapital purposes. Transfers to and from other funds.

Enterprise funds and capital projects funds. Enterprise funds and internal service funds. Internal service funds and capital project funds. Custodial funds and enterprise funds.

119) Which of the following statements is true regarding estimated closure costs for municipal solid waste landfills, assuming that it is operating as an enterprise fund?

A) A portion of those future estimated costs is to be charged as an expense and a liability recorded based on a units-of-production method. B) Modified accrual principles apply and the amount expensed is limited to amounts expected to be paid during the year and within 60 days of year end. C) The estimated closure costs are expensed fully at the time of the estimate. D) None of the choice is true.

120)

Revenue bonds:

A) B) C) D) revenues.

carry less risk than general obligation bonds. are intended to be paid from the revenues of an enterprise. are no longer in existence. are backed by the full faith and credit of the government in addition to enterprise

121) The Water Utility (an enterprise fund) has just sent out a purchase order to a vendor for some new equipment. Which of the following would be included in the journal entry to record this event?

A) B) C) D)

A credit to Accounts Payable. A debit to Encumbrances. A debit to Expenditures. None of the choices are correct.

122) The city is using an internal service fund to self-insure its risk financing activities. Claims accrued or paid by this fund are recorded as:

A) B) C) D)

123)

Transfers out. Special Items. Operating Expenses. Nonoperating Expenses.

Which of the following would be found in an Enterprise Fund Financial Statement?

A) B) C) D)

Expenditure – Supplies. Reserve for Encumbrance. Appropriations. Depreciation Expense.

124) When an activity is created to provide goods or services to provide assistance to other departments or other governmental units, it should be accounted for in the:

A) B) C) D)

Special Revenue Fund. Internal Services Fund. Enterprise Fund. General Fixed Asset Group.

125) In the government-wide statements, Internal Service Funds are most commonly a(n) ________ activity, whereas Enterprise Funds are a(n) ________ activity.

A) B) C) D)

126)

business-type; governmental. governmental; business-type. restricted; unrestricted. unrestricted; restricted.

Which of the following funds use accrual accounting?

A) Internal Service Fund. B) Special Revenue Fund. C) Permanent Fund. D) Both Internal Service Fund and Special Revenue Fund.

127)

Which of the following is not correct regarding the GASB Cash Flow Statement?

A) income. B) C) Section. D)

128)

The reconciliation of income and cash flows from operations starts with operating Fixed Assets acquisitions are reported in the Capital and Related Financing Section. Cash received from Interest and Dividend Income is recorded in the Operating All of the choices are correct.

Which of the following is not correct with respect to proprietary funds?

A) Proprietary funds are used to account for activities similar to those often engaged in by commercial businesses. B) Users of goods or services are charged amounts at least sufficient to cover the costs of providing the goods or services. Thus, in the pure case, proprietary funds are self-supporting. C) Budgets may be prepared for proprietary funds to facilitate management of fund activities, but GASB standards do not require budget-actual reporting. D) Proprietary funds record only current financial resources and liabilities that will be settled with current financial resources.

129) Internal service and enterprise funds are both proprietary funds. Which of the following statements is correct?

A) They both use the economic resource focus and accrual accounting. B) Enterprise funds are used to report on activities that provide goods and services to other funds, departments who are charged on a cost-reimbursement basis. C) Enterprise funds are appropriate when the predominant user of goods and services is the government. D) Depreciation is not recorded in proprietary funds.

130)

Which of the following statements is correct?

A) B) C) D) than sales.

131)

GASB standards require the use of internal service funds. Net position is unrestricted for an internal service fund. Internal service funds do not record long-term debt. Revenues for an internal service fund would be called Charges for Services rather

Which statement is incorrect with respect to proprietary funds?

A) The required financial statements of proprietary funds include a Statement of Net Position, a Statement of Revenues, Expenses, and Changes in Fund Net Position, and a Statement of Cash Flows. B) The net position (i.e., fund equity) section of the Statement of Net Position is displayed within three categories: (1) Net Investment in Capital Assets, (2) Restricted, and (3) Unrestricted Net Position. C) The Statement of Cash Flows must be prepared using the direct method and includes cash flows from operating activities, investing activities, capital and related financing activities, and noncapital-related financing activities. D) Proprietary funds follow FASB rules and may follow GASB rules if not addressed by FASAB.

132) The operation of internal service funds has important implications for other funds. Which of the following statements is incorrect?

A) Charges for services of the internal service fund are recorded as expenditures in the governmental fund purchasing the services. B) GASB standards require the use of internal service funds to facilitate comparisons between governments. C) If the expenditures for the purchasing entity is recorded in the General Fund, a positive operating income in the internal service fund would mean that the expenditures reported in the General Fund exceed the true cost of operating the government. D) The problems created by internal service funds are resolved when the governmentwide statements are prepared.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 133) Why might it be desirable for an enterprise fund to operate at a profit?

134)

Under GASB standards, enterprise funds must be used under which circumstances?

135) Describe the differences in cash flow statements required by GASB standards when compared with cash flow statements required by FASB standards.

136) Describe the accounting required by the GASB for municipal solid waste landfill closure and post closure care costs. (It is not necessary to describe footnote disclosures).

137) Describe the accounting required for risk management activities of governmental units when the government is self-insured.

138) A city government has decided to build and operate a convention center. Identify what factors should be considered in deciding whether to account for the convention center as an Enterprise Fund or as part of general governmental activities?

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 139) The Village of Lake George decided to establish an internal service fund to account for the operations of a Print Shop. The Print Shop is to begin operations on July 1, 2019 the first day of the City's fiscal year. During the fiscal year ended June 30, 2020 the following transactions occurred: (a) The General Fund made a permanent contribution of $450,000 and a long-term advance of $840,000 to the Print Shop Fund. The advance is to be repaid by the Print Shop Fund in four equal annual installments; the first installment is due 6/30/2020. The advance is noninterest bearing and is considered issued for the purchases of equipment.(b) During the year equipment was purchased (for cash) in the amount of $ 910,000.(c) During the year, printing supplies costing $140,000 were purchased; all but $30,000 was paid in cash.(d) Billings to departments during the year totaled $ 425,000 at selling price. All but $75,000 was received in cash.(e) The cost of supplies used during the year totaled $86,000;(f) Salaries and wages were $21,000 and utilities were $4,000 (all paid in cash); and(g) Depreciation was charged on equipment, $82,000.(h) The first installment of the advance was repaid. Required: 1. Prepare journal entries in the general journal of the Village of Lake George Print Shop Fund to reflect the above transactions. 2. Prepare closing entries for the year. 3. Prepare, in good form, the equity section of the Statement of Net position for the Village of Lake George Print Shop Fund as of June 30, 2020.

140) On July 1, 2019, the City of Saratoga Springs decided to purchase a privately operated swimming pool and to create a Swimming Pool (Enterprise) Fund. During the year, the following transactions occurred: (a) A permanent contribution of $ 1,200,000 was received from the General Fund.(b) $ 500,000 was borrowed with a Note Payable from a local bank at an interest rate of 6%. The note was dated July 1, 2019 and interest is paid on 6/30 each year.(c) Purchased for cash several items, the cost breakdown was: land, $300,000; building, $800,000, land improvement, $400,000; equipment, $300,000; supplies, $190,000.(d) Charges for services amounted to $1,130,000, all received in cash.(e) Cash expenses included: salaries, $575,000; utilities, $140,000; interest (paid on 6/30/2020), $30,000.(f) Supplies were consumed in the amount of $120,000.(g) Depreciation was recorded for: building, $40,000, land improvement, $50,000; equipment, $30,000.(h) The books were closed. Close all accounts to Net Position. Required: 1. Record the above transactions in general journal form (on the books of the swimming pool fund). 2. Prepare, in good form, a Statement of Revenues, Expenses, and Changes in Fund Net Position for the City of Saratoga Springs Swimming Pool Fund for the Year Ended June 30, 2020. 3. Prepare, in good form, a Statement of Fund Net Position for the City of Saratoga Springs Swimming Pool Fund as of June 30, 2020. 4. Prepare, in good form, a Statement of Cash Flows for the City of Saratoga Springs Swimming Pool Fund for the Year Ended June 30, 2020. Assume all of the revenue bonds payable are for capital-related acquisitions and that the transfer was to establish working capital (i.e. a noncapital-related purpose).

141) The following Statement of Cash Receipts and Disbursements was prepared by the bookkeeper of The Anchorage Arboretum Authority. The Arboretum Authority is a component unit of the City of Anchorage and must be included in the City's financial statements. It began operations on January 1, 2020 with no outstanding liabilities or commitments and only 2 assets: (1) $15,000 cash and (2) land that it had paid $23,000 to acquire. Cash Basis 12 months Cash Receipts:

Admission fees

400,000

Borrowing from bank

80,000

Total deposits

480,000

Cash Disbursements: Supplies

52,700

Labor

232,000

Utilities

41,600

Purchase of machinery

90,000

Interest on bank note

2,000

Total checks Excess of Receipts over Disbursements:

418,900 61,100

The loan from the bank is dated April 1 and is for a five year period. Interest (5% annual rate) is paid on Oct. 1 and April 1 of each year, beginning October 1, 2020.The machinery was purchased on April 1 with the proceeds provided by the bank loan and has an estimated useful life of 10 years. (straight-line basis).Supplies on hand amounted to $2,760 at December 31, 2020. These included $650 of fertilizer that was received on December 29 and paid in January 2020. All other bills and salaries related to 2020 had been paid by close of business on December 31.Required: Part A. Prepare a Statement of Revenues, Expenses and Changes in Net Position for the year ended December 31, 2020 for the Arboretum assuming the City plans to account for its activities on the accrual basis. Part B. Prepare a Statement of Revenues, Expenditures and Changes in Fund Balance for the year ended December 31, 2020 for the Arboretum assuming the City plans to account for its activities on the modified accrual basis.

142) The Village of Watkins Glenn operated an educational program for at-risk middle school children. Businesses and nonprofit organizations sponsor the children and pay the registration fee.

The following cash receipts were collected: Registration Cash loan from bank The following cash disbursements were made: Payroll taxes

310,000 70,000

30,000

Labor

102,800

Insurance

14,200

Interest

2,100

Purchase school bus

65,000

Required: A. Prepare the journal entries to record revenues and disbursements if the city treats the program as an enterprise fund B. Prepare the journal entries to record revenues and disbursements if the city treats the program as a special revenue fund

Answer Key Test name: Chapter 6: Proprietary Funds 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) FALSE 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 26) TRUE .

27) FALSE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) TRUE 34) TRUE 35) FALSE 36) TRUE 37) TRUE 38) FALSE 39) FALSE 40) FALSE 41) FALSE 42) TRUE 43) FALSE 44) FALSE 45) FALSE 46) FALSE 47) TRUE 48) TRUE 49) FALSE 50) TRUE 51) TRUE 52) FALSE 53) FALSE 54) TRUE 55) TRUE 56) FALSE .

57) A 58) D 59) A 60) B 61) C 62) C 63) D 64) B 65) D 66) D 67) D 68) D 69) B 70) D 71) D 72) A 73) B 74) B 75) A 76) D 77) D 78) B 79) B 80) C 81) A 82) B 83) D 84) D 85) A 86) B .

87) C 88) C 89) C 90) D 91) C 92) B 93) C 94) B 95) D 96) A 97) D 98) C 99) D 100) C 101) B 102) C 103) A 104) B 105) D 106) A 107) C 108) D 109) A 110) D 111) A 112) D 113) B 114) D 115) A 116) B .

117) A 118) B 119) A 120) B 121) D 122) C 123) D 124) B 125) B 126) A 127) C 128) D 129) A 130) D 131) D 132) B 133) Operating profits are necessary to: Establish adequate working capital Provide for expansion of physical facilities Retire debt Support general government expenditures that would otherwise require increased taxes 134) When Debt is backed solely by fees and charges. When a legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees or charges. When a government has a policy to establish fees and charges to cover the cost of providing services for an activity.

135) GASB requires four categories: operating, investing, noncapital financing, and capital and related financing. Noncapital financing cash flows include proceeds and repayment of debt and interest not related to capital outlay; transfers from other funds for noncapital activities; and receipt of grants from other governments for noncapital activities. Capital and related cash flows include proceeds and repayment of debt related to capital projects as well as interest on that debt, and also includes the purchase and acquisition of capital assets. Cash flows from investing activities includes the purchase and sale of investments as well as interest on investments.Operating includes cash flows not classified in one of the preceding categoriesFASB requires three categories, Operating, Investing and Financing.GASB requires that the direct method be used, FASB permits either the direct or indirect.Finally, the reconciliation for operating cash flows begins with operating income, not net income. 136) As the Federal Government requires that landfill operators pay for closure costs and maintenance of the site for 30 years after closure, the GASB requires that these costs be estimated and that a portion of those costs be charged to each year on a units of production basis (waste put in this period compared with estimated total waste to be put in). A liability would also be recorded. Details would depend on whether the activity is accounted for as a proprietary or a governmental fund.

137) When a government is self-insured (which means not insured), it often uses a single fund to accumulate funds and to make payments. GASB standards require that the separate fund be either the General Fund or an internal service fund. When using an internal service fund, interfund premiums would be treated as interfund service transactions, and the internal service fund records a revenue. Expenses are recorded for claims. Payments by contributing funds in excess of the amount required to break even would be recorded as operating transfers. Shortages must be made up in a reasonable period of time and should be disclosed in the notes. 138) In determining whether to account for an activity as an enterprise fund, the government should consider whether the activity has the basic characteristics of an enterprise activity. Among these are: (1) The existence of fee-based services and (2) the principal customers are external to the government. It is also important to consider the terms of any financing. If the activity issues revenue bonds or other debt backed by the income earned by the activity, it should be accounted for in an enterprise fund. Finally, the government should consider the whether it is the intent of the government (either by law or policy) that the activity be self-sustaining. If so, it should most appropriately be accounted for in an enterprise fund. 139) Part 1. VILLAGE OF LAKE GEORGE PRINT SHOP FUND GENERAL JOURNAL Debits a.

Cash

Credits

1,290,000

Transfers In (from GF)

450,000

Advance from General Fund

840,000

Equipment

910,000

Note Payable

Supplies Inventory

910,000

140,000

Accounts Payable

30,000

Cash

110,000

Cash

1,130,000

Due from Other Funds

1,130,000

Operating Revenues - Charges for Services

Operating Expenses - Cost of Supplies Used

86,000

Supplies Inventory

Operating Expenses - Salaries and Wages Operating Expenses - Utilities

86,000

21,000 4,000

25,000

Cash

Operating Expenses - Depreciation

82,000

Accumulated Depreciation-Equipment

Advance from General Fund Cash

82,000

210,000 210,000

Part 2. Charges for Services

425,000

Transfers In

450,000

Cost of supplies used

86,000

Salaries and wages

21,000

Utilities expense

4,000

Depreciation expense

82,000

Net position

682,000

Part 3. VILLAGE OF LAKE GEORGE PRINT SHOP FUND STATEMENT OF NET POSITION AS OF JUNE 30, 2020 Liabilities and Net position Net position: Net investment in Capital Assets* Unrestricted** Total Net position

$ 198,000 484,000 $ 682,000

Calculations: *Equipment Less: Accumulated Depreciation

$ 910,000 82,000 828,000

Less: Advance From General Fund

630,000 $ 198,000

**Total Net position: Contribution

450,000

Charges for Services

425,000

Expenses

(193,000 )

Total Net position

682,000

Less: Net investment in Capital Assets (above)

198,000

Net position-Unrestricted

484,000

140) Part 1. CITY OF SARATOGA SPRINGS SWIMMING POOL FUND GENERAL JOURNAL Debits a.

Cash

1,200,000

Transfers In (from GF)

Cash

1,200,000

500,000

Note Payable

Credits

500,000

Land

300,000

Building

800,000

Land Improvements

400,000

Equipment

300,000

Supplies

190,000

Cash

1,990,000

1,130,000

Operating Revenues - Charges for Services

1,130,000

Operating Expense - Salaries

575,000

Operating Expense - Utilities

140,000

Nonoperating Expense - Interest

30,000

Cash

Operating Expense - Supplies

745,000

120,000

Supplies

Operating Expense - Depreciation

120,000

Accumulated Depreciation-Building

40,000

Accumulated Depreciation-Land Improvements Accumulated Depreciation-Equipment

50,000 30,000

Operating Revenues - Charges for Services

1,130,000

Transfers In (from GF)

1,200,000

Operating Expense - Salaries

575,000

Operating Expense - Utilities

140,000

Nonoperating Expense - Interest

30,000

Operating Expense - Supplies

120,000

Operating Expense - Depreciation

120,000

Net Position

1,345,000

Part 2. CITY OF SARATOGA SPRINGS SWIMMING POOL FUND STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN FUND NET POSITION YEAR ENDED JUNE 30, 2020 Operating Revenues: Charges for Services

$ 1,130,000

Operating Expenses: Salaries

$ 575,000

Utilities

140,000

Supplies

120,000

Depreciation

120,000

Total Operating Expenses

Operating Income

955,000

175,000

Nonoperating Expenses:

Interest

30,000

Income (Loss) Before Transfers

145,000

Transfers In

1,200,000

Change in Net Position

1,345,000

Net Position, July 1, 2019

Net Position, June 30, 2020

$ 1,345,000

Part 3. CITY OF SARATOGA SPRINGS SWIMMING POOL FUND STATEMENT OF FUND NET POSITION JUNE 30, 2020 Assets: Current Assets: Cash

Supplies

95,000 70,000

Total Current Assets

165,000

Capital assets: Land Land Improvement Less: Accumulated Depreciation

300,000 $

400,000 (50,000 ) 350,000

Building

800,000

Less: Accumulated Depreciation

(40,000 ) 760,000

Equipment

300,000

Less: Accumulated Depreciation

(30,000 ) 270,000

Total Capital assets

1,680,000

Total Assets

$ 1,845,000

Liabilities: Long-Term Liabilities: Note Payable

500,000

Net Position: Net Investment in Capital Assets * Unrestricted

1,180,000 165,000

Total Net Position *Capital Assets (Net)

$ 1,345,000 $ 1,680,000

Related Debt

500,000 $ 1,180,000

Part 4. CITY OF SARATOGA SPRINGS SWIMMING POOL FUND STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2020 Cash flows from Operating Activities: Cash received from Customers Cash Paid to Suppliers and Employees Net Cash Provided by Operating Activities Cash Flows from Non-Capital Financing Activities: Transfer from General Fund

1,130,000 (905,000 ) 225,000

1,200,000

Cash Flows from Capital and Related Financing Activities:

Proceeds of Note Payable

500,000

Acquisition of Capital Assets

(30,000 )

Net Cash Used for Capital and Related Financing Activities Net Increase in Cash and Cash Equivalents

(1,800,000 ) (1,330,000 )

Cash and Cash Equivalents, July 1, 2019

Cash and Cash Equivalents, June 30, 2020

95,000

175,000

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Operating Income Adjustments: Depreciation Expense

120,000

Increase in Supplies Inventory

(70,000 )

Total Adjustments Net Cash Provided by Operating Activities

50,000 $

225,000

141) Part A Anchorage Arboretum Authority Statement of Revenues, Expenses and Changes in Net Position For the Year Ended December 31, 2020 Operating Revenues: Charges for Services

$ 400,000

Operating Expenses:

Salaries

$ 232,000

Utilities

41,600

Supplies (52,700 + 650 − 2,760)

50,590

Depreciation (90,000/10 × 9/12)

6,750

Total Operating Expenses

331,540

Operating Income (Loss)

68,460

Nonoperating Expenses: Interest 2,000 + (80,000 × 5% × 3/12)

(3,000 )

Change in Net Position

65,460

Net Position, Jan. 1, 2020

38,000

Net Position, Dec. 31, 2020

$ 103,460

Part B Anchorage Arboretum Authority Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended December 31, 2020 Revenues Admission Fees

$ 400,000

Expenditures Current

Salaries

232,600

Supplies (52,700 + 650 − 2,760)

50,590

Utilities

41,600

Capital

90,000

Debt Service − Interest

2,000

Total Expenditures

416,790

Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses):

(16,790 )

Proceeds of Note payable

80,000

Net Change in Fund Balance

63,210

Fund Balance- Jan. 1, 2020

15,000

Fund Balance- Dec. 31, 2020

78,210

142) Enterprise Cash

310,000

Operating revenue – Charge for services

Cash

310,000

70,000

Long-term note payable

Operating expense – Payroll tax

30,600

Operating expense – Wages

102,800

Operating expense – Insurance

14,200

Non-operating expense – Interest

2,100

Equipment – Bus

65,000

Cash

70,000

214,700

Special Revenue Cash

310,000

Revenue – Charge for services

Cash

310,000

70,000

Other financing sources: Proceeds from Issuance of long-term note payable

Current expenditure – Payroll tax

30,600

Current expenditure – Wages

102,800

Current expenditure – Insurance

14,200

Debt service expenditure – Interest

2,100

Capital expenditure

65,000

Cash

70,000

214,700

Chapter 7:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The term "fiduciary funds" include custodial, pension trust, investment trust, and private purpose trust funds. ⊚ ⊚

Fiduciary funds use the accrual basis of accounting. ⊚ ⊚

true false

Fiduciary funds use the current financial resource measurement focus. ⊚ ⊚

true false

Fiduciary Funds are not included in the government-wide financial statements. ⊚ ⊚

true false

5) The Accrual Basis and Economic Resource Measurement Focus are used for PrivatePurpose, Investment Trust and Pension Funds. ⊚ ⊚

true false

6) The categories on the Statement of Changes in Fiduciary Net Position are Additions and Deductions. ⊚ ⊚

true false

7) Fiduciary Funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit: Including individuals, organizations, and other governmental units. ⊚ ⊚

true false

8) Assets held in by a government acting as agent for one or more other governmental units or for individuals or private organizations would be reported as private purpose trust funds. ⊚ ⊚

true false

9) Assets held in trust that are restricted to benefit the citizenry in general or in support of the reporting government’s programs would be reported as permanent funds if nonexpendable. ⊚ ⊚

true false

10) Fiduciary fund financial statements include the Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position, and Statement of Cash Flows. ⊚ ⊚

11)

Fiduciary Fund activities report in terms of Revenues and Expenses. ⊚ ⊚

12)

true false

Fiduciary Fund activities report in terms of Additions and Deductions. ⊚ ⊚

13)

true false

The Fiduciary Funds are included in the Government-Wide Financial Statements.

⊚ ⊚

true false

14) Custodial fund assets are always offset by liabilities equal in amount, so no fund equity exists. ⊚ ⊚

15)

Custodial funds report the excess of assets over liabilities as “Net Position”. ⊚ ⊚

16)

true false

Fiduciary funds are reported only in the fund-basis financial statements. ⊚ ⊚

true false

17) Donated resources held in trust that benefit individuals or private organizations are reported in a private-purpose trust fund. ⊚ ⊚

true false

18) The required financial statements for custodial funds include a Statement of Fiduciary Net Position, and a Statement of Changes in Fiduciary Net Position. ⊚ ⊚

19)

Custodial funds report no revenues, expenses, or fund equity accounts. ⊚ ⊚

true false

20) If a government has a locally administered pension plan for which it is trustee, the government would report the locally administered plan as a pension trust fund in the basic financial statements. ⊚ ⊚

true false

21) The purpose of a Statement of Fiduciary Net Position for a defined benefit pension plan is to enable the reader to determine whether the pension plan is sufficiently funded. ⊚ ⊚

true false

22) The purpose of the Schedule of Changes in Net Pension Liability and Required Ratios (part of the required supplementary information) is to enable the reader to determine whether the pension plan is sufficiently funded. ⊚ ⊚

true false

23) Governments offering postemployment benefits to their retired employees must present two financial statements related to their plans: the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position, as well as additional required supplementary information. ⊚ ⊚

true false

24) GASB Standards require that IRS 457 Deferred Compensation Plans, if administered by the governmental unit, be reported as pension trust funds. ⊚ ⊚

true false

25) An investment trust fund is used to account for the internal portion of a multi-government investment pool, when the reporting government is trustee. ⊚ ⊚

true false

26) Governmental investments in equity securities that have a determinable fair value are to be reported at fair value and any unrealized gains and losses are to be reported separately from realized gains and losses in the governmental operating statements. ⊚ ⊚

true false

27) Property that reverts to government ownership upon the death of the owner because of a lack of identifiable heirs is termed Escheat Property. ⊚ ⊚

true false

28) Escheat property, often collected by the state, is to be reported in the fund to which the property ultimately reverts. ⊚ ⊚

true false

29) Property that has been abandoned or property whose owners cannot be found is turned over to the state government until the legal owners can be found is known as community property. ⊚ ⊚

true false

30) Investment pools (not governed by trust agreements) invested from external parties are recorded in Investment Trust Funds. ⊚ ⊚

true false

31) Defined Benefit Pension Plans are required to pay retired employees an amount determined by formula, rather than the amount contributed to the plan. ⊚ ⊚

true false

32) Employers with defined contribution plans will report a pension liability if the required contribution has not been fully paid by year end. ⊚ ⊚

true false

33) Pension trust funds are required to present a ten-year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information. ⊚ ⊚

true false

34) The government-wide and proprietary fund’s Statement of Net Position report the net pension liability as a liability. ⊚ ⊚

35)

Investment Trust Funds account for only the external portion of investment trusts. ⊚ ⊚

36)

true false

An endowment to provide scholarships would be reported in a Private-purpose trust fund. ⊚ ⊚

true false

37) An endowment that is for the benefit of individuals and not the government controlling the funds should be accounted for using a private-purpose trust fund. ⊚ ⊚

true false

38) Investments in a private-purpose trust fund should generally be reported at fair market value. ⊚ ⊚

39)

true false

Investments in a pension trust fund should generally be reported using fair market value. ⊚ ⊚

true false

40) Internal investment pools, which account for investments of the reporting entity, are to be reported within the funds providing the resources, when preparing financial statements. ⊚ ⊚

true false

41) When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, a private-purpose trust has been formed. ⊚ ⊚

true false

42) When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, a custodial trust fund has been formed. ⊚ ⊚

true false

43) Equity investments should be recorded at fair market value unless a government has sufficient investments in a company to apply the equity method. ⊚ ⊚

true false

44) GASB requires that endowments report investments at fair value unless the investments are in real estate. ⊚ ⊚

true false

45) If a derivative is effective in reducing a government’s exposure to identifiable risks, the changes in the value of the derivative are reflected as deferred outflows or deferred inflows in the period that the value changes. ⊚ ⊚

true false

46) For governmental-type funds, Statement 53 (reporting of derivatives) applies only to reporting at the government-wide level, not the fund-basis statements. ⊚ ⊚

47)

true false

Statement 53 (reporting of derivatives) does not apply to proprietary funds. ⊚ ⊚

true false

48) Fiduciary funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit, including individuals, organizations, and other governmental units. For this reason, fiduciary funds are often identified in governmental financial reports as Trust and Custodial Funds.

⊚ ⊚

true false

49) A custodial fund is used when a contributor and a government agree that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments. ⊚ ⊚

true false

50) A private-purpose trust fund is created when the government is the sponsor of a multigovernment investment pool and accounts for the external portion of those trust assets. ⊚ ⊚

51)

true false

Fiduciary funds are separately stated in the government-wide financial statements. ⊚ ⊚

true false

52) Custodial funds are not included in the Statement of Changes in Net Position because they have no additions or deductions. ⊚ ⊚

true false

53) Schedules are required for pension (and other employee benefit) trust funds as Required Supplementary Information (RSI). ⊚ ⊚

true false

54) Activities meeting the definition of fiduciary in nature but that lack a formal trust agreement are reported as custodial fund.

⊚ ⊚

true false

55) Defined benefit plans may have unfunded actuarial liabilities, and defined contribution plans do not. ⊚ ⊚

true false

56) Defined contribution plans may have unfunded actuarial liabilities, and defined benefit plans do not. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 57) Which of the following is not a fiduciary fund?

A) B) C) D)

58)

Permanent Fund. Private-Purpose Trust Fund. Investment Trust Fund. Pension Trust Fund.

Which is true regarding the basis of accounting for fiduciary funds?

A) All four fiduciary fund types are accounted for using the same basis of accounting and measurement focus as governmental funds. B) All four fiduciary fund types are accounted for using the same basis of accounting and measurement focus as proprietary funds. C) Custodial funds are accounted for using the same basis of accounting and measurement focus as governmental funds, trust funds are accounted for using the same basis of accounting and measurement focus as proprietary funds. D) Trust funds are accounted for using the same basis of accounting and measurement focus as governmental funds, and custodial funds are accounted for using the same basis of accounting and measurement focus as proprietary funds.

59)

How are Fiduciary Funds presented in the Government-wide Financial Statements?

A) B) C) D)

60)

Combined with Internal Service Funds. Combined with Business activities. Combined with governmental activities. None of the choices are correct.

Which of the following is true regarding fiduciary funds?

A) Fiduciary funds are included in the fund-basis statements but not in the governmentwide. B) Fiduciary funds are reported by fund type, not as major funds. C) Both of the choices are true. D) Neither of the choices is true.

61)

Which of the following is true regarding fiduciary funds?

A) Fiduciary funds use the economic resources measurement focus and accrual accounting. B) Fiduciary funds include pension (and other employee benefit) trust, investment trust, custodial, and permanent funds. C) Both of the choices are true. D) Neither of the choices is true.

62)

Which of the following is true regarding fiduciary funds?

A) Fiduciary funds are not included in the government-wide financial statements. B) Fiduciary funds include custodial, pension (and other employee benefit) trust, private-purpose trust, and investment trust funds. C) Both of the choices are true. D) Neither of the choices is true.

63) ________ funds are created when individuals or organizations contribute resourcesto a trust with the agreement that principal and/or income will be used to benefit individuals or private organizations.

A) B) C) D)

Custodial Investment trust Private-purpose trust Permanent

64) ________ funds are created when individuals or organizations contribute resources with the agreement that the income will be used to benefit the citizenry or the government’s programs.

A) B) C) D)

Custodial Investment trust Private-purpose trust Permanent

65) The terms used for classification of items on the Statement of Changes in Fiduciary Net Position are:

A) B) C) D)

Additions and Deductions. Revenues and Expenditures. Contributions and Expenses. Revenues and Expenses.

66) A fund that is used to account for assets held by a government temporarily acting as agent for one or more other governments units or for individuals or private organizations is a(n):

A) B) C) D)

Custodial fund. Private-Purpose Trust Fund. Investment Trust Fund. Pension Trust Fund.

67) A fund that is the result of an agreement between a contributor and a government that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments is a(n):

A) Pension Trust Fund. B) Custodial fund. C) Private-Purpose Trust Fund. D) Investment Trust Fund.

68) A fund that exists when the government is the sponsor of a multi-government investment pool and accounts for the external portion of the trust assets is a(n):

A) B) C) D)

Private-Purpose Trust Fund. Investment Trust Fund. Pension Trust Fund. Custodial fund.

69) A fund that exists when a government is the trustee for a defined benefit pension plan, or a defined contribution pension plan is a(n):

A) Private-Purpose Trust Fund. B) Custodial fund. C) Pension Trust Fund. D) Investment Trust Fund.

70)

Which of the following is not an example of a Custodial Fund by a state government?

A) B) C) D)

71)

Which type of pension plan most commonly results in an unfunded actuarial liability?

A) B) C) D)

72)

Payment of pension benefits to retired government employees. Collection of local government sales taxes by the state government. Administration of Section 529 College Savings Plans. Maintaining inmate accounts for state prisoners.

Defined benefit plan. Defined contribution. Both of the choices are correct. Neither of the choices is correct.

Which of the following is true regarding the financial statements of fiduciary funds?

A) Fiduciary funds are accounted for using the economic resources measurement focus and accrual basis of accounting. B) Fiduciary funds' financial statements include the Statement of Fiduciary Net Position, the Statement of Changes in Fiduciary Net Position, and the Statement of Fiduciary Cash Flows. C) Both of the choices are true. D) Neither of the choices is true.

73)

Which of the following is true regarding custodial funds?

A) Custodial funds report assets and liabilities, net position, revenues and expenditures. B) Custodial funds are often used to account for property tax collections by county governments for other governments. C) Both of the choices are true. D) Neither of the choices is true.

74)

Which of the following is true regarding fiduciary funds?

A) Investment trust funds account for the internal portion of an investment pool, when a government is trustee for that pool. B) Private-purpose trust funds account for resources that are administered by a government for the benefit of others, such as a fund held to distribute resources to local not-forprofit charities. C) Both of the choices are true. D) Neither of the choices is true.

75)

In a custodial fund, assets are equal to:

A) B) C) D)

There are are no assets in a Custodial Fund. Liabilities + Net Position. Net Position. Liabilities.

76)

Which of the following statements is not true regarding custodial funds?

A) Position. B) C) D)

Custodial funds are reported in the fiduciary funds Statement of Fiduciary Net Custodial funds use modified accrual accounting. Custodial funds may report assets, liabilities, and fund net position. None of the choices; all are true.

77) The tax custodial fund of Orange County collected $9,000,000 for a school district, $4,000,000 for the county General Fund, and $8,000,000 for a municipality located in the County. County General Fund employees handle the collections, and a 2.5 percent collection fee is charged all units except the county. The total amount of revenue recognized by the county General Fund would be:

A) B) C) D)

78)

$3,500,000. $3,900,000. $4,525,000. $4,425,000.

Which of the following statements about custodial funds is true?

A) A custodial relationship that commonly results in the creation of a custodial fund is the collection of taxes and other revenues by an official of one governmental unit for other governmental units. B) Custodial funds report fiduciary activities that are not governed by formal trust arrangements. C) Both of the choices are true. D) Neither of the choices is true.

79)

The operations of custodial funds will be included in which of the following statements?

A) B) C) D)

80)

The fiduciary funds Statement of Cash Flows. The Statement of Changes in Fiduciary Net Position. The Government-wide Financial Statements. All of the choices are correct.

Custodial fund assets and liabilities are to be recognized:

A) B) C) D)

At the time the government becomes responsible for the assets. When the earnings process is complete and collection is reasonably assured. Only in the government-wide financial statements. When they are available and measurable.

81) What is the correct journal entry for a Tax Custodial Fund to record tax levies on behalf of other governments?

A) Taxes Receivable - Current Revenues Control

B) Taxes Receivable for Other Governments Additions – Tax Collections for Other Governments

C) Taxes Receivable Transfer Out

D) Taxes Receivable - Current Due to Other Governments

82) The tax custodial fund of Eden County collected $1,400,000 for the Eden School District, $700,000 for the Village of Edenton, $840,000 for the Eden Park District, and $490,000 for Eden County. County General Fund employees handle the collections, and a 3 percent collection fee is charged all units except the county. How much revenue should be recognized by the General Fund as a result of these collection activities?

A) B) C) D)

$42,000. $88,200. $63,000. $102,900.

83) The City of Sycamore has investments in bonds. These bonds have an amortized cost of $1,997,000. At year end, the financial press reports a market value of $2,002,600 for these bonds. The original cost of the bonds was $1,993,000. The par value at maturity will be $2,000,000. The amount at which the investments would be reported is:

A) B) C) D)

$1,997,000. $1,992,000. $2,002,600. $2,000,000.

84) Which of the following is true regarding accounting for investments by state and local governmental units?

A) Investments in securities accounted for under the equity method are to be reported at fair value. B) Realized gains and losses are to be reported separately from unrealized gains and losses in the Statement of Changes in Fiduciary Net Position. C) Both of the choices are correct. D) Neither of the choices is correct.

85) The City of Springfield has three pension plans: a locally administered police plan for which it is trustee, a statewide cost sharing plan, and a statewide custodial plan. The City would include in its CAFR pension trust fund financial statements for: .

A) B) C) D)

All three plans. The locally administered plan plus the statewide custodial plan. Both statewide plans. The locally administered plan only.

86) The City of DeKalb contributes to three pension plans: (1) a statewide pension plan for nonuniformed personnel, (2) a locally administered plan for police officers, and (3) a locally administered plan for firefighters. The City is trustee for the plans for police officers and firefighters. Which of the following is true?

A) When making contributions from General Fund resources to the police and fire plans, the General Fund would debit Other Financing Sources—Transfers Out and the Pension Trust Fund would credit Transfers In. B) The City would maintain trust funds for the police and fire plans but not the statewide plan. C) Both of the choices are true. D) Neither of the choices are true.

87)

Which of the following is true regarding fiduciary funds?

A) When a government provides employees a defined benefit pension plan, the government is required to present a ten-year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information. B) Governmental type funds report a net pension liability representing the unfunded pension obligation. C) Both of the choices are true. D) Neither of the choices are true.

88) Which of the following is true regarding pension (and other employee benefit) trust funds?

A) The actuarially computed Net Pension Liability is reported in the Statement of Fiduciary Net Position. B) While full accrual accounting is used, the terms "additions" and "deductions" are used in the Statement of Changes in Fiduciary Net Position in lieu of "revenues" and "expenses". C) Both of the choices are true. D) Neither of the choices is true.

89) Which of the following is true regarding pension accounting and reporting for state and local governments?

A) When the General Fund makes a contribution to a pension trust fund, the account "Expenditures" is debited. B) The Statement of Changes in Fiduciary Net Position reports "additions" and "deductions," computed on the accrual basis. C) Both of the choices are true. D) Neither of the choices is true.

90) When accounting for defined benefit pensions, the net pension liabilities for police and fire department employees (governmental activities) are:

A) B) C) D)

Reported in the government-wide statements. Reported in the governmental fund-basis statements. Both of the choices are correct. Neither of the choices is correct.

91) When accounting for pension benefits, the net pension obligation for employees of proprietary activities is:

A) B) C) D)

Reported in the government-wide statements. Reported in the proprietary fund-basis statements. Both of the choices are correct. Neither of the choices is correct.

92)

Which of the following statements is not required for pension trust funds?

A) B) C) D)

Statement of Fiduciary Cash Flows. Statement of Changes in Fiduciary Net Position. Statement of Fiduciary Net Position. None of the choices; all three statements should be prepared for pension trust funds.

93) Pension trust fund financial statements would be found in the Comprehensive Annual Financial Report of a governmental reporting entity:

A) Only if the governmental unit desires to disclose the status of employee retirement plans to its employees. B) In all cases when the governmental unit has an obligation to provide funding for employee retirement. C) Only if the governmental unit is the trustee for the public employee retirement plan. D) Whenever governmental employees have a retirement plan, whether or not the governmental unit is obligated to provide funding.

94) A pension plan that is required to pay out only the amount that has been accumulated for each employee is a ________?

A) B) C) D)

Defined Benefit Plan. Private-Purpose Plan. Defined Withdrawal Plan. Defined Contribution Plan.

95) Which type of pension plan is required to pay out a certain sum, generally based on a percentage of salary upon retirement and the number of years of service?

A) B) C) D)

Defined Benefit. Defined Contribution. Contributory. Noncontributory.

96) What account should be credited in a pension trust fund to record employee contributions?

A) B) C) D)

Net Position. Pension Benefit Obligation. Additions. Other Financing Sources.

97) Which of the following funds is used to account for the external portion of investment pools without formal trust agreements?

A) B) C) D)

Special Revenue Fund. Investment Trust Fund. Custodial Fund. Private-Purpose Trust Fund.

98) Churchville County is trustee for a multi-government investment pool and has established an investment trust fund. Included in the investment trust fund, for management purposes, are investments in the amount of $15 million from the County's General Fund, $3 million from the County's special revenue funds, and $112 million from other governments. Which of the following would be true?

A) The County would report $18 million in an investment trust fund. B) The County would report the entire $130 million in an investment trust fund. C) The County would report the $112 million in an investment trust fund, the $15 million in its General Fund, and the $3 million in special revenue funds. D) The County would report the $112 million in an investment trust fund and the$18 million in a permanent fund.

99) Lincoln County maintains an investment trust fund for the investments of governments within its borders. All the investments had determinable fair values. Which of the following is true regarding investment trust funds and investments in general?

A) Lincoln County would report its own investments at fair value in the investment trust funds. B) Lincoln County would report the investments of the other governments at fair value in the investment trust funds. C) Both of the choices are correct. D) Neither of the choices is correct.

100) When a government is the sponsor of a multi-government investment trust, the government should report the external portion of those trust assets in a(n):

A) B) C) D)

101)

Pension Trust Fund. Investment Trust Fund. Private-Purpose Trust Fund. Custodial Fund.

Escheat property is best described as which of the following?

A) Property possessed by a local government, but whose use is restricted by a higher government. B) Property a government obtains and holds for the rightful owner in the absence of claimants or heirs. C) Property gifted to the government by private citizens. D) Property the government obtains via eminent domain.

102)

Fiduciary net position will not be found in:

A) B) C) D)

Permanent funds. Pension trust funds. Investment trust funds. Private-purpose trust funds.

103) James McHughes gave the following to the City of Carnesville in order to establish a private-purpose trust:Land – cost, $350,000; fair market value as of the date of the gift, $425,000.Securities – cost, $1,440,000; fair market value as of the date of the gift, $1,750,000. The amount to be recorded as additions for gifts by the private-purpose trust fund would be:

A) B) C) D)

$2,175,000. $2,100,000. $1,865,000. $1,790,000.

104) Which of the following is true regarding the reporting of investments by state and local governmental units?

A) Investments, for which a determinable fair value can be obtained, are to be reported at fair value. B) Realized and unrealized gains and losses are to be combined in the relevant operating statement (for example, the Statement of Changes in Fiduciary Net Position). C) Both of the choices are true. D) Neither of the choices is true.

105) An endowment to support scholarships would most likely be accounted for in which of the following fund types?

A) Investment Trust Fund. B) Private-Purpose Trust Fund. C) Custodial Fund. D) None of the choices are correct.

106)

Investments of investment pools are to be reported in:

A) B) C) D)

A. The funds providing the resources for the investments. B. An investment trust fund. C. A custodial fund. D. Either A or B choice is correct.

107) Jasper City is trustee for the Henry J. Mooney Endowment Fund, created to provide scholarships for students. This is an example of which type of fund?

A) B) C) D)

Private-purpose trust. Pension trust. Custodial. Permanent trust.

108) A county treasurer maintains an investment trust in which several different towns in the county hold investments. Where should the towns’ investments be recorded?

A) Investment Trust Fund. B) Custodial Fund. C) Private-Purpose Trust Fund. D) None of the choices are correct.

109) An employee enrolls in a pension plan that will pay out 3% of the employee’s average salary for the last 3 years for each year of service that the employee worked. What type of pension plan does the employee have?

A) B) C) D)

110)

Defined Contribution Plan. Normal Payout Plan. Defined Benefit Plan. None of the choices are correct.

The "external portion" of an investment trust fund relates to...

A) The portion of the investment that legally belongs to the sponsoring government. B) The portion of the investment that is allocated among the sponsoring government’s funds. C) The portion of the investment that belongs to other participating governments. D) "External portion" relates only to custodial funds, not investment trust funds.

111) Which of the following statements regarding employer reporting of pension trust funds is not correct?

A) Governmental funds report net pension liabilities of governmental fund employees as a fund liability. B) Contributions by the governmental funds are recorded as expenditures in the General Fund. C) The net pension liabilities are reported in the government-wide statements. D) The net pension liabilities of proprietary fund employees are reported in the proprietary fund-basis statements.

112) Which of the Fiduciary Funds listed below is used to account for the assets held by a government acting as a tax collection agent for one or more other governmental units?

A) B) C) D)

Private-Purpose Trust Fund. Permanent Fund. Pension Fund. Custodial Fund.

113) A ________ is used when a contributor and a government agree that the principal and/or income of trust assets are for the benefit of individuals.

A) Investment Trust. B) Private-Purpose Trust. C) Pension Trust. D) Employee Benefit Trust.

114)

A trust agreement in which the principal is not expendable, normally it is called a/an:

A) B) C) D)

Donation. Endowment. Gift. Transfer.

115)

Investment Trust Funds are restricted to:

A) B) C) D)

External investment pools. Open-end mutual funds. Debt securities. All of the choices are correct.

116) When preparing financial statements, the internal portion of investment trusts would be reported under which fund?

A) Investment trust fund. B) Private-purpose trust fund. C) Permanent fund. D) The fund(s) providing the resources.

117)

Fiduciary Funds are not included in the Government-wide Financial Statements because:

A) B) C) D)

118)

These Funds use the modified accrual basis of accounting. The resources are not available to the reporting unit. The government doesn’t keep track of these types of funds. These funds do not have a material effect on the financial statements.

Investments in a private-purpose trust fund should generally be reported using:

A) B) C) D)

Equity Method. Cost Basis. Fair Market Value. None of the choices are correct.

119) Which fund is used when a contributor specifies that the income of trust assets be used for the benefit of the general citizenry?

A) B) C) D)

Private-purpose trust fund. Custodial fund. Investment trust fund. Permanent fund.

120) Which of the following statements is not correct with respect establishing reporting requirements for governments entering into derivative instruments according to GASB?

A) Derivatives include swaps, options, forward contracts, and future contracts. B) If a derivative is effective in reducing a government’s exposure to identifiable risks, the changes in the value of the derivative are reflected as investment gains or losses in the period that the value changes. C) If a hedge derivative is deemed ineffective it is classified as investment purpose. D) GASB statements apply only to reporting at the government-wide level for derivatives held by governmental funds, not the fund-basis statements.

121) Which of the following statements is correct with respect to establishing reporting requirements for governments entering into derivative instruments?

A) Changes in the value of hedge derivatives are deferred and reported in the Statement of Net Position. B) If a derivative is an investment derivative, the changes in the value of the derivative are deferred and reported in the Statement of Net Position. C) GASB standards regarding derivatives do not apply to proprietary funds. D) GASB standards regarding derivatives apply only to government financial statements prepared using the modified accrual basis of accounting.

122)

GASB requires endowments with investment real estate to report those assets at:

A) B) C) D)

Historical cost. Fair market value. Historical cost net of related debt. Market value net of related debt.

123) Activities meeting the definition of fiduciary in nature but that lack a formal trust agreement are to be reported in which fund?

A) B) C) D)

Custodial fund. Non-custodial fund. Dedicated fund. Pass-through activities fund.

124) Which of the following statements is correct with respect to varying types of pension plans?

A) A defined benefit plan is one where the plan is required to pay a specific amount until the fund is depleted. B) Defined contribution plans provide an individual retirement account for each participating employee and no obligation exists for pension benefits beyond what has been accumulated in each individual’s account. C) A defined benefit plan is one where the plan is required to pay benefits for a certain term but the amount paid is not certain.. D) Defined defined contribution plan is one where the contributions are fixed, but the payout term and amount is dependent on the amount accumulated in the fund and the rate of return on the investments of the fund.

125)

Which of the following statements is not correct with respect to defined benefit plans?

A) Defined benefit plans may have unfunded actuarial liabilities. B) Employer reporting involves measurement of the pension liability and annual expense. C) RSI must be presented showing annual pension information over 25 year intervals. D) Extensive note disclosures are required describing the plan, the components of the pension liability, and significant assumptions underlying measurement of the liability.

126)

Which of the following statements is not correct with respect to investment trust funds?

Internal investment pools are required to be accounted for in an investment trust

fund. B) Investment trust funds use the economic resources measurement focus and accrual basis of accounting. C) External investment pools are required to be accounted for in an investment trust fund. D) Investments are recorded at fair value on the Statement of Fiduciary Net Position.

127)

Which of the following statements is not correct with respect to investment trust funds?

Internal investment pools are required to be accounted for in an investment trust

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 128) What are the four types of fiduciary funds and the function of each?

129) What are the required statements and schedules for a pension trust fund and in what part of the CAFR are the schedules reported?

130)

What is a defined benefit pension plan?

131)

What is a cost sharing state pension plan?

132)

Contrast a defined benefit and defined contribution retirement plan.

133)

Contrast the accounting for internal and external portions of investment pools.

134)

Contrast the purpose of Private-purpose Trust Funds and Permanent Funds.

135) Contrast the accounting and reporting of Private-purpose Trust Funds and Permanent Funds.

136) What is the appropriate accounting treatment for real estate investments held in endowments (GASB Statement 52)?

137) GASB standards establish reporting requirements for governments entering into derivative instruments. What is the treatment of hedging vs. investment derivatives?

138) Describe the accounting treatment of investments with determinable fair values reported in a Private-Purpose Trust Fund.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 139) On July 1, 2019, the City of Corfu received a gift of debt securities of XYZ Company with a nominal (par) value of $1,500,000. Income is to be used to make awards for civic achievements. As of the date of the gift, the securities had a market value of $1,563,000. Included in this amount is accrued interest of $18,750. The bonds carried an annual interest rate of 5%, payable semiannually on April 1 and October 1. During the fiscal year ended June 30, 2020, the following transactions took place: The gift was received.On October 1, $37,500 in interest was received.On April 1, $37,500 in interest was received.On April 1, immediately after the receipt of interest, the XYZ bonds were sold for $1,558,000. The proceeds were invested in ABC bonds, which pay interest semiannually on April 1 and October 1. The bonds were purchased at par value.On June 30, 2020, accrued interest of $19,475 on the ABC bonds was recognized.On June 30, 2020, awards were made in the amount of $60,000.As of June 30, 2020, the fair value of the fair value of the ABC bonds was $1,560,000, exclusive of accrued interest. Required: A. Record the above transactions on the books of the City of Corfu Private-Purpose Trust Fund. B. Prepare a Statement of Changes in Fiduciary Net Position for the City of Corfu PrivatePurpose Trust Fund for the year ended June 30, 2020.

140) The City of Richmond maintains a Public Employee Retirement Trust Fund for its public safety employees. During the year ended June 30, 2020, the following transactions occurred: The City contributed $ 1,400,000 in cash to the plan. Employee members contributed an additional $ 1,400,000.Annuity benefits in the amount of $260,000 were recorded as liabilities.Annuity benefits, previously recorded as liabilities, were paid in cash in the amount of $195,000.Investment income received in cash amounted to $117,000. In addition, $18,000 in interest receivable was accrued at year-end.Additional investments in the amount of $2,100,000 were purchased.The market value of investments decreased by $10,465.Nominal accounts for the year were closed. Required: Prepare journal entries for the above transactions on the books of the City of Richmond Public Safety Employee Retirement Trust Fund.

Answer Key Test name: Chapter 7: Fiduciary Funds 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) FALSE .

27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) TRUE 32) TRUE 33) TRUE 34) TRUE 35) TRUE 36) TRUE 37) TRUE 38) TRUE 39) TRUE 40) TRUE 41) TRUE 42) FALSE 43) TRUE 44) FALSE 45) TRUE 46) TRUE 47) FALSE 48) TRUE 49) FALSE 50) FALSE 51) FALSE 52) FALSE 53) TRUE 54) TRUE 55) TRUE 56) FALSE .

57) A 58) B 59) D 60) C 61) A 62) C 63) C 64) D 65) A 66) A 67) C 68) B 69) C 70) A 71) A 72) A 73) A 74) B 75) B 76) B 77) D 78) C 79) B 80) A 81) B 82) B 83) C 84) D 85) D 86) B .

87) A 88) B 89) C 90) A 91) C 92) A 93) C 94) D 95) A 96) C 97) C 98) C 99) B 100) B 101) B 102) A 103) A 104) C 105) B 106) A 107) A 108) A 109) C 110) C 111) A 112) D 113) B 114) B 115) A 116) D .

117) B 118) C 119) D 120) B 121) A 122) B 123) A 124) B 125) C 126) A 127) A 128) Private-purpose trust funds A private-purpose trust fund results when a contributor and a government agree that the principal and/or income of trust assets are for the benefit of individuals, organizations or other governmental units. Investment trust funds Investment trust fund exists when the government is the sponsor of a multigovernment investment pool and accounts for the external portion of those trust assets. Pension (and other employee benefit) trust funds A pension exists when the government is the trustee for a defined benefit pension plan, defined contribution pension plan, other postemployment benefit plan, or other employee benefit plan. Custodial funds report fiduciary activities that are not governed by formal trust arrangements. 129) The financial reporting requirements include two statements and two schedules. The Statement of Fiduciary Net Position, The Statement of Changes in Fiduciary Net Position, The Schedule of Funding Progress and The Schedule of Employer Contributions. The schedules are reported as Required Supplementary Information.

130) The term to describe a pension plan in which benefits are determined based on a formula; for example, 2% times the number of years employed times the average of the four years' highest salary. 131) A type of statewide retirement system where separate accounts are not kept for each contributing employer and unfunded liabilities are made up on a statewide basis. 132) A defined benefit plan provides retirement benefits to retired employees based on a multiple of the number of years of service and a percentage of their salary for some specified period before retirement. Defined contribution plans provide retirement funds based on known employee and employer contributions plus investment income on those funds. 133) The internal portion of investment pools are accounted for in the funds from which the resources are provided. For example, if the General Fund contributes cash to an investment pool, the investments will be reported in the balance sheet of the General Fund. External funds contributed to an investment trust come (typically) from governments external to the government managing the investment pool. Since the managing government is acting in a fiduciary capacity, those investments are reported in the fiduciary fund, Investment Trust Fund. 134) In both circumstances, donors have provided resources to generate earnings to support some activity. If the activity benefits the general citizenry or the overall government, it is classified as a permanent fund. If the activity benefits individuals or private organizations, it is classified as a private-purpose trust fund. 135) Private-purpose trust funds use the economic resources measurement focus and accrual basis of accounting. Permanent funds use the current financial resources measurement focus and modified accrual basis. Unlike Permanent funds, Private-purpose trust funds do not appear in the government-wide financial statements. .

136) Endowments with land and other investment real estate report those assets at fair value, rather than historical cost. The changes in fair value of investment real estate reported as investment income. 137) Hedging derivatives are reported at fair value on the Statement of Net Position. Changes in value are deferred and reported in the Statement of Net Position. The deferred gains or losses typically continue to be reported as deferred inflows or outflows until the hedge transactions occurs. Investment derivatives are reported at fair value on the Statement of Net Position. Changes in value are reported as investment gains or losses in the period of change. 138) Investments in a private-purpose trust fund are to be reported in the Statement of Fiduciary Net Position at fair value.All investment income, including changes in the fair value of investments, should be recognized as revenue in the Statement of Changes in Fiduciary Net Position. Realized gains and losses should not be separately disclosed from unrealized. 139) CITY OF CORFU PRIVATE-PURPOSE TRUST FUND GENERAL JOURNAL Debits 1.

Investment in Bonds-XYZ Accrued Interest Receivable

1,544,250 18,750

Additions -Contributions-Individuals

Cash

Credits

1,563,000

37,500

Accrued Interest Receivable

18,750

Additions-Investment Earnings - Interest

18,750

Cash

37,500

Additions-Investment Earnings - Interest 4.

Cash

37,500 1,558,000

Additions-Investment Earnings - Net Increase in Fair Value of Investments Investment in Bonds-XYZ

Investment in Bonds-ABC

13,750 1,554,250

1,558,000

Cash

1,558,000

Accrued Interest Receivable

19,475

Additions-Investment Earnings - Interest

Deductions - Awards

19,475

60,000

Cash

60,000

Investment in Bonds – ABC

20,000

Additions – Investment Earnings – Net Increase in Fair Value of Investments

20,000

CITY OF CORFU PRIVATE-PURPOSE TRUST FUND STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

YEAR ENDED JUNE 30, 2020 Additions: Contributions

$ 1,563,000

Investment Earnings: Net increase in fair value of investments

15,750

Interest

75,725

Total Additions

1,654,475

Deductions: Awards

60,000

Total Deductions

60,000

Change in Net Position

1,594,475

Net Position, July 1, 2019

Net Position, June 30, 2020

$ 1,594,475

140) CITY OF RICHMOND PUBLIC SAFETY EMPLOYEE RETIREMENT TRUST FUND YEAR ENDED JUNE 30, 2020 Debits 1.

Cash

2,800,000

Additions - Contributions-Plan Members

1,400,000

Additions - Contributions-Employer

1,400,000

Deductions - Annuity Benefits Accounts Payable and Accrued Expenses

Credits

260,000 260,000

Accounts Payable and Accrued Expenses

195,000

Cash

195,000

Cash

117,000

Accrued Interest Receivable

18,000

Additions - Investment Earnings Interest

Investments

135,000

2,100,000

Cash

Deductions- Investments: Net Decline in the Fair Value of Investments Investments

10,465

Additions - Contributions-Plan Members

1,400,000

Additions - Contributions-Employer

1,400,000

Additions - Investment Earnings Interest Deductions – Investments: Decline in Fair Value of Investments Deductions -Annuity Benefits Net Position: Resources Restricted for Pension Benefits

2,100,000

135,000 10,465

260,000 2,664,535

Chapter 8:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Government-wide statements are prepared using the modified accrual basis; therefore, governmental fund-basis statements need to be adjusted from their original accrual basis. ⊚ ⊚

true false

2) Government-wide statements are prepared using the accrual basis; therefore, enterprise fund-basis statements need to be adjusted from their original modified accrual basis. ⊚ ⊚

true false

3) The government-wide statements do not include a government-wide Statement of Cash Flows. ⊚ ⊚

true false

4) The difference between assets and liabilities in the government-wide statements is called fund balance. ⊚ ⊚

true false

5) The difference between assets and liabilities in the government-wide statements is called Net Position. ⊚ ⊚

true false

6) GASB requires a reconciliation from proprietary fund financial statements to the government-wide statements business-activities columns from modified accrual accounting to accrual accounting.

⊚ ⊚

true false

7) GASB requires a reconciliation from governmental fund financial statements to the government-wide statements governmental-activities columns from modified accrual accounting to accrual accounting. ⊚ ⊚

true false

8) Balances from enterprise fund statements, Statement of Net Position and Statement of Revenues, Expenses, and Changes in Fund Net Position are reported in the business-type activities sections of government-wide statements. ⊚ ⊚

true false

9) When preparing the government-wide statements, worksheet entries are booked to provide the trial balance amounts used to prepare the financial statements. ⊚ ⊚

true false

10) Using the worksheet approach, general (governmental) long-term assets and long-term debt have a balance of zero until the worksheet entries are made. ⊚ ⊚

true false

11) Government-wide financial statements are prepared using the modified accrual basis of accounting. ⊚ ⊚

true false

12) Enterprise funds are reported in the business-type activities column of the governmentwide statements. ⊚ ⊚

true false

13) When preparing the government-wide statements, worksheet entries are made to add the balances of the fiduciary funds. ⊚ ⊚

true false

14) When preparing the government-wide statements, a worksheet entry is required to eliminate the current period expenditures for capital outlay and record those expenditures as capital assets. ⊚ ⊚

true false

15) When preparing the government-wide statements, an entry is required to record depreciation expense on general capital assets. ⊚ ⊚

true false

16) Under GASB standards, general capital assets should not be reported as assets in governmental funds but should be reported in the governmental activities column of the government-wide Statement of Net Position. ⊚ ⊚

true false

17) In addition to the fund-basis statement, GASB requires government-wide statements that are prepared using the accrual basis and the current financial resources measurement focus. ⊚ ⊚

true false

18)

Fiduciary activities do not appear in the government-wide statements. ⊚ ⊚

true false

19) Capital assets acquired through proprietary funds are reported in both the Statement of Net Position of those funds and the government-wide Statement of Net Position. ⊚ ⊚

true false

20) GASB requires that general fixed assets acquired through General, special revenue, or capital projects funds be included in the government-wide financial statements. ⊚ ⊚

true false

21) GASB specifically requires interest during construction in governments’ funds to be capitalized in the government-wide statements. ⊚ ⊚

22)

true false

When preparing government-wide statements, depreciation expense must be eliminated. ⊚ ⊚

true false

23) When converting from governmental fund financial statements to the governmental activities column of the government-wide statements, the proceeds from the sale of capital assets which were listed as an "other financing source" are eliminated and the gain or loss is recorded when preparing the government-wide statements. ⊚ ⊚

true false

24) Assume a government reported $300,000 in capital outlay expenditures in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. Secondly, assume current year depreciation of capital assets amounted to $250,000, in the governmental activities column in the Statement of Activities. Those adjustments would cause a decrease of $50,000 when preparing the reconciliation between the change in governmental fund balances to the change in net position of governmental activities in the Statement of Activities. ⊚ ⊚

true false

25) Assume a government reported Other Financing Sources—Proceeds of Bonds in the amount of $1,000,000 in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. The adjustments necessary to convert to the accrual basis of accounting would result in an increase of $1,000,000 when preparing the reconciliation from the changes in fund balances in that statement to the changes in net position in the governmental funds column in the Statement of Activities. ⊚ ⊚

true false

26) When converting from the enterprise funds Statement of Net Position to the governmentwide Statement of Net Position (government-wide statements), it is not necessary to add fixed assets and to deduct long-term debt. ⊚ ⊚

true false

27) Few adjustments to internal service funds are necessary when converting from proprietary funds statements to the government-wide statements as internal service funds are generally reported as business-type activities in the government-wide statements. ⊚ ⊚

true false

28) When converting from fund financial statements to government-wide statements, it is necessary to eliminate transfers that are between the categories of governmental activities and business-type activities. ⊚ ⊚

true false

29) An example of a program revenue in the government-wide Statement of Activities would be parks and recreation fees. ⊚ ⊚

true false

30) GASB requires that infrastructure be depreciated on the government-wide statements unless the government chooses to use the modified approach which expenses amounts expended to increase the life of infrastructure. ⊚ ⊚

true false

31) An asset may be considered impaired if either the decline in the service utility is unexpected or the amount of the decline in service utility is large. ⊚ ⊚

32)

true false

GASB requires that "collections" be capitalized and depreciated. ⊚ ⊚

true false

33) When using the modified approach to record infrastructure, expenditures to widen a twolane road to four-lanes would be charged to an expense, in lieu of depreciation. ⊚ ⊚

true false

34) General long-term debt, to be paid out of resources of the government's taxing power, is reported in both the governmental fund Balance Sheet and the government-wide Statement of Net Position. ⊚ ⊚

true false

35) The Statement of Net Position and Statement of Activities and Statement of Cash Flows are required for the government-wide financial statements. ⊚ ⊚

true false

36) Debt margin is the difference between the amount of debt limit outstanding and the amount of indebtedness allowed by law. ⊚ ⊚

true false

37) Internal Service Funds are most commonly included in the business-type activities category of the government-wide statements. ⊚ ⊚

true false

38) Internal Service Funds are most commonly incorporated into the governmental activities category of the government-wide statements. ⊚ ⊚

true false

39) Governments may choose either to depreciate infrastructure assets or use the modified approach.

⊚ ⊚

true false

40) Internal service funds provide services to governmental departments; therefore, they are incorporated into the business-type activities category of the government-wide statements. ⊚ ⊚

true false

41) Debt limit is the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any time. ⊚ ⊚

true false

42) GASB standards require a reconciliation from fund financial statements to governmentwide financial statements. ⊚ ⊚

true false

43) When using the modified approach to account for infrastructures, expenditures to extend the life of the infrastructure assets are not capitalized. ⊚ ⊚

true false

44) When using the modified approach to account for infrastructures, expenditures to extend the life of the infrastructure assets are expensed. ⊚ ⊚

true false

45) Governments must report infrastructure assets in the government-wide statement of net position.

⊚ ⊚

true false

46) Governments have the option to capitalize infrastructure assets in the governmental funds’ fund-basis financial statements. ⊚ ⊚

true false

47) Internal service funds are typically reported in the governmental activities sections of the government-wide statements. ⊚ ⊚

48)

true false

Fiduciary activities are included in the government-wide statements. ⊚ ⊚

true false

49) When preparing adjusting entries for the government-wide statements, the accounts are adjusted at year end and reversed at the beginning of the next year. ⊚ ⊚

true false

50) Governmental fund-basis statements reflect modified accrual accounting and must be adjusted to the accrual basis when preparing the government-wide statements. ⊚ ⊚

true false

51) The governmental-type funds’ Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances serve as inputs to the governmental activities sections of the government-wide statements. However, because the fund-basis statements reflect modified accrual accounting, they must be adjusted to the accrual basis. .

⊚ ⊚

true false

52) Balances from the enterprise funds’ Statement of Net Position and Statement of Revenues, Expenses, and Changes in Fund Net Position are entered directly to the business-type activities sections of the government-wide statements. ⊚ ⊚

true false

53) When preparing government-wide statements, enterprise funds must be adjusted to reflect accrual basis. ⊚ ⊚

true false

54) No entries are necessary to eliminate fiduciary funds when preparing the governmentwide statements; they are simply left out of the worksheets. ⊚ ⊚

true false

55) When preparing the government-wide statements, an adjustment is required to eliminate the charge to expenditures for capital outlay and to record those expenditures as capital assets. ⊚ ⊚

true false

56) The term "general long-term debt" represents debt that is to be paid out of general government resources. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 57) Which of the following is false regarding government-wide financial statements?

A) Government-wide financial statements are prepared using the accrual method of accounting. B) General capital assets are required to be reported on the government-wide balance sheet. C) GASB requires a reconciliation from fund financial statements to government-wide financial statements. D) Worksheet entries are required to change the enterprise fund's financial statements to the accrual basis of accounting.

58)

With respect to government-wide statement, which of the following statements is correct?

A) General capital assets should not be reported as assets in governmental funds but should be reported in the governmental activities column of the government-wide Statement of Net Position. B) GASB requires a reconciliation from proprietary fund financial statements to the government-wide statements business-activities columns from modified accrual accounting to accrual accounting. C) In addition to the fund-basis statement, GASB requires government-wide statements that are prepared on the modified accrual basis using the economic resources measurement focus. D) Fiduciary activities are reported in the government-wide statements in a separate column.

59) Which of the following funds would not be included in the government-wide financial statements?

A) B) C) D)

Capital Project Fund. Private Purpose Trust Fund. Enterprise Fund. Permanent Fund.

60) Which of the following would be included in the Equity section of the government-wide Statement of Net Position?

A) B) C) D)

Retained Earnings. Unassigned Fund Balance. Net investment in capital assets. Nonspendable fund balance.

61) In addition to a Statement of Net Position, which of the following are government-wide statements?

A) B) C) D)

62)

Statement of Revenues, Expenses, and Changes in Fund Net Position. Statement of Cash Flows. Both of the choices are correct. Neither of the choices is correct.

Which of the following is not a reconciliation required by GASB?

A) From governmental fund balance sheet to the Government-wide Statement of Net Position. B) From governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-wide Statement of Activities. C) From enterprise fund balance sheet to the Government-wide Statement of Net Assets. D) None of the choices, all these reconciliations are required.

63) Which of the following is true regarding revenue recognition for sales taxes, when reporting in the government-wide statements?

A) Assets are recognized when the underlying exchange (retail sale) has occurred or when resources are received, whichever occurs first. B) Revenues are recognized when the underlying exchange (retail sale) has occurred. C) Both of the choices are true. D) Neither of the choices is true.

64) Which of the following is true regarding revenue recognition for property taxes, when reporting in the government-wide statements?

A) Assets are recognized when an enforceable legal claim has arisen or when resources are received, whichever is first. B) Revenues are recognized when measurable and available; that is, when collected during the current period or no more than 60 days after the end of the current period. C) Both of the choices are true. D) Neither of the choices is true.

65) When converting from fund-basis reporting to government-wide reporting, which of the following would require an adjustment?

A) B) C) D)

Property taxes expected to be collected 61-90 days after the end of the fiscal year. A state grant received as reimbursement for a summer jobs program. Sales tax collected for sales from the current year. Receipt of advance funding on a grant.

66) Which of the following items are included in the governmental activities column of the government-wide financial statements through worksheet journal entries?

A) B) C) D)

General Capital Assets. General Long-Term Debt. Internal Service Funds servicing governmental departments. All of the choices are correct.

67) Governmental fund-basis statements are prepared using the ________, and must be converted to the ________ to be incorporated in the government-wide statements.

A) B) C) D)

accrual basis, modified accrual basis accrual basis, tax basis cash basis, accrual basis modified accrual basis, accrual basis

68) The governmental funds follow ________ where the government-wide statements follow ________.

A) B) C) D)

modified accrual accounting, accrual accounting accrual accounting, modified accrual accounting accrual accounting, accrual accounting None of the choices are correct.

69) The reconciliations required to be presented on the face of the governmental fund financial statements or in separate schedule immediately after the fund financial statements include:

A) Reconciliation from the governmental fund Balance Sheet to the Statement of Net Position. B) Reconciliation from the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities. C) Both of the choices are correct. D) No reconciliations are required to be submitted.

70) When preparing government-wide financial statements, the modified accrual basis governmental funds are adjusted for which of the following events?

A) B) C) D)

Capital asset related events. Long-term debt related events. Internal service fund activities. All of the choices are correct.

71) Which of the following would not be an adjustment for long-term debt when preparing government-wide financial statements?

A) Payable. B) C) D)

Changing Other Financing Sources—Proceeds of Bonds to an increase in Bonds Changing Expenditures—Bonds Principle to a reduction of Bonds Payable. Recording the cash received from a debt issue. Amortizing bond premiums.

72) Which of the following statements is not correct with respect to the preparation of government-wide statements?

A) Worksheet entries must be made to eliminate operating profits earned by enterprise funds. B) A worksheet entry is required to record depreciation expense on capital assets of governmental activities. C) Enterprise funds are reported in the business-type activities column of the government-wide statements. D) A worksheet entry is required to eliminate the charge to expenditures for capital outlay and record those expenditures as capital assets.

73) A local government purchased a building and recorded the event by debiting Expenditures—Capital Outlay and crediting Cash. What would be the worksheet entry to prepare the government-wide statements (in the year of acquisition)?

A) Debit to Capital Assets and credit to Cash. B) Debit to Capital Assets and credit to Accumulated Depreciation—Capital Assets and Expenditures—Capital Outlay. C) Debit to Capital Assets and credit to Net Position. D) Debit to Capital Assets and credit to Expenditures—Capital Outlay.

74) A local government recorded the sale of a capital asset at a gain by recording a debit to cash and credit to proceeds of sale of capital asset. What is the worksheet entry when preparing the government-wide statements?

A) Debit to Proceeds of sale of capital asset and credit to Gain on sale of capital asset. B) Debit to Cash and credit to capital asset (net) and credit to Gain on sale of capital asset. C) Debit to Proceeds of sale of capital asset and credit to capital asset (net) and credit Gain on sale of capital asset. D) None of the choices are correct.

75) A local government issued bonds and recorded the event by debiting Cash and crediting Other Financing Source—Proceeds of Bonds and Other Financing Source—Premium on Bonds. What is the worksheet entry when preparing the government-wide statements?

A) No adjustment is necessary. B) Debit Other Financing Sources—Proceeds of Bonds and Other Financing Sources— Premium on bonds and Credit Bonds Payable and Premium on Bonds. C) Debit Cash and Credit Bonds Payable and Premium on bonds. D) Debit Other Financing Sources—Proceeds of Bonds and Credit Bonds payable and Premium on Bonds.

76) A local government recorded the payment of bond principal by debiting Expenditure: bond principal and crediting Cash. What is the worksheet entry when preparing the governmentwide statements?

A) B) C) D)

Debit Bonds Payable and credit Cash. Debit Cash and credit Expenditure: Bond Principal. Debit Bonds Payable and credit Expenditure: Bond Principal. None of the choices are correct.

77) In its Statement of Net Position, a government reported:assets of $110 million, including $30 million in capital assets (net), andliabilities of $40 million, including long-term debt of $10 million, all related to capital asset acquisition. The government also reported $15 million of net assets were restricted for payment of debt service. The government's Unrestricted Net Position would be reported as:

A) B) C) D)

$45 million. $25 million. $30 million. $35 million.

78) A governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances reported of $30 million, including capital outlay expenditures of $9 million. Capital assets for that government cost $90 million, including land of $10 million. Depreciable assets are amortized over 20 years, on average. The reconciliation from governmental changes in fund balances to governmental activities changes in would reflect a(an):

A) B) C) D)

Decrease of $1 million. Increase of $1 million. Increase of $5 million. Decrease of $4 million.

79) The City of Charlotte reported property tax revenues in 2020 in the amount of $10 million. The deferred inflow—property taxes reported in the General Fund’s balance sheet was $300,000 on December 31, 2019 and was $375,000 on December 31, 2020. During 2020, $9,000,000 was collected. What amount should the city report for Property Tax Revenue in its year ended December 31, 2020 government-wide Statement of Activities?

A) B) C) D)

$9,075,000 $9,975,000 $10,075,000 $10,375,000

80) The City of Eugene reported property tax revenues in 2020 in the amount of $10 million. The deferred inflow—property taxes reported in the General Fund’s balance sheet was $475,000 on December 31, 2019 and was $400,000 on December 31, 2020. During 2020, $9,000,000 was collected. What amount should the city report for Property Tax Revenue in its year ended December 31, 2020 government-wide Statement of Activities?

A) B) C) D)

$10,075,000 $9,925,000 $9,625,000 $8,975,000

81) A government's Statement of Revenues, Expenditures, and Changes in Fund Balances reflected proceeds of bonds in the amount of $2,000,000. That statement also reflected expenditures for debt service in the amount of $3,300,000, including $2,900,000 for principal payments. Assuming no other changes, the effect, when moving from the change in fund balances in the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the change in Net Position for governmental activities in the Statement of Activities would be a:

A) B) C) D)

$900,000 increase. $900,000 decrease. $1,300,000 increase. $1,300,000 decrease.

82) A government had the following transfers reported in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances: (1) a transfer from the General Fund to a debt service fund in the amount of $1,100,000; (2) a transfer from the General Fund to an internal service fund in the amount of $1,300,000; and (3) a transfer from the General Fund to a special revenue fund in the amount of $500,000. The amount that would be shown as a transfer out in the governmental activities column in the Statement of Activities would be:

A) B) C) D)

83)

$0. $1,300,000. $1,600,000. $2,400,000.

Which of the following is true regarding the preparation of government-wide statements?

A) Balances from enterprise funds’ statements are entered in the business-type activities sections of the government-wide statements without adjustment. B) Interfund activities and balances within governmental activities are eliminated. C) Both of the choices are true. D) Neither of the choices is true.

84) A government reported an "other financing source" in the amount of $800,000, related to the sale of land in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The land had a cost of $375,000. The adjustment in the reconciliation, when moving from the governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the change in net position for governmental activities in the Statement of Activities would be a(an):

A) B) C) D)

Decrease of $425,000. Increase of $425,000. Increase of $375,000. Decrease of $375,000.

85) A government incurred expenses for its infrastructure as follows: $40 million for general repairs; $30 million to extend the life for existing infrastructure; and $30 million for additions and betterments. The infrastructure has a basis of $600 million and would be depreciated over a 40 year life, if depreciation were charged. The government chooses to use the modified approach to record infrastructure. The total amount that would be shown as expense in the Statement of Activities would be:

A) B) C) D)

$50 million. $55 million. $60 million. $70 million.

86) The total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any time is known as:

A) B) C) D)

Debt margin. Debt limit. Borrowing power. Maximum debt.

87) Which of the following is true regarding the reporting of general capital assets by state and local governments?

A) B) C) D)

Capital assets are reported in the government-wide Statement of Net Position. Capital assets are reported in the governmental funds Balance Sheet. Both of the choices are true. Neither of the choices is true.

88) A government incurred expenditures for its infrastructure as follows: $23 million for general repairs; $21 million to extend the life of existing infrastructure; $22 million for improvements and additions. If depreciation is to be charged, the amount would be $20 million. Which of the following would be true?

A) If the government chose to use the modified approach to record infrastructure, the amount to be charged as expense would be $44 million. B) If the government chose not to use the modified approach to record infrastructure, the amount to be charged to expense would be $43 million. C) Neither of the choices is true. D) Both of the choices are true.

89) A government reported an "other financing source" in the amount of $900,000 related to the sale of land in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The land had a cost of $400,000. The amount that would be reported in the government-wide Statement of Activities would be:

A) B) C) D)

a gain of $1,300,000. a gain of $900,000. a gain of $500,000. a gain of $400,000.

90) A government recorded transfers out of the General Fund to the debt service fund in the amount of $300,000 and to the enterprise fund in the amount of $450,000. The amount that would be shown as a transfer in the governmental activities column of the Statement of Activities would be:

A) B) C) D)

$750,000. $450,000. $300,000. $0.

91) The City of Casper levied property taxes for 2020 in the amount of $9,000,000. By the end of the year, $7,200,000 had been collected. It was estimated that $500,000 would be collected during the next 60 days of 2020 and that $240,000 would be collected after that and the remainder would be uncollectible. The City has a policy of recognizing the full amount possible for property taxes. Which of the following statements is true?

A) The amount reported for property tax revenue in the government-wide Statement of Activities would be $7,700,000. B) The amount reported for property tax revenue in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances would be $7,940,000. C) Both of the choices are true. D) None of the choices are true.

92) A government's Statement of Revenues, Expenditures, and Changes in Fund Balances reported proceeds of bonds in the amount of $2,000,000. It also reported expenditures for bond principal in the amount of $500,000. The last interest payment was on the last day of the fiscal year. The reconciliation from the governmental funds changes in fund balances to the governmental activities change in Net Position would reflect a(an):

A) Increase of $1,500,000. B) Decrease of $1,500,000. C) Increase of $500,000. D) Decrease of $500,000.

93) A governmental fund’s Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures for capital outlay in the amount of $12,000,000. Capital assets for that government cost $160,000,000, including $30,000,000 in land. Depreciable assets are amortized over 20 years, on average. The reconciliation from the governmental funds changes in fund balances to the governmental activities change in Net Position would reflect a(an):

A) Increase of $5,500,000. B) Decrease of $5,500,000. C) Increase of $7,100,000. D) Decrease of $7,100,000.

94)

Which of the following is true regarding the government-wide Statement of Net Position?

A) B) C) D)

95)

Discretely presented component units are reported separately. Governmental and business-type activities are reported separately. Both of the choices are true. Neither of the choices is true.

Which of the following is true regarding the government-wide Statement of Activities?

A) Program revenues include charges for services, operating grants and contracts, capital grants and contracts, and taxes levied for specific purposes. B) The accrual basis of accounting is used to calculate revenues and expenses. C) Both of the choices are true. D) Neither of the choices is true.

96) In its government-wide Statement of Net Position, a government reported assets of $165 million, including $40 million in capital assets (net of depreciation), and liabilities of $90 million, including long-term debt of $70 million, $50 million of which was issued to acquire capital assets. In addition, $20 million was restricted for debt service and other purposes. The government's Unrestricted Net Position would be reported as:

A) B) C) D)

$85 million. $65 million. $105 million. $35 million.

97) Which of the following categories is/are considered program revenue(s) in the Statement of Activities of a local government?

A) B) C) D)

A grant from the state to construct utility plant. A motor fuel tax, restricted for road repairs. Both of the choices are correct. Neither of the choices is correct.

98) A government reported an "Other Financing Source" in the amount of $600,000 related to the sale of land in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The land had a cost of $120,000. The adjustment in the reconciliation when moving from the changes in fund balances in the Statement of Revenues, Expenditures, and Changes in Fund Balances to the change in Net Position in the Statement of Activities would be a(an):

A) Increase of $480,000. B) Decrease of $480,000. C) Increase of $120,000. D) Decrease of $120,000.

99) A government reported the following transfers in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances: (1) a transfer from the General Fund to a special revenue fund in the amount of $500,000; (2) a transfer from the General Fund to an enterprise fund in the amount of $400,000; (3) a transfer from the General Fund to a permanent fund in the amount of $100,000. The amount that would be shown as a transfer out in the governmental activities column in the Statement of Activities would be:

A) B) C) D)

$0; no transfer would be shown. $400,000. $700,000. $1,000,000.

100) A governmental fund’s Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $40 million, including capital outlay expenditures of $12 million. Capital assets for that government cost $80 million, including land in the amount of $10 million. Depreciable assets are amortized over 10 years, on average. The reconciliation from governmental fund changes in fund balances to governmental activities change in Net Position would reflect:

A) B) C) D)

$4 million increase. $5 million decrease. $5 million increase. $4 million decrease.

101) The City of Smithfield levied property taxes in and for 2020 in the amount of $200 million. During 2020, $185 million was collected, and $7 million was collected during the next 60 days. During the remainder of 2021 (March – December), $2 million was estimated would be written off and the remainder of the tax levy is expected to be collected. The adjustment, when moving from the governmental fund changes in fund balances to the governmental activities change in Net Position would be:

A) B) C) D)

102)

$6 million increase. $6 million decrease. $5 million increase. $5 million decrease.

Which of the following is true regarding the government-wide Statement of Net Position?

A) A classified approach is required, reflecting current assets separately from noncurrent assets and current liabilities from noncurrent liabilities. B) Major funds are reported for governmental and enterprise funds. C) Both of the choices are true. D) Neither of the choices is true.

103) A government's Statement of Revenues, Expenditures, and Changes in Fund Balances reflected expenditures for debt service in the amount of $12,000,000, including $7,000,000 for interest. It also reflected proceeds of bonds in the amount of $4,000,000. No interest accruals were involved. When moving from the changes in fund balances reported for the governmental funds to the change in Net Position for governmental activities, the net change would be:

A) B) C) D)

104)

$3,000,000 increase. $1,000,000 increase. $3,000,000 decrease. $1,000,000 decrease.

Which of the following is true regarding the government-wide Statement of Activities?

A) B) C) D)

Fiduciary activities are not reported. Discretely presented component units are not reported. Both of the choices are true. Neither of the choices is true.

105) A government reported expenditures for infrastructure as follows: $17 million for improvements and additions; $23 million to extend the life of existing infrastructure; $21 million for general repairs. The cost of its infrastructure, excluding land, is $800 million, and the infrastructure has an estimated life of 50 years, on average. Which of the following would be the reported expense (in millions) under each of the following options?

A) B) C) D)

Depreciation Approach: $14; Modified Approach: $37. Depreciation Approach: $44; Modified Approach: $33. Depreciation Approach: $14; Modified Approach: $39. Depreciation Approach: $37; Modified Approach: $44.

106) A government reported expenditures for infrastructure as follows: $20 million for improvements and additions; $18 million to extend the life of existing infrastructure; $22 million for general repairs. The cost of its infrastructure, excluding land, is $600 million, and the infrastructure has an estimated life of 50 years, on average. Which of the following would be the reported expense (in millions) under each of the following options?

A) B) C) D)

Depreciation Approach: $34; Modified Approach: $40. Depreciation Approach: $38; Modified Approach: $32. Depreciation Approach: $32; Modified Approach: $38. Depreciation Approach: $40; Modified Approach: $34.

107) Which of the following fund types is not included in the government-wide financial statements?

A) General Fund. B) Pension Trust Fund. C) Enterprise Fund. D) Internal Service Fund.

108) Which of the following is not required to convert from the modified accrual basis to the accrual basis in preparing the government-wide statements?

A) B) C) D)

Record general capital assets. Change expenditures for debt service principal to reduction of liabilities. Make adjustments to revenues deferred because of the 60-day rule. Accrue interest on enterprise fund bonds.

109) The following balances exist at year end within the governmental activities of a government unit: Transfers In: 145,000 Transfers Out: 200,000 When compiling the government-wide financial statements, the journal entry to eliminate the transfer activity will include:

A) B) C) D)

A credit of $145,000 to Transfers Out. A credit of $20,000 to Transfers In. A credit of $55,000 to Transfers In. None of the choices are correct.

110) A donated collection is not required to be capitalized. If a government decides not to capitalize them, how will they be accounted for at the time of the donation?

A) B) C) D)

Debit revenue, credit expense/expenditure. Debit collections, credit revenue. Debit expense/expenditure, credit revenue. Debit collections, credit cash.

111) Which of the following situations would be unlikely to result in the recognition of an asset impairment?

A) A city warehouse is damaged by fire. B) Recently purchased city-owned voting booths are rendered obsolete by a federal law requiring a new technology. C) Ridership on city buses declines. D) Construction on a municipal sports complex stops when the city’s major league baseball team moves to another city.

112) A government reported, in its government-wide Statement of Net Position:assets of $82 million, including $60 million in capital assets (cost), with $18 million in accumulated depreciation, andliabilities of $50 million, including long-term debt of $20 million related to capital asset acquisition.In addition, $5 million of cash was restricted for payment of debt service. The government's Unrestricted Net Position would be reported as:

A) B) C) D)

$27 million. $22 million. $10 million. $5 million.

113) Which of the following adjustments would be made when moving from the governmental funds balance sheet to the governmental activities column in the government-wide Statement of Net Position?

A) B) C) D)

114)

A. Add balances of internal service fund assets and liabilities. B. Add beginning capital assets, net of depreciation. C. Neither A nor B choices is correct. D. Both A and B choices are correct.

Which of the following is true regarding the government-wide financial statements?

A) Government-wide statements include the Statement of Net Position, the Statement of Activities, and the Statement of Cash Flows. B) Government-wide statements are prepared using the economic resources measurement focus and accrual basis of accounting. C) Both of the choices are true. D) Neither of the choices is true.

115) On April 1, 2020, a local government issued bonds in the amount of $1,500,000. The bonds were issued at par and carried an interest rate of 4%, payable October 1 and April 1. When moving from the change in fund balances in the Statement of Revenues, Expenditures, and Changes in Fund Balances to the change in Net Position in the governmental funds' column of the Statement of Activities, both for the fiscal year ended June 30, 2020, the effect for the interest accrual only would be:

A) B) C) D)

A decrease of $30,000. An increase of $30,000. A decrease of $15,000. An increase of $15,000.

116) Where in the basic financial statements, (most commonly) would one find internal service fund assets reported?

A) In the proprietary funds' statements and in the business-type activities column of the government-wide statements. B) In the governmental funds' statements and in the governmental activities column of the government-wide statements. C) In the governmental funds' statements and in the business-type activities column of the government-wide statements. D) In the proprietary funds' statements and in the governmental activities column of the government-wide statements.

117)

Where in the basic financial statements would one find fiduciary activities reported?

A) In the fiduciary funds' statements and in the governmental activities column of the government-wide statements. B) In the fiduciary funds' statements and in the business-like activities column of the government-wide statements. C) In the fiduciary funds' statements only. D) In the government-wide statements only.

118) The City of Riverside levied property taxes in the amount of $20,000,000. The taxes were levied July 1, 2019 for the fiscal year ended June 30, 2020. During the year ended June 30, 2020, $17,800,000 in property taxes were collected from this levy. It is estimated that $940,000 will be collected during the next 60 days, $1,050,000 will be collected more than 60 days after June 30, 2020, and $210,000 will never be collected. When preparing the government-wide financial statements, how much property tax revenue should be recognized for the year ended June 30, 2020?

A) B) C) D)

$19,790,000. $19,490,000. $18,550,000. $18,740,000.

119) The City of Riverside levied property taxes in the amount of $20,000,000. The taxes were levied July 1, 2019 for the fiscal year ended June 30, 2020. During the year ended June 30, 2020, $17,800,000 in property taxes were collected from this levy. It is estimated that $940,000 will be collected during the next 60 days, $1,050,000 will be collected more than 60 days after June 30, 2020, and $210,000 will never be collected.How much will the city report as Deferred Inflow— Property Taxes in its June 30, 2020 government-wide Statement of Net Position?

A) B) C) D)

$1,050,000. $1,150,000. $1,990,000. $0.

120) The City of Riverside levied property taxes in the amount of $20,000,000. The taxes were levied July 1, 2019 for the fiscal year ended June 30, 2020. During the year ended June 30, 2020, $17,800,000 in property taxes were collected from this levy. It is estimated that $940,000 will be collected during the next 60 days, $1,050,000 will be collected more than 60 days after June 30, 2020, and $210,000 will never be collected. When preparing the General Fund financial statements, how much property tax revenue should be recognized from this levy for the year ended June 30, 2020?

A) B) C) D)

$18,550,000. $18,740,000. $19,790,000. $20,000,000.

121) The General Fund of the City of Plymouth purchased a police car in the amount of $33,000. Which of the following would be true?

A) A. The government-wide Statement of Activities would report an expense of $33,000. B) B. The General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances would report an expenditure of $33,000. C) C. Both A and B choices are true. D) D. Neither A nor B choices is true.

122)

Which of the following is not true regarding infrastructure assets?

A) Governments can record depreciation in the same manner as for other depreciable fixed assets. B) Because they have such long useful lives, infrastructure assets are never depreciated. C) Governments can choose to expense expenditures that extend the life of infrastructure assets in lieu of depreciation. D) Expenditures to add to or improve infrastructure assets must be capitalized.

123)

For the depreciation of infrastructure:

A) Governments can choose to expense expenditures that extend the life of infrastructure assets in lieu of depreciation. B) Governments are required to record depreciation in the same manner as other depreciable fixed assets. C) Governments are required to record depreciation using a modified approach. D) Governments do not record depreciation for infrastructure.

124) The difference between assets and liabilities in the government-wide statements is called_________.

A) B) C) D)

Fund Balance Net Position Net Equity Accrued Equity

125) When using the modified approach to account for infrastructures, expenditures to extend the life of the infrastructure assets are:

A) B) C) D)

Expensed. Capitalized. Neither of the choices is correct. Either of the choices is correct.

126) The governmental funds report a total of $500,000 Transfers In and $700,000 Transfers Out. What amount will be eliminated from the Transfers In and Transfers Out accounts in preparing the governmental activities section of the government-wide financial statements?

A) B) C) D)

$1,200,000. $700,000. $500,000. $200,000.

127) Which of the following is considered a source of general revenue in the Governmentwide Statement of Activities?

A) B) C) D)

Charges for Services. Operating Grants. Sales Tax. None of the choices are correct.

128) Which of the following is true concerning infrastructure assets with respect to the government-wide statements?

A) B) C) D)

129)

Capitalization of infrastructure is required. Governments must depreciate infrastructure assets. Governments rarely possess infrastructure. Capitalization of infrastructure is optional.

Under which of the following circumstances would an asset be considered impaired?

A) A costly piece of diagnostic equipment at a city hospital is no longer used because new technology exists that does a better job. B) A bridge is damaged by an earthquake. C) An expansion project at the city airport is halted because a major airline stops service to the city. D) All of the choices are correct.

130) The difference between the amount of debt limit calculated as prescribed by law and the net amount of outstanding indebtedness subject to limitation, is known as:

A) B) C) D)

Debt Limit. Debt Margin. Long-Term Debt. General Long-Term Debt.

131) Which of the following would not be determined to result in asset impairment under GASB?

A) New technology renders previous equipment obsolete. B) An expansion project at a city airport is halted when a major airline discontinues service to city. C) A truck is at the end of its useful life. D) A building is damaged by a hurricane.

132) A government has bonds outstanding at the beginning of the current year. The debit in the worksheet entry to bring these on to the government-wide financial statements would be to:

A) B) C) D)

Proceeds from Sale of Bonds. Amount to be Provided for Long-Term Debt. Expenditures—Bond Principal. Net Position-beginning balance.

133) If an Internal Service Fund has positive operating income, the worksheet entry to add the Internal Service Fund to governmental activities would include a:

A) B) C) D)

Debit to Transfers In. Credit to Net Position. Debit to Expenditures/expense. Credit to Expenditures/expense.

134) When converting fund financial records to government-wide financial statements, worksheet entries are made to eliminate all of the following accounts except:

A) Interest Payable. B) Bond Proceeds. C) Debt Service Expenditure - Principal. D) Capital Expenditures.

135) Which of the following would not need to be addressed/adjusted in compiling the government-wide statements?

A) Principal repayment on proprietary fund bonds. B) Issuance of general obligation bonds. C) Interfund transfers among governmental funds. D) Interest accrual on general obligation bonds.

136) Internal service funds are most commonly reported in which section of the Governmentwide financial statements?

A) B) C) D)

Governmental Activities. Business-type Activities. Component Unit. None of the choices are correct.

137) When converting to government-wide financial statements, the entry to record the amortization of the premium on a bond would:

A) B) C) D)

Debit the Premium on bonds payable and credit interest expense. Debit the Premium on bonds payable and credit premium expense. Debit the Bond Payable and credit Premium on bonds payable. There is no entry. You do not amortize the premium.

138) To qualify as a collection, a donated or purchased item must meet all of the following conditions except:

A) Held for public exhibition, education, or research to further public service. B) Protected, kept unencumbered, cared for, and preserved. C) Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other collectibles. D) All conditions must be met.

139)

When preparing government-wide statements, which of the following is not true?

A) General capital assets, general long-term debt, and internal service funds are added through worksheet journal entries. B) Worksheet entries eliminate elements of the modified accrual basis fund statements that do not conform to accrual accounting, such as expenditures for capital assets and principal repayments. C) Entries are necessary to adjust revenues to the accrual basis, record expenses not recognized under the modified accrual basis. D) Entries are necessary to eliminate fiduciary funds.

140)

Which of the following statements is correct with respect to general long-term debt?

A) Long-term debt is recorded in the individual funds, but not the government-wide statements. B) General long-term debt includes the noncurrent portion of capital lease arrangements, compensated absences and net pension obligation but not the principal portion of unmatured bonds. C) Required disclosures for the government-wide statements include the Schedule of Changes in Long-term Debt and Schedule of Debt Service Requirements. D) Since interest is accrued in the Debt Service Fund, no additional accrual is necessary when converting to the government-wide basis.

141) With respect to the content of government-wide statements, which of the following is correct?

A) Internal service funds are typically reported in the governmental activities sections of the government-wide statements, while fiduciary activities are not included in the government-wide statements. B) Fiduciary activities are included the government-wide statements and internal service funds are not included in the government-wide statements. C) Interfund transactions are not adjusted when preparing the government-wide statements because they cancel each other out. D) Interfund transaction are separately stated to show detail but do not affect the ending balances on the statements because revenues equal expenses.

142)

Which of the following statements is not correct?

A) The government-wide statements are separated into governmental activities and business-type activities. B) Discretely presented component units are also separately displayed in the fund-basis statements, but not the government-wide statements. C) The governmental-type funds’ Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances serve as inputs to the governmental activities sections of the government-wide statements. D) The fund-basis statements reflect modified accrual accounting, they must be adjusted to the accrual basis.

143)

Which of the following statements is not correct?

A) Internal service funds are likely to have receivables from other governmental funds that should be eliminated when preparing the government-wide statements. B) Most internal service funds serve primarily governmental departments and should be included with the governmental activities in the government-wide statements. C) If an internal service fund predominantly provided goods and services to departments reported in enterprise funds, it should be reported in the business activities column of the government-wide Statement of Net Position. D) Internal service funds are not included in the government-wide statements because they are proprietary funds.

144) Which of the following is NOT long-term debt that would be reported in the governmentwide statements?

A) B) C) D)

Pension liabilities. Pollution remediation costs. The pension contribution due to a state sponsored pension plan for the current year. Landfill closure and postclosure care.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 145) With respect to the government-wide statements, list the required statements.

146) With regard to the government-wide statements, indicate the measurement focus and basis of accounting that should be employed.

147) With regard to the government-wide statements, indicate the three categories of Net Position that should be reported and describe what would be put into each category.

148) With regard to the government-wide statements, distinguish between program revenues and general revenues. List three examples of each. What is the difference in reporting between program revenues and general revenues?

149) What conditions must be satisfied in order to use the modified approach for recording infrastructure?

150) Identify and describe the required supplementary information schedules that must be prepared when using the modified approach for infrastructure.

151) When preparing government-wide financial statements, the modified accrual based governments funds are adjusted. List 5 items involving long-term debt that are likely to require adjustments.

152) When preparing government-wide financial statements, the modified accrual based governments funds are adjusted. List 4 items involving capital assets that are likely to require adjustments.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 153) The following entries were in the governmental funds.

12/31/2019 Capital Projects Fund Cash

3,030,000

Other Financing Sources – Proceeds sales of General Obligation Bonds Other Financing Sources – Bond Premium

3,000,000

30,000

(to reflect issuance of 10 year general obligation bond)

12/31/2020 Debt Service Fund Expenditures: Bond Principal

300,000

Expenditures: Bond Interest

180,000

Cash

480,000

(to reflect payment of 1/10th principal and 1st year’s interest)

Required: Part A. What is the worksheet entry required to adjust beginning (or Position) in the 12/31/2020 government-wide financial statements for long term debt?Part B. What are the worksheet entries to adjust for current year activity in long-term debt for the year ended 12/31/2020? Assume interest for the year is due on 12/31 and the bond premium is amortized on the straight line basis.

154) The City of Oakdale maintains its books so as to prepare fund accounting statements and prepares worksheet adjustments in order to prepare government-wide financial statements. Required: You are to prepare, in journal form, worksheet adjustments for each of the following situations.General fixed assets, as of the beginning of the year, which had not been recorded, were as follows:

Land

50,000,000

Buildings

420,000,000

Improvements other than buildings

190,000,000

Equipment

115,000,000

Accumulated depreciation, capital assets

192,500,000

During the year, expenditures for capital outlays amounted to $14,100,000. Of that amount, $11,780,000 was for buildings; $1,930,000 was for improvements other than buildings, $10,100 was interest on bond anticipation notes and the remainder was for land.The capital outlay expenditures outlined in (B) were placed into service late in the year (no depreciation until next year). For purposes of financial statement presentation, all capital assets are depreciated using the straight-line method, with no estimated salvage value. Estimated lives are as follows: buildings, 50 years; improvements other than buildings, 20 years; equipment, 10 years.Equipment with a cost of $340,000 and accumulated depreciation at the time of sale of $285,000 was sold for $85,000.

155) The City of Greystone maintains its books so as to prepare fund accounting statements and prepares worksheet adjustments in order to prepare government-wide statements. You are to prepare, in journal form, worksheet adjustments for each of the following situations:The City levied property taxes for the current fiscal year in the amount of $8,000,000. At year-end, $720,000 of the taxes had not been collected. It was estimated that $330,000 of that amount would be collected during the 60 days after the end of the fiscal year and that $360,000 would be collected after that time and the balance would be uncollectible. The City had recognized the maximum of property taxes allowable under modified accrual accounting.$255,000 of property taxes had been deferred at the end of the previous year and was recognized under modified accrual as revenue in the current year.In addition to the expenditures reported under modified accrual accounting, the city computed that an additional $104,000 should be accrued for compensated absences.In the Statement of Revenues, Expenditures, and Changes in Fund Balances, General Fund transfers out included $600,000 to a debt service fund and $270,000 to a special revenue fund. General Fund transfers in included $750,000 from an enterprise fund.

156) The City of Odessa maintains its books so as to prepare fund accounting statements and prepares worksheet adjustments in order to prepare government-wide statements. As such, the City's internal service fund, a print shop fund, is included in the proprietary funds statements. Required: Prepare necessary adjustments in order to incorporate the internal service fund in the government-wide statements as a part of governmental activities:Balance sheet accounts include: Cash, $280,000; Inventories, $350,000; Capital Assets, $1,260,000; Accumulated Depreciation, $540,000; Accounts Payable, $250,000; and Bonds Payable, $400,000.The only transaction in the internal service fund that is external to the government is interest expense in the amount of $12,000.Exclusive of the interest expense, the internal service fund reported operating income of $122,000. An examination of the records indicates that services were provided as follows: one half to general government, one fourth to public safety, one fourth to culture and recreation.

157) The City of Madison, a general purpose government, reported fund balances in the amount of $17,900,000 in the governmental funds balance sheet dated December 31, 2020. In addition, the following information is relevant:General government capital assets amounted to $40,320,000. Accumulated depreciation of those capital assets amounted to $18,720,000. Enterprise fund capital assets amounted to $24,480,000 with accumulated depreciation of $12,096,000.Internal service fund’s net assets amounted to $3,600,000. These were reported in the proprietary funds fund basis statements but serve departments in the General Fund.Property Taxes, which should be recognized as revenue in the government-wide statements, amounted to $ 288,000. The balance of deferred inflows - property taxes from the previous year was $ 245,000.Liabilities, in addition to the amount reported in the governmental funds balance sheet included accrued interest payable, $432,000; General long-term liabilities of the government amounted to (1) general obligation bonds of $8,000,000 and (2) compensated absences payable of $2,800,000. Revenue Bonds Payable in the enterprise fund totaled $2,500,000.Required: Prepare a reconciliation from the fund balances recognized in the governmental funds balance sheet to the Net Position recognized in the governmental funds column of the government-wide statement of Net Position.

158) The City of Henderson reported a change in fund balances of $2,267,000 in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances for the year ended December 31, 2020. In addition, the following information is relevant:Capital outlay expenditures amounted to $7,880,000 in the modified accrual statement. General government capital assets amounted to $81,000,000, excluding land and had an average life of 20 years.The modified accrual statement reported proceeds from the sale of land in the amount of $450,000. The land had a basis of $350,000.Property taxes had been levied in the amount of $9,000,000. It was estimated that 3% would never be collected, that $450,000 would be collected within 60 days of year-end, and that $195,000 would be collected more than 60 days from year-end. The City had recognized the maximum permitted under modified accrual accounting.$185,000 of property taxes had been deferred at the end of the previous year and was recognized under modified accrual as revenue in the current year.The modified accrual statement reflected debt service expenditures in the amount of $450,000 for interest and $600,000 for principal. No adjustment was necessary for interest accruals at year-end.Long term compensated absences liabilities increased $110,000 from the previous year.Required:Prepare a reconciliation from the change in fund balances reported above to the change in Net Position in the governmental column in the government-wide Statement of Activities for the year ended December 31, 2020.

159) The Village of Canandaigua determined that, as of July 1, 2019, infrastructure assets estimated at $420 million were in place, with an estimated useful life of 25 years. During the year ended June 30, 2020, expenditures were $12 million for the routine maintenance of infrastructure, $14 million to extend the life of existing infrastructure, and $29 million for infrastructure additions and improvements. Required: a) If the modified approach is used, what would be the amount charged to expense during the fiscal year ended June 30, 2020. What amount would be capitalized?b) What amount would have been charged to expense if the modified approach were not used? What amount would be capitalized?

160) The following information is available for the preparation of the government-wide financial statements for the City of Shortsville for the year ended June 30, 2020:

Expenses: General government

$ 14,190,000

Public safety

23,760,000

Public works

12,210,000

Health and sanitation

6,270,000

Culture and recreation

4,620,000

Interest on long-term debt, governmental type Water and sewer system Parking system

990,000 12,870,000 350,900

Revenues: Charges for services, general government Charges for services, public safety

2,400,000 516,000

Operating grant, public safety

1,080,000

Operating grant, health and sanitation

1,680,000

Charges for services, culture and recreation

3,900,000

Charges for services, water and sewer

15,600,000

Charges for services, parking system

480,000

Property taxes

35,000,000

Sales taxes

23,760,000

Investment earnings, business-type

510,000

Other Financing Sources (Uses): Special item—gain on sale of unused land, governmental type Transfers from General Fund to enterprise fund

140,000 300,000

Transfer Out (to governmental funds)

(2,000,000 )

Transfer In (from governmental funds)

2,000,000

Net position, July 1, 2019, governmental activities

14,300,000

Net position, July 1, 2019, business-type activities

23,100,000

Answer Key Test name: Chapter 8: Government-Wide Statements, Capital Assets, Long-Term Debt 1) FALSE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) FALSE 25) FALSE .

26) TRUE 27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) FALSE 32) FALSE 33) FALSE 34) FALSE 35) FALSE 36) TRUE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) TRUE 42) TRUE 43) TRUE 44) TRUE 45) TRUE 46) FALSE 47) TRUE 48) FALSE 49) FALSE 50) TRUE 51) TRUE 52) TRUE 53) FALSE 54) TRUE 55) TRUE .

56) TRUE 57) D 58) A 59) B 60) C 61) D 62) C 63) C 64) A 65) A 66) D 67) D 68) A 69) C 70) D 71) C 72) A 73) D 74) C 75) B 76) C 77) D 78) C 79) C 80) B 81) A 82) A 83) C 84) D 85) D .

86) B 87) A 88) D 89) C 90) B 91) D 92) B 93) A 94) C 95) B 96) B 97) A 98) D 99) B 100) C 101) A 102) D 103) B 104) A 105) D 106) A 107) B 108) D 109) A 110) C 111) C 112) D 113) D 114) B 115) C .

116) D 117) C 118) A 119) D 120) B 121) B 122) B 123) A 124) B 125) A 126) C 127) C 128) A 129) D 130) B 131) C 132) D 133) D 134) A 135) A 136) A 137) A 138) D 139) D 140) C 141) A 142) B 143) D 144) C

145) The required financial statements are the Statement of Net Position and the Statement of Activities. 146) The measurement focus and basis of accounting would be the economic resources measurement focus and accrual basis of accounting. 147) The three categories of net position are (1) Net investment in capital assets. (2) restricted, and (3) unrestricted. The first category would be the capital assets less depreciation, less debt associated with the acquisition of capital assets. The second category would include net resources restricted by donors, granting agencies, bond covenants, superior governments (e.g., states with regard to local governments), and legislation by the reporting government. The third category would be a “plug” figure. 148) Program revenues are those that are associated with specific programs. Included would be charges for services, operating grants and contracts, and capital grants and contracts. Program revenues are deducted from the functional expense categories in the Statement of Activities to arrive at net expenses (revenues). General revenues are those revenues not associated with particular programs. Included would be all forms of taxes, interest revenue, and grants and contracts that are not associated with particular programs. General revenues are subtracted from net expenses (revenues) to get the change in (or Position) in the Statement of Activities.

149) In order to use the modified approach, two conditions must exist. First, the government must have an asset management system that (1) keeps an up-to-date inventory of eligible infrastructure assets, (2) performs condition assessments of those eligible infrastructure assets at least every three years, using a consistent measurement scale, and (3) estimates each year the annual amount to maintain and preserve those assets at the condition level established and disclosed by the government. Second, the government must document that the eligible infrastructure assets are being maintained at a level at or above the condition level established and disclosed by the government. 150) Two RSI schedules must be prepared. One is a schedule that discloses the assessed condition of eligible infrastructure assets. The second reports that estimated annual amount to maintain and preserve eligible infrastructure assets compared with the amount actually expended for each of the preceding five fiscal periods. 151) Proceeds of debt issues are reclassified as liabilities.Expenditures for principal are reclassified as reduction in liabilities.Premium on longterm debt is amortized.Beginning balances of debt are recorded.Interest accruals are recorded for amounts payable in the next year.Interest accruals from the previous fiscal year are reversed. 152) Capital assets are depreciatedExpenditures for capital outlay are reclassified as assetsBeginning balances of capital assets are recordedProceeds from sale of capital assets are eliminated and gains or losses recognizedCapitalized interest on construction projects is expensed 153) Part A. Net Position

3,030,000

Bond Payable

3,000,000

Premium on Bond Payable

30,000

Part B. Bond Payable

300,000

Expenditures - Bond Principal

300,000

Premium on Bond Payable

3,000

Interest Expense

3,000

154) CITY OF OAKDALE WORKSHEET ENTRIES Debits A.

Land

50,000,000

Buildings

420,000,000

Improvements Other Than Buildings

190,000,000

Equipment

115,000,000

Accumulated Depreciation-Capital Assets Net Position B.

192,500,000 582,500,000

Buildings

11,780,000

Improvements Other Than Buildings

1,930,000

Land

379,900

Interest Expense

10,100

Expenditures-Capital Outlay

Credits

14,100,000

Depreciation Expense

29,400,000

Accumulated Depreciation-Buildings

8,400,000

Accumulated DepreciationImprovements Other Than Buildings Accumulated Depreciation-Equipment

9,500,000

Other Financing Source: Proceeds from Sale of Equipment Accumulated Depreciation

11,500,000 85,000 285,000

Special Item – Gain on sale of equipment Equipment

30,000 340,000

155) CITY OF GREYSTONE WORKSHEET ENTRIES Debits A.

Deferred Inflows – Property Taxes

360,000

Revenues – Property Taxes B.

Revenues – Property Taxes

360,000 255,000

Net Position C.

255,000

Compensated Absences Expense

104,000

Compensated Absences Payable D.

Credits

Transfers In

104,000 870,000

Transfers Out

870,000

156) CITY OF ODESSA WORKSHEET ENTRIES

Debits 1.

Cash

280,000

Inventories

350,000

Capital Assets

1,260,000

Accumulated Depreciation-Capital Assets

540,000

Accounts Payable

250,000

Bonds Payable

400,000

Net Position

700,000

Interest Expense

12,000

Net Position 3.

Credits

Net Position

12,000 122,000

Expenditures-General Government

61,000

Expenditures-Public Safety

30,500

Expenditures-Culture and Recreation

30,500

157) City of Madison Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net PositionAs of December 31, 2020 Fund Balances Reported in Governmental Funds Balance $ 17,900,000 Sheet Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental funds are not 21,600,000 financial resources and, therefore are not reported in the funds Internal service funds are used by management to 3,600,000 charge the costs of certain activities to individual funds. The assets and liabilities of

internal service funds are included in governmental activities in the Statement of Net Position Deferred inflows for property taxes are reported in the funds but accrued in the government-wide statements and added to Net Position Accrued interest payable is accrued in the government-wide statements Long-term liabilities, including compensated absences and bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds Net Position of governmental activities

288,000

(432,000 ) (10,800,000 )

32,156,000

158) CITY OF HENDERSON RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 Net change in fund balances-total governmental funds $ 2,267,000 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays ($7,880,000) exceeded depreciation ($4,050,000) in the current period. In the Statement of Activities, only the gain on the sale of land is reported, whereas in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in Net Position differs from the change in fund balance by the cost of the land sold. Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds (property taxes) Repayment of bond principal is an expenditure in the governmental funds, but the repayment

3,830,000

(350,000 )

10,000

600,000

reduces long-term liabilities in the Statement of Net Position. Some expenses in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds Change in Net Position of governmental activities

(110,000 )

$ 6,247,000

159) a) The amount charged to expense during the fiscal year ended June 30, 2020 would be the $12 million for routine maintenance and the $14 million expended to extend the life of existing infrastructure, or a total of $26 million. The amount capitalized would be the $29 million for improvements and additions.b) If the modified approach were not used, the amount charged to expense would be the $12 million for routine maintenance and $16.8 million for depreciation ($420 million divided by 25), or a total of $28.8 million. The amount capitalized would be the $14 million for expenditures to extend the life and the $29 million for improvements and additions, or a total of $43 million. 160) CITY OF SHORTSVILLE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2020 Program Revenues Net(Expense)Revenue and Change in Net Position Functions/Pro Expenses Charges Operati Governmen Business Total grams for ng tal -Type Services Grants Activitie Activiti s es Governmental Activities:

General $ 14,190, $ 2,400,0 $ (11,790 ) $ $ (11,790 ) Government 000 00 ,000 ,000 Public Safety 23,760, 516,000 $ 1,080, (22,164 ) (22,164 ) 000 000 ,000 ,000 Public Works 12,210, (12,210 ) (12,210 ) 000 ,000 ,000 Health and 6,270,0 1,680, (4,590, ) (4,590, ) Sanitation 00 000 000 000 Culture and 4,620,0 3,900,0 (720,00 ) (720,00 ) Recreation 00 00 0 0 Interest on 990,000 (990,00 ) (990,00 ) Long-Term 0 0 Debt Total 62,040, 6,816,0 2,760, (52,464 ) (52,464 ) Governmenta 000 00 000 ,000 ,000 l Activities Business-Type Activities: Water and 12,870, 15,600, 2,730, 2,730,0 Sewer System 000 000 000 00 Parking 350,900 480,000 129,10 129,100 System 0 Total 13,220, 16,080, 2,859, 2,859,1 Business-Type 900 000 100 00 Activities Total

$ 75,260, $ 22,896, $ 2,760, $ (52,464 ) $ 2,859, $ (49,604 ) 900 000 000 ,000 100 ,900

General Revenues: Property Taxes

35,000,000

Sales Taxes

23,760,000

Investment Earnings Special Item-Gain on Sale of Land

510,000 140,000

Transfers

300,000

(300,000 )

Total General Revenues, Special Items, and Transfers Change in Net Position

59,200,000

(210,000 )

59,410,000

6,736,000

3,069,100

9,805,100

Net Position, July 1, 2019

14,300,000

23,100,000

37,400,000

Net Position, June 30, 2020 $ 21,036,000 $ 26,169,100

$ 47,205,100

Chapter 9:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) County governments are typically classified as special purpose governments. ⊚ ⊚

true false

2) According to GASB "General-purpose governments are thought to be those that offer more than one type of basic governmental service". ⊚ ⊚

Special-purpose governments generally provide a limited set of services or programs. ⊚ ⊚

true false

Special purpose governments must be stand-alone local governments. ⊚ ⊚

true false

5) General-purpose governments are those that offer more than one type of basic governmental service, while special-purpose entities generally provide a limited, or single, set of programs or services. ⊚ ⊚

true false

6) GASB standards permit exercise of judgment when determining whether a government is general-purpose or special-purpose. ⊚ ⊚

true false

A County could be either a general-purpose or a special purpose government. ⊚ ⊚

true false

8) Special-purpose governments generally provide a single or limited set of governmental services or programs. ⊚ ⊚

true false

A fire protection district is an example of special-purpose local government. ⊚ ⊚

true false

10) The central issue in evaluating a special-purpose entity is what set of financial statements (fund-basis alone or fund-basis with government-wide) are required. ⊚ ⊚

true false

11) Financial reporting for a special-purpose local government depends on whether that government is engaged in governmental-type, business-type or fiduciary-type activities. ⊚ ⊚

true false

12) Special-purpose governments that are engaged in only one governmental-type activity are permitted to combine the fund and government-wide financial statements. ⊚ ⊚

true false

13) A special-purpose government engaged in business-type activities financed in whole or part by fees charged to external parties are usually reported in fiduciary funds.

⊚ ⊚

true false

14) Special-purpose governments that are engaged in both governmental and business-type activities are permitted to combine the fund and government-wide financial statements. ⊚ ⊚

true false

15) Special-purpose governments that are engaged in more than one governmental activity are permitted to combine the fund and government-wide financial statements. ⊚ ⊚

true false

16) Special-purpose governments that are engaged in both governmental and business-type activities are required to use the full reporting model including MD&A, government-wide and fund-basis statements, notes to the financial statements and RSI. ⊚ ⊚

true false

17) Special-purpose governments that are engaged in more than one governmental activity are required to use the full reporting model including MD&A, government-wide and fund-basis statements, notes to the financial statements and RSI. ⊚ ⊚

true false

18) Special-purpose governmental entities that are engaged in a single business activity are not required to prepare government-wide financial statements, but issue only enterprise fund statements. ⊚ ⊚

true false

19) Special-purpose governmental entities that are engaged in only a single governmentaltype activity need only prepare the statements required for governmental fund basis financial statements. ⊚ ⊚

true false

20) For financial reporting purposes, governmental health care entities, public school systems, other not-for-profit entities and public colleges and universities may be considered to be special-purpose entities. ⊚ ⊚

true false

21) Governmental health care entities, public school systems, and museums are commonly accounted for as special-purpose governments. ⊚ ⊚

true false

22) A special assessment tax is a tax levy that is assessed against only those taxpayers who are deemed to benefit from the service or project paid for by the proceeds of the special assessment levy. ⊚ ⊚

true false

23) Special assessment taxes may be levied to finance construction projects or to provide current services. ⊚ ⊚

true false

24) When governments construct projects that are financed with special assessment debt guaranteed by the government, those projects would be accounted for in the General Fund or a capital projects fund.

⊚ ⊚

true false

25) Service type special assessments would be accounted for in the fund in which the government department normally operates, often the General or a special revenue fund. ⊚ ⊚

true false

26) So long as the reporting government is not primarily responsible for debt under a construction type special assessment, the special assessment may be reported in a custodial Fund. ⊚ ⊚

true false

27) If a reporting government is only secondarily responsible for debt under a construction type special assessment, the special assessment is reported in a custodial Fund. ⊚ ⊚

true false

28) Capital assets acquired through special assessment debt guaranteed by the government are reported in the government-wide statements. ⊚ ⊚

true false

29) Leases whose initial terms is 12 months or longer are reported as capital assets and liabilities on the accrual based statements, even if the asset does not transfer ownership. ⊚ ⊚

true false

30) Under governmental accounting principles for capital and operating leases; expenditures are recorded each period for the amount of the annual lease payment for all leases, but the expenditures are classified differently for capital and operating leases.

⊚ ⊚

true false

31) Capital assets acquired through 5 year leases by the General Fund are reported in the General Fund Balance Sheet. ⊚ ⊚

true false

32) Capital assets leased through a four year lease by the General Fund are reported in the government-wide Statement of Net Position. ⊚ ⊚

true false

33) At the inception of a lease, no entry is necessary to record capital lease agreements entered by the General Fund since neither the asset nor the lease obligation appear in the fundbasis statements. ⊚ ⊚

true false

34) Capital assets leased through short-term leases by the General Fund are reported in the government-wide Statement of Net Position. ⊚ ⊚

true false

35) Pension expenditures for governmental type funds are equal to the amounts paid to the pension fund for current year service plus any accruals for amounts to be paid from current financial resources. ⊚ ⊚

true false

36) Governments with defined benefit pension plans will report a net pension liability in the government-wide Statement of Net Position if the amount the government anticipates paying to employees in the future is greater than the net fiduciary position of the pension trust fund. ⊚ ⊚

true false

37) Net pension liabilities are reported in statements prepared using the economic resource measurement focus and accrual basis of accounting. ⊚ ⊚

true false

38) Governments should report the net pension liability in the governmental fund basis statements even if it is not expected to be paid from current financial resources. ⊚ ⊚

true false

39) Assume a government makes a change of assumption that results in an increase in its estimate of the net pension liability. This will be recorded in the government-wide statements as an increase in the net pension liability and an increase in deferred outflows of resources. ⊚ ⊚

true false

40) Assume a government makes a change of assumption that results in an increase in its estimate of the net pension liability. The resulting change in the net pension liability will be recorded as pension expense in the period of the change. ⊚ ⊚

true false

41) Assume a government makes a change in the terms of a pension (increases benefits) that results in an increase in its estimate of the net pension liability. The resulting change in the net pension liability will be recorded as pension expense in the period of the change.

⊚ ⊚

true false

42) Assume a government makes a change of assumption that results in an increase in its estimate of the net pension liability. The resulting change in the net pension liability will be recorded as a deferred outflow of resources in the period of the change. ⊚ ⊚

true false

43) Differences between the projected and actual returns on pension plan investments are deferred and recognized in expense over a five-year period. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 44) Which of the following is an example of a special-purpose government?

A) B) C) D)

45)

Park district. Village government. State government. City government.

Which of the following is not an example of a special-purpose government?

A) B) C) D)

Village government. Tollway authority. Library district. Fire protection districts.

46) Which of the following would not be considered a special-purpose government for financial reporting purposes? .

A) B) C) D)

47)

A public school system. An art museum. A public hospital. A county board of supervisors.

Which of the following statements is true of a special-purpose government?

A) Special-purpose governments that are engaged in more than one governmental-type activities can combine the fund and government-wide financial statements. B) Special-purpose governments that are engaged in a single governmental-type activity may combine the fund and government-wide financial statements. C) Special-purpose governments engaged in only one business-type activity have to prepare government-wide financial statements. D) Special-purpose governments must be stand-alone local governments.

48) Which of the following is not required for a special-purpose local government engaged in only fiduciary type activities?

A) B) C) D)

Statement of Fiduciary Net position. Statement of Fiduciary Cash Flows. Notes to the Financial Statements. Required Supplementary Information other than MD&A.

49) Special-purpose governments that are engaged in both governmental and business-type activities or in more than one governmental activity are required to include all of the following in its financial statements except?

A) B) C) D)

Required supplementary Information. Fund basis financial statements. Government-wide financial statements. All of the choices are required.

50) Which of the following is not true regarding financial reporting of special-purpose entities?

A) Special-purpose entities might be included as component units in a primary government's financial statements. B) Special-purpose entities that engage in a single governmental activity may prepare statements that combine government-wide and governmental fund statements. C) Special-purpose entities that are engaged in multiple fiduciary activities must prepare both fund-basis and government-wide financial statements. D) All of the choices are true.

51) Assume a government is a special-purpose entity engaged in fiduciary activities only. Which of the following financial statements would be required?

A) Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position. B) Statement of Net Position and Statement of Activities. C) Statement of Net Position, Statement of Activities, Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position. D) Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position, and Statement of Cash Flows.

52) Assume a government is determined to be a special-purpose government engaged in business-type activities only. Which of the following financial statements would be required?

A) Balance Sheet, Statement of Revenues, Expenditures, and Changes in fund Balances. B) Statement of Net Position, Statement of Activities, Statement of Cash Flows. C) Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, Statement of Cash Flows. D) Statement of Net Position and Statement of Activities.

53) .

A) B) C) D)

A. Separate government-wide and fund financial statements. B. Statements combining the governmental funds and government-wide statements. C. Either option A or option B are permitted. D. Government-wide financial statements are not required.

54) Which of the following is true regarding the financial statements for special-purpose entities?

A) Special-purpose entities that are engaged only in one governmental activity may combine government-wide and governmental fund statements. B) Special-purpose entities that are engaged in fiduciary activities only prepare the statements required for fiduciary funds (Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position). C) Both of the choices are true. D) Neither of the choices is true.

55) Special purpose governments engaged only in fiduciary-type activities are required to prepare all of the following except:

A) B) C) D)

56)

Statement of Fiduciary Net Position. Statement of Cash Flows. Statement of Changes in Fiduciary Net Position. Management Discussion and Analysis.

Which of the following is true regarding financial reporting of special-purpose entities?

A) Special purpose entities might include park districts, school districts, and public colleges and universities. B) Special-purpose entities, in some cases, have more limited reporting requirements than general-purpose entities. C) Both of the choices are true. D) Neither of the choices is true.

57) Public colleges and universities that choose to report as special-purpose entities engaged only in business-type activities would have which of the following financial statements?

A) Statement of Net Position, Statement of Activities. B) Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position. C) Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, Statement of Cash Flows. D) None of the choices are correct.

58) Where should a government report special assessment debt that the government is not liable for in any way?

A) B) C) D)

59)

Capital projects fund. Debt service fund. Government-wide statements (not in a fund). None of the choices are correct.

Which of the following is true with respect to special assessment levies?

A) If the government is not liable for the special assessment debt directly or through guarantee, the special assessment is accounted for in a custodial fund. B) Taxpayers may opt out of a service-type special assessment if they agree to not use the service funded by the assessment. C) Service-type special assessments may not be accounted for in the General or special revenue fund. D) Construction-type special assessments are accumulated until there is enough money to finance the construction project.

60) If the government is primarily or secondarily liable for the payment of debt principal and interest for a special assessment project:

A) The tax levy and debt service expenditures should be recorded in an internal service fund. B) A special revenue fund should account for the proceeds of the debt and construction expenditures. C) The project is accounted for within governmental type funds as if it were a governmental project. D) The debt is not recorded in the government-wide statements.

61) When a governmental unit is primarily or secondarily liable for the debt, debt proceeds for special assessment obligations levied for the construction phase of a capital improvement project should be reported in which of the following fund types?

A) B) C) D)

62)

Special Assessment fund. Capital projects. Custodial. Debt service.

A special assessment tax is:

A) Assessed against all property owners following a referendum in which voters approved the special project being constructed. B) Assessed only against certain property owners who are deemed to benefit from the service or project being paid for by the proceeds of the special assessment levy. C) A waiver of property taxes for businesses willing to locate within a government’s jurisdiction. D) None of the choices are correct.

63) A downtown shopping district desires additional police patrols and agrees to pay for the service through a special assessment property tax. Which fund should be used to account for the special assessment tax proceeds?

A) B) C) D)

General. Capital projects. Custodial. Debt service.

64) When a government acquires general fixed assets under a five year lease agreement, the asset should be recorded in the General Fund’s fund basis financial statements:

A) as a capital asset and lease obligation at the inception of the lease agreement at the lesser of the present value of the minimum lease payments or the fair market value of the property. B) as debt service expenditures when payments are made. C) as a capital asset and lease obligation at the inception of the lease agreement for the total lease payments. D) as an expense when payments are made.

65) A government signed a five-year capital lease on January 1, 2020 to obtain some equipment. The lease provided that the government would make a down payment of $35,000 and four $35,000 payments each year after that, beginning January 1, 2019. The government has a fiscal year ending December 31. Upon inception of the lease, the government, in its governmental fund accounting records would:

A) Debit expenditures for $35,000 and credit cash for $35,000. B) Debit expenditures for $175,000, credit cash for $35,000, and credit accounts payable for $140,000. C) Debit expenditures for the present value of the payments (including the $35,000 down payment), credit cash for $35,000, and credit accounts payable for the difference between the $35,000 and the present value of the future payments. D) Debit expenditures for the present value of the payments (including the $35,000 down payment), credit cash for $35,000, and credit other financing sources for the difference between the $35,000 and the present value of the future payments.

66) A government entered into a capital lease agreement to acquire equipment for the general government on January 1, 2020. Five payments of $12,000 each are to be made, beginning on December 31, 2020. Discounting is at 6%, computed annually. The present value of the five payments is $50,548. Which of the following would be true as of January 1, 2020?

A) An entry would be made debiting Expenditures and crediting Other Financing Sources-Capital Leases in a governmental fund, both in the amount of $60,000. B) An entry would be made debiting Equipment and crediting Capital Leases Payable in a governmental fund, both in the amount of $50,548. C) An entry would be made debiting Capital Expenditure and crediting Capital Leases Payable in a governmental fund, both in the amount of $50,548. D) An entry would be made debiting Expenditures and crediting Other Financing Sources-Capital Leases in a governmental fund, both in the amount of $50,548.

67) At the inception of a capital lease agreement for a piece of equipment used in governmental operations.

A) B) C) D)

A. a liability is incurred and reported in the governmental fund’s balance sheet. B. a liability is incurred and reported in the government-wide financial statements. C. an expenditure is recorded in the governmental fund. D. Both B and C choices are correct.

68) Where is the net pension liability shown in a Comprehensive Annual Financial Report for employees of governmental-type activities?

A) B) C) D)

The Statement of Fiduciary Net Position. The government-wide Statement of Net Position. Both of the choices are correct. Neither of the choices is correct.

69) Where is the net pension liability shown in a Comprehensive Annual Financial Report for employees of enterprise fund activities?

A) B) C) D)

The enterprise fund Statement of Fund Net Position. The government-wide Statement of Net Position. Neither of the choices is correct. Both of the choices are correct.

70) When accounting for defined benefit pensions, the net pension liability for employees of governmental activities is:

A) B) C) D)

Reported in the governmental fund-basis statements. Reported in the government-wide statements. Neither of the choices is correct. Both of the choices are correct.

71) When accounting for pension benefits, the net pension obligation for employees of proprietary activities is:

A) B) C) D)

Reported in the government-wide statements. Reported in the proprietary fund-basis statements. Both of the choices are correct. Neither of the choices is correct.

72) Which of the following items does not increase the net pension liability and pension expense for a government offering a defined benefit pension plan?

A) B) C) D)

Service cost. Interest. Benefit payments to retired employees. All of the choices increase net pension liability and pension expense.

73) A government offering a defined benefit pension plan changes the plan terms with the result that pension benefit are increased. How would the resulting increase in the net pension liability be recognized in the financial statements in the year the plan is changed?

A) The increase in net pension liability would be expensed in the period the plan is changed. B) The increase in net pension liability would be deferred and amortized over the remaining service life of the employees. C) The increase in net pension liability would be deferred and amortized over five years. D) The increase in net pension liability would be deferred and amortized over ten years.

74) The projected returns exceed actual returns on pension plan assets for a government offering a defined benefit pension plan. How would the resulting increase in the net pension liability be recognized in the financial statements in the year this difference is recognized?

75) A government offering a defined benefit pension plan determines it is necessary to alter actuarial assumptions increasing the estimated cost of pension benefits. How would the resulting increase in the net pension liability be recognized in the financial statements in the year the plan is changed?

76) Which of the following statements regarding employer reporting of pension trust funds is not correct?

A) Contributions by the governmental funds are recorded as expenditures in the General Fund. B) The net pension liabilities are reported in the government-wide statements. C) The net pension liabilities of proprietary fund employees are reported in the proprietary fund-basis statements. D) Governmental funds report net pension liabilities of governmental fund employees as a fund liability.

77) A government sponsoring a defined benefit pension plan changes an assumption underlying the measurement of the net pension liability. Assuming the estimated of this liability increases, how will this be reflected in the government-wide statements?

A) B) C) D)

78)

As an increase in the net pension liability and an expense. As an increase in the net pension liability and a deferred outflow of resources. As an increase in the net pension liability and an intangible asset. None of the choices, changes in estimated are not recorded.

Which of the following is true regarding pension accounting and reporting?

A) Local governments include only the pension plans for which it is trustee in pension trust funds Statement of Fiduciary Net Position. B) The Net Pension Liability reported by local governments include only the pension plans for which the local government is trustee, no liability needs to be reported for state sponsored plans in which the local government participates. C) Neither of the choices is correct. D) Both of the choices are correct.

79)

Which of the following is true regarding fiduciary funds?

A) When a government provides employees a defined benefit pension plan, the government is required to present a ten year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information. B) Governmental type funds report a net pension liability representing the unfunded pension obligation. C) Both of the choices are true. D) Neither of the choices is true.

80) Which of the following is true regarding pension (and other employee benefit) trust funds?

A) The actuarially computed Net Pension Liability is reported in the Statement of Fiduciary Net Position. B) While the accrual basis of accounting is used, the terms "additions" and "deductions" are used in the Statement of Changes in Fiduciary Net Position in lieu of "revenues" and "expenses". C) Both of the choices are true. D) Neither of the choices is true.

81) Which of the following local governments is least likely to report a net pension liability for underfunded pension obligations?

A) A local government acting as trustee for a defined benefit pension plan. B) A local government participating in a state sponsored defined benefit pension plan. C) A local government participating in a state sponsored defined contribution pension plan. D) None of the choices, local governments do not report net pension liabilities.

82) Which of the following is true for a city government participating in a state sponsored pension plan for its law enforcement employees?

A) The General Fund will report pension expenditure for the annual required contribution to the State Retirement System. B) The Government-wide Statement of Net Position will report a liability to the extent the city’s share of the total pension liability exceeds the net fiduciary position of the state plan. C) Neither of the choices is correct. D) Both of the choices are correct.

83)

Which of the following is true regarding pension accounting and reporting?

A) Local governments include only the pension plans for which it is trustee in pension trust funds Statement of Fiduciary Net Position. B) The pension trust fund Statement of Fiduciary Net Position reflects the net pension liability (the excess of the total benefit obligation over the net position available for benefits). C) Both of the choices are true. D) Neither of the choices is true.

84) A government sponsoring a defined benefit pension plan changes an assumption underlying the measurement of the net pension liability. Assuming the estimate of this liability increases, how will this be reflected in the government-wide statements?

A) B) C) D)

As an increase in the net pension liability and an expense. As an increase in the net pension liability and an intangible asset. As an increase in the net pension liability and a deferred outflow of resources. None of the choices, changes in estimated are not recorded.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 85) Special-purpose governments that are engaged in both governmental and business-type activities or in more than one governmental activity are required to include which items in its financial reporting?

86) Discuss the difference between general-purpose governments and special-purpose governments.

87) List three examples (types) of general-purpose state or local governments and three special-purpose local governments.

88) What are the required parts of the annual financial report for special-purpose local governments engaged only in business-type activities?

89) What are the required parts of the annual financial reports for special-purpose governments engaged only in fiduciary-type activities?

90) Indicate the financial reporting rules for each of the following special-purpose entities (which category of special-purpose entity), and indicate the financial statements that would be required:A township that assesses property for taxation, provides road maintenance, and provides welfare assistance.A fire protection district that engages in protection of property in unincorporated areas from fires.An independent tollway authority, not the component unit of any other government.An independent statewide pension plan.A public college.

91) What is the difference between a component unit and a special purpose local government?

92)

What are the two types of special assessments?

93)

Identifying the appropriate fund to account for construction-type special assessments.

94) How should the acquisition of general fixed assets acquired by capital leases by a governmental activity be accounted for at the inception of the lease?

95) How should the payments under a capital lease be accounted for in the governmental funds?

96)

Distinguish between Total Pension Liability and Net Pension Liability.

97)

Where is the Net Pension Liability reported in the financial statements?

98)

What items make up Pension Expense under a defined benefit pension plan?

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 99) On Dec. 31, 2019, the Eastville City water department leased equipment under a noncancelable lease agreement that transferred title to the city after making seven payments of $ 15,250. The present value (5% interest) of the minimum lease payments is $92,654. Payments are to take place on December 31 beginning in 2019. Required: Prepare journal entries for 2019 and 2020 assuming the estimated useful life of the equipment is 10 years.

100) Big City provides a defined benefit pension plan for employees of the city water department, an enterprise fund. Assume that the service cost component is $462,000, and interest on the pension liability is $380,000 for the year. Actual returns on plan assets for the year were $320,000 while the projected level of earnings on plan investments was $360,000. This difference is to be amortized over a 5 year period, beginning this year. Finally assume the City is amortizing a deferred inflow resulting from a change in plan assumptions from a prior year in the amount of $20,000 per year. Prepare journal entries to record annual pension expense for the enterprise fund.

Answer Key Test name: Chapter 9: Advanced Topics for State and Local Governments 1) FALSE 2) TRUE 3) TRUE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) FALSE 16) TRUE 17) TRUE 18) TRUE 19) FALSE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) TRUE .

26) FALSE 27) FALSE 28) TRUE 29) TRUE 30) TRUE 31) FALSE 32) TRUE 33) FALSE 34) FALSE 35) TRUE 36) TRUE 37) TRUE 38) FALSE 39) TRUE 40) FALSE 41) TRUE 42) TRUE 43) TRUE 44) A 45) A 46) D 47) B 48) B 49) D 50) C 51) A 52) C 53) C 54) C 55) B .

56) C 57) C 58) D 59) A 60) C 61) B 62) B 63) A 64) B 65) D 66) D 67) D 68) B 69) D 70) B 71) C 72) C 73) A 74) C 75) B 76) D 77) B 78) A 79) A 80) B 81) C 82) D 83) A 84) C

85) MD&A Government-wide statements Fund-basis financial statements Notes to the financial statements RSI 86) According to GASB: General-purpose governments are thought to be those that offer more than one type of basic governmental services— for example, general government, public safety, transportation, health and welfare. Special-purpose governments generally provide a limited (or sometimes single) set of services or programs—for example, fire protection, library services, mosquito abatement and drainage. 87) General–purpose state or local governments:State governmentsCounty governmentsCity governmentsTown governmentsVillage governments Special–purpose local governments:Fire protection districtsPark districtsLibrary districtsTollway authoritiesTransit authorities 88) MD&A Enterprise Fund Financial Statements including: Statement of Net Position or Balance Sheet Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to the financial statements RSI other than MD&A, if applicable

89) MD&A Fiduciary Fund Financial Statements including: Statement of Fiduciary Net Position Statement of Change in Fiduciary Net PositionNotes to the Financial Statements RSI other than MD&A, if applicable

90) This township would be a special-purpose government engaged in more than one governmental activity. As such, it would be required to report all of the applicable basic financial statements, including the government-wide and governmental fund statements. As no mention is made of enterprise and fiduciary activities, those fund statements would not be required. This fire district would be a special-purpose government engaged in only one governmental activity. As such, it would be allowed to report financial statements that combine government-wide and governmental fund information. This would include a governmental fund Balance Sheet/government-wide Statement of Net Position and a governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances/government-wide Statement of Activities. This tollway authority would be considered a special-purpose government engaged in business activities only. As such, it would prepare those statements required for proprietary funds. These would include the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows. This independent pension plan would be considered a special-purpose government engaged only in fiduciary activities. As such, the fiduciary fund statements would be required. These would include the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position. A public college or university may report as special-purpose entities engaged in only governmental activities, both governmental and business-type activities, or business-type activities only. In the first two cases, the public institution will be required to prepare the full range of government-wide and fund financial statements that apply. (It would be very likely that if the college were engaged in only governmental activities, that more than one governmental activity would apply.) If the .

institution were considered to be a special-purpose government engaged in business-type activities only, then the proprietary fund statements would be required. These include the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows.

91) Special purpose local governments may be stand-alone local governments or may be component units of a general-purpose government. The GASB tests for component units are intended to determine whether to include a related entity in the financial report of a general-purpose government. The determination of the type of special purpose entity is necessary to identify what financial statements must be issued for a special purpose entity that for one reason or another is issuing its own (separate) financial report. 92) Special assessments may be either service types or construction types. Service-type special assessments, such as an assessment to downtown businesses for special garbage removal or police protection, would be accounted for in the appropriate fund, often the General or a special revenue fund. Construction-type special assessment projects account for longer-term projects that often require debt financing.

93) GASB standards mandate that a government should account for special assessment activities in a custodial fund if the government has no obligation to assume responsibility for debt payments, even if the property owners default. This is true even though the government may perform the functions of billing property owners for the assessments, collecting installments from the property owners, and making the principal and interest payments. On the other hand, if the government is liable (either primarily or secondarily) for payment of special assessment debt in the event of default by the property owners, the transactions are handled as if it were a governmental project. A capital projects fund should account for the proceeds of the debt and the construction expenditures. The capitalized cost of the project will be recorded in the government-wide statements. The debt should be recorded in the government-wide statements, and the special assessment tax levy and debt service expenditures should be recorded in a debt service fund. 94) When a capital lease agreement is signed, a governmental fund would record an expenditure and an other financing source: the amount being the present value of the payments under the lease agreement or the fair value of the asset, whichever is the lesser. General fixed assets acquired by capital lease agreements would be reported in the government-wide financial statements, as would the long-term liability.

95) As capital lease payments are made, a governmental fund, often the General Fund or a debt service fund, would record expenditures for interest and principal. The expenditure for interest each year would be equal to the effective interest rate multiplied by the balance of the capital lease liability. The expenditure for principal would be the difference between the total expenditure and the expenditure for interest. Worksheet entries would be needed to record the outstanding balance of the capital asset and related lease obligation in the government-wide statements. Reduction of principal made through periodic rent payments would be eliminated and the balance of the lease obligation reduced. 96) Total pension liability is the present value of projected benefits to be paid to retirees that is attributable to years of service already performed. Net pension liability is the total pension liability minus the fiduciary net position of the pension trust fund. 97) Financial statements prepared using the economic resources measurement focus and accrual basis of accounting report the net pension liability in the statement of net position. This includes the government-wide Statement of Net Position and proprietary fund Statement of Fund Net Position. Governmental funds do not report the net pension liability. 98) Service Cost – the increase in the total pension liability attributable to current year employee service,Plus interest on the total pension liability,Minus projected earnings on the plan assets,Plus increases (less decreases) in the total pension liability attributable to current period changes in the terms of the pension plan,Plus amortization over the service life of the employees of any increases in the total pension liability attributable to changes in actuarial estimates,Plus amortization over 5 years of the excess of projected plan return over actual return. 99) Eastville City Water Department Enterprise Fund

GENERAL JOURNAL Debits

Credits

12/31/2019 Capital Asset – Leased Equipment

92,654

Obligation under capital lease

77,404

Cash

15,250

12/31/2020 Interest Expense (5% × 77,404)

3,870

Obligation under capital lease

11,380

Cash

15,250

12/31/2020 Depreciation Expense (92,654/10)

9,265

Accumulated Depreciation

9,265

100) Big City Water Department Enterprise Fund GENERAL JOURNAL Debits Pension Expense (462,000 + 380,000 − 360,000)

482,000

Net Pension Liability

Deferred outflows of resources – pension related

Credits

482,000

40,000

Net Pension Liability (360,000 − 320,000)

Pension Expense (40,000 / 5yrs)

40,000

8,000

Deferred outflows of resources – pension related

Deferred inflows of resources – pension related Pension Expense

8,000

20,000 20,000

Chapter 10:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The financial statements of private not-for-profits are intended primarily for those who have a residual claim to the net assets of the organization. ⊚ ⊚

true false

2) Currently, FASB standards assure that not-for-profit financial statements are relatively standardized across industries. ⊚ ⊚

true false

3) The GASB has the authority to establish accounting and financial reporting standards for both government-owned and private not-for-profit organizations. ⊚ ⊚

true false

4) Private not-for-profits use the modified accrual basis and do not record fixed assets or long-term debt. ⊚ ⊚

true false

Private not-for-profits use record encumbrances to maintain budgetary control. ⊚ ⊚

true false

6) Accounting practices of private sector not-for-profit organizations are influenced by two AICPA audit and accounting guides: Not-for-Profit Organizations and Health Care Organizations. ⊚ ⊚ .

true false 1

7) The AICPA Not-for-Profit Organizations (Not-for-Profit Guide) applies only to nongovernmental not-for-profit organizations. ⊚ ⊚

true false

8) While many private not-for-profit organizations may use funds for internal purposes, the financial statements do not report separate funds. ⊚ ⊚

true false

9) Examples of voluntary health and welfare organizations would include the Girl Scouts and the American Heart Association. ⊚ ⊚

true false

10) Country clubs and labor unions are not included in the category "other not-for-profit" organizations because they provide benefit to their members only and not to the general public. ⊚ ⊚

true false

11) Voluntary health and welfare organizations promote the general health and well-being of the public. ⊚ ⊚

true false

12) Performing arts organizations are an example of other private not-for-profit organizations. ⊚ ⊚

true false

13) Private not-for-profit organizations are required to present a Statement of Functional Expenses instead of a Statement of Cash Flows, as required of businesses. ⊚ ⊚

true false

14) If a private not-for-profit fails to comply with donor restriction on contributions received, the organization must evaluate whether to accrue and disclose a contingent liability. ⊚ ⊚

true false

15) Non-cash contributions to a private not-for-profit are recorded at fair market value at the date of receipt. ⊚ ⊚

true false

16) Contributions of assets other than cash to a private not-for-profit are recorded at the donor’s basis. ⊚ ⊚

true false

17) Contributions to a private not-for-profit may be restricted as to time, purpose or for plant acquisition. ⊚ ⊚

true false

18) The FASB requires private not-for-profit organizations to report individual assets and liabilities separately for without or with donor restrictions. ⊚ ⊚

true false

19) The FASB requires private not-for-profit organizations to separately report revenues without or with donor restriction. ⊚ ⊚

true false

20) The FASB requires private not-for-profit organizations to report expenses separated by without or with donor imposed restrictions. ⊚ ⊚

true false

21) A private not-for-profit reports expenses in either the net assets without or with, depending which program the expense was supporting. ⊚ ⊚

22)

true false

Private not-for-profits report all expenses in unrestricted net asset class. ⊚ ⊚

true false

23) A private not-for-profit’s expenses are reported by, program or supporting, in the Statement of Activities or in the notes. ⊚ ⊚

true false

24) FASB Statement 124, Accounting for Certain Investments of Not-for-Profit Organizations, requires investments by a not-for-profit in debt securities and equity securities to be carried at fair value. ⊚ ⊚

true false

25) Assets that are restricted by an organization’s board can be reported as either without or with donor restrictions, according to the board’s intentions. ⊚ ⊚

true false

26) FASB requires multiyear pledges to be recorded at the present value of the future collections. ⊚ ⊚

true false

27) Cash flows must be presented separately in the Statement of Cash Flows for the two classes (without or with donor restrictions). ⊚ ⊚

true false

28) Expenditures, encumbrances, and budgetary accounts are used by private not-for-profit organizations. ⊚ ⊚

29)

Private not-for-profit organizations record depreciation expense: ⊚ ⊚

30)

true false

Contributions to be paid in future periods should be recorded at present value. ⊚ ⊚

true false

31)

A conditional pledge should be recognized as revenue when the pledge is made. ⊚ ⊚

true false

32) A Statement of Functional Expenses presents a matrix of expenses classified by function and by object or natural classification. ⊚ ⊚

33)

true false

All contributed services are recognized as revenue. ⊚ ⊚

true false

34) Donated services should be considered revenue if the service creates or enhances a nonfinancial asset or requires a specialized skill which would have had to be purchased if not donated. ⊚ ⊚

true false

35) FASB standards require contributions to be recorded as revenue when the contributed money is actually received. ⊚ ⊚

true false

36) FASB standards require conditional promises to give to be recorded as revenue at the time the condition is satisfied. ⊚ ⊚

true false

37) FASB standards requires unconditional pledges of support to be recorded as revenue when the contribution is promised. ⊚ ⊚

true false

38) Present and potential donors are the primary users of private not-for-profit financial statements. ⊚ ⊚

39)

true false

Private not-for-profit organizations must have little to no net profit. ⊚ ⊚

true false

40) With respect to the Statement of Cash Flows for a private not-for-profit organization, donor restricted cash that must be used for long term purposes is classified as cash flows from financing activities. ⊚ ⊚

true false

41) When preparing the Statement of Cash Flows for a private not-for-profit organization, the direct method or indirect method may be used. ⊚ ⊚

true false

42) The Statement of Cash Flows for a private not-for-profit organization has four different classifications of cash flows. ⊚ ⊚

true false

43) With respect to the Statement of Cash Flows for a private not-for-profit organization, the purchase of equipment would be considered an investing activity. ⊚ ⊚

true false

44) The Statement of Cash Flows for a private not-for-profit organization has three different classifications of cash flows. ⊚ ⊚

true false

45) A Statement of Functional Expenses is not required for private voluntary health and welfare organizations. ⊚ ⊚

true false

46) The Statement of Functional expenses presents a matrix of expenses classified by function (various programs, fund-raising, etc.) and by object or natural classification (salaries, supplies, travel, etc.). ⊚ ⊚

true false

47) Conditional promises to give are recognized as revenue or support when the promise is made net of estimated uncollectible receivables. ⊚ ⊚

true false

48) An intention to give (such as being named in a will) is the same as an unconditional promise to give and can be recorded as revenue when the intention is made known. ⊚ ⊚

true false

49) FASB Statement 124, Accounting for Certain Investments of Not-for-Profit Organizations, require that investments in equity securities with readily determinable values be reported at fair value. ⊚ ⊚

true false

50) Private not-for-profits must follow all applicable FASB standards in recording transactions. ⊚ ⊚

true false

51) Private not-for-profits must follow all applicable FASB standards in recording transactions plus specific standards set forth by the FASAB. ⊚ ⊚

true false

52) The AICPA has published two audit and accounting guides: Not-for-Profit Organizations (Not-for-Profit Guide) and Health Care Entities (Health Care Guide). ⊚ ⊚

true false

53) The activities of private not-for-profits are commonly financed through voluntary contributions. ⊚ ⊚

true false

54) The financial reporting system for private not-for-profits must address the fact that donors often impose restrictions on the use of contributed resources.

⊚ ⊚

true false

55) The AICPA has primary standard-setting authority over private not-for-profit organizations. ⊚ ⊚

true false

56) All private not-for-profits must follow FASB standards so not-for-profit financial statements are similar across industries. ⊚ ⊚

true false

57) The program expense ratio is a measure of the efficiency of a not-for-profit in utilizing resources to fulfill its mission, rather than for fund-raising and administration. ⊚ ⊚

true false

58) FASB Statement 164 Not-for-Profit Entities: Mergers and Acquisitions requires mergers and acquisitions to be recorded using the carryover method. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 59) Which organization has standard setting authority over governmentally related not-forprofit organizations, such as hospitals colleges and universities?

A) B) C) D)

GASB. AICPA. FASB. SEC.

60) Private not-for-profits must follow all applicable ________ standards in recording transactions.

A) B) C) D)

GASB FASB AICPA SEC

61) Identify the standard setting body for private not-for-profit organizations and the basis of accounting that should be used.

A) B) C) D)

GASB & Accrual. GASB & Modified Accrual. FASB & Modified Accrual. FASB & Accrual.

62) Which of the following is not a distinguishing characteristic of a private not-for-profit organization according to FASB Statement No. 116?

A) B) C) D)

Operating purposes other than to provide goods or services at a profit. Absence of ownership interests like those of business enterprises. Commonly financed through voluntary contributions. Operate for the direct benefit of members.

63) Which of the following are the net asset classes required by the FASB for private not-forprofit organizations?

A) B) C) D)

Assigned, Committed, and Unrestricted. Net assets without donor restrictions and net assets with donor restrictions. Net investment in capital assets, Restricted, and Unrestricted. Partially Restricted, Temporarily Restricted, Unrestricted.

64) Which of the following is not true regarding accounting and financial reporting for nongovernmental, not-for-profit organizations?

A) B) the notes. C) D)

Expenses are classified as with or without donor restrictions. Expenses must be reported by function, either in the Statements of Activities or in Net assets are classified according to donor-imposed restrictions. All of the choices are true.

65) Which of the following statements is not correct with respect to contributions to a private not-for-profit?

A) Contributions to a not-for-profit are recorded at fair market value at the date the pledge is made. B) Contributions of assets other than cash to a not-for-profit are recorded at the donor’s basis. C) Contributions to a not-for-profit may be restricted as to purpose or time or for plant acquisition. D) Revenues, including contributions are considered to be unrestricted unless donorimposed restrictions apply.

66) Which of the following is not correct with respect to the reporting of expenses for a private not-for-profit?

A) The FASB describes functions as either program or supporting. B) Major program classifications should be shown in the Statement of Activities or in the notes. C) Expenses can be reported in the with or without donor restrictions net asset class, as appropriate. D) Expenses are reported by function in the Statement of Activities or in the notes.

67) FASB Statement 124, Accounting for Certain Investments of Not-for-Profit Organizations:

A) requires that investments in equity securities be carried at book value. B) requires that investments accounted for under the equity method be adjusted to fair value at the end of the accounting period. C) requires that investments in debt securities be carried at fair value. D) requires that investments in consolidated subsidiaries be reported as permanently restricted.

68) Contributed services are recognized as revenue for a private not-for-profit when the service:

A) is related to administration and fund raising activities. B) requires specialized skills, is provided by someone possessing those skills, and typically would be purchased if not provided by donation. C) both of the choices are required for the service to be recorded as revenue. D) none of the choices are, contributed services are not recorded as revenue.

69) Which of the following organizations would not be subject to the accounting and reporting requirements of FASB Statements 116 (Accounting for Contributions) and 117 (Financial Reporting for Not-for-Profit Organizations)?

A) B) C) D)

The City of Hannibal, Missouri. St. Jude Children’s Hospital. Live Arts Theater. Girl Scouts.

70) Which of the following organizations would not be subject to the (level b) accounting and reporting requirements of the AICPA's Audit and Accounting Guide: Not-for-Profit Organizations?

A) B) C) D)

Discovery Museum (nongovernmental). American Heart Association. Meals on Wheels. Public School District.

71) Which of the following is not true regarding the treatment of multiyear pledges, according to FASB Statement 116?

A) They are recorded at the present value of future collections. B) They should be reported net of an allowance for estimated uncollectibles. C) They should be recorded as with donor restrictions. D) At the end of each accounting period, the difference between the new and previously recorded present value is recorded as interest revenue.

72) If a donor selects a scholarship recipient, and then donates cash to a ballet school to fund that scholarship, the ballet school would:

A) record the donated cash as a contribution. B) record a revenue and when the award is used by the recipient, an expenditure for the same amount is recorded. C) record the scholarship awarded as a reduction of revenue. D) record a liability, as it is merely acting as an agent for the donation.

73) Which of the following is part of the treatment of multi-year pledges as required by FASB Statement No. 116?

A) The donation is recorded as a receivable at the present value of the future collections but revenue is not recorded until the pledge is received. B) At the end of each accounting period, the difference between the balance in the receivable account and the new present value is deducted from the amount of the amount received from the donor which is recorded as income. C) At the end of each accounting period, the difference between the balance in the receivable account and the new present value is recorded as contribution revenue and the receivable is increased. D) Pledge receivable is recorded for the total amount to be received and revenue is recorded each year as monies are received by the organization.

74) Which of the following is true regarding the Statement of Financial Position for nongovernmental, not-for-profit organizations?

A) The Statement must display assets and liabilities separated between the categories of net assets with or without donor restrictions. B) The Statement must display totals for residual equity separated between the categories of net assets with or without donor restrictions. C) Both of the choices are true. D) Neither of the choices is true.

75) Which of the following is not true regarding the Statement of Activities for nongovernmental, not-for-profit organizations?

A) FASB requires that the change in net assets be reported for each of the net asset classes. B) Expenses are reported as decreases in either net assets with or without donor restrictions. C) Expenses are reported as decreases in net assets without donor restrictions. D) Organization-wide totals must be provided.

76) Which of the following is not true regarding the Statement of Cash Flows for nongovernmental, not-for-profit organizations?

A) Either the direct or indirect method may be used. B) If a not-for-profit organization received a restricted cash contribution for long-term purposes, that cash contribution would be reported as a cash flow from financing activities. C) Restricted contributions used for long-term purposes are reported as financing activities. D) Four categories of cash flows are used.

77) Which of the following would be a contribution increasing net assets without donor restrictions?

A) A contribution of $1,000,000 to fund an endowment. B) A contribution by a donor in the amount of $1,000,000 to be used to acquire fixed assets. C) A contribution by a donor without explicit restriction in the amount of $1,000,000, set aside by the governing board as funds not to be expended. D) None of the choices are correct.

78) A donor gave artwork to a nongovernmental, not-for-profit museum. The artwork qualified as a "collection," under FASB rules. The not-for-profit could:

A) A. Record the artwork at its fair market value at the time of receipt as an increase in net assets with donor restrictions. B) B. Not record the artwork, but provide information about the artwork in the notes. C) C. Do either of the choice A or B, depending upon the policy of the not-for-profit. D) D. Record the artwork as both a contribution and an expense.

79) Which of the following contributed services would probably not be recognized as contribution revenue?

A) An attorney donates her services to defend the Girl Scouts in a lawsuit. B) A nurse donates her time to collect blood at an American Red Cross blood drive. C) An electrician donates his services to upgrade the electrical service at a mental health clinic. D) State CPA society members hand out informational booklets at a shopping mall.

80) A donor gave $75,000 to a nongovernmental, not-for-profit charity with instructions that the funds be transferred to Sam Smith, an individual who lost his home in a fire. The not-forprofit would:

A) B) C) recipient. D)

81)

A. Record the $75,000 cash and credit revenue with donor restrictions. B. Record the $75,000 cash and credit a liability. C. Not record the transaction, because the money is going directly to the intended D. Do either of the choice A or B, depending upon the policy of the not-for-profit.

Which of the following organizations does not follow the AICPA's Not-for-Profit Guide?

A) B) C) D)

City libraries. Political parties. Voluntary health and welfare organizations. Private foundations.

82) In which of the following categories may Investment Income be reported by Not-forProfit organizations:I. net assets without donor restrictionsII. net assets with donor restrictions

A) B) C) D)

Only I. Only II. Both I & II. None of the choices are correct.

83) A skilled carpenter installed a roof on a new administrative building for a private not-forprofit free of charge. The not-for-profit would have had to pay $2,300 for this service if not donated. What entry should the not-for-profit make?

Supporting Service expense

$ 2,300

Contribution revenue without donor restrictions

$ 2,300

Capital Expenditures

$ 2,300

Contribution revenue without donor restrictions

$ 2,300

Building

$ 2,300

Contribution revenue without donor restrictions

$ 2,300

D) No entry is required for this event. Donated services are never recorded.

84) A benefactor promises to donate $30,000 to his church toward the purchase of a new piano if the church is able to raise matching funds of $30,000 from other contributors. At what point should the church record revenue?

A) B) C) D)

When the matching funds are raised. When the benefactor makes his pledge, as long as collection is reasonably assured. When the piano is purchased. When the benefactor pays the $30,000 to the church.

85) Lisa informed her church that she had named the church in her will and later provided a written copy of the will to the church. At what point should the church record the contribution?

A) B) C) D)

At the time when the church was informed of her will. At the time the church receives a written copy of the will. At the date the probate court declares the will valid following her death. At Lisa’s death.

86) Care Foundation is a voluntary health and welfare organization funded by contributions from the general public. Care sold equipment for $25,000 which cost $40,000 and had a book value of $30,000 at the time of sale. In recording the sale, Care should:

A) B) C) D)

record a loss of $15,000. record a gain of $15,000. record a loss of $5,000. record a gain of $5,000.

87) The Robbins Foundation is a voluntary health and welfare organization funded by contributions from the general public. Robbins Foundation sold equipment for $30,000 which cost $70,000 and had a book value of $45,000 at the time of sale. In recording the sale, the foundation should:

A) B) C) D)

record a loss of $40,000. record a loss of $15,000. record a loss of $25,000. record a loss of $5,000.

88) An unconditional pledge of support is properly recorded as revenue with donor restrictions at the time of the pledge. Changes in the present value of the receivable resulting from the passage of time is reported as:

A) Interest income. B) Program revenue. C) Contribution revenue. D) Other comprehensive income/loss.

89) Care Foundation is a voluntary health and welfare organization funded by contributions from the general public. In its Statement of Activities, the annual provision for depreciation should:

A) B) C) D)

not be included. be included as an element of support. be included as an element of changes in fund balances. be included as an element of expense.

90) Uptown Church received a donation of marketable equity securities from a church member. In reviewing the financial press, it is determined that the securities had appreciated during the year. At what amount should Uptown report its marketable equity securities in the year-end balance sheet?

A) B) C) D)

Market value at the balance sheet date. Donor's cost. Market value at the date of receipt. The lower of cost or market.

91) Which of the following factors, if present, would indicate that a transaction is not a contribution?

A) B) C) D)

The resource provider received value in exchange. The resource provider entered into the transaction voluntarily. The transfer of assets was unconditional. The organization has discretion in the use of the assets received.

92) A donor made a gift of cash to a private not-for-profit organization in 2020 with an expressed purpose restriction. All the funds were expended in 2020. The organization must:

A) A. Record the gift as a revenue with donor restrictions, reclassify the funds to net assets without donor restrictions, and then report the expense as without donor restrictions. B) B. Record the gift and expense as without donor restrictions. C) C. Record the gift and expense as with donor restrictions. D) D. Use either of the methods described in A or B.

93) Which of the following is a legitimate reason for a private not-for-profit organization to have a surplus (increase in net assets)?

A) B) C) D)

94)

What financial ratio is most commonly used to evaluate charitable organizations?

A) B) C) D)

To establish working capital. To retire debt. Expand or replace physical facilities. All of the choices are correct.

Current assets / current liabilities. Program expenses / total expenses. Increase in net assets / total assets. Total expenses / total revenues.

95) A donor gave equipment valued at $90,000 at the beginning of 2020 to a private not-forprofit organization. The equipment had a 10-year life and depreciation of $9,000 was charged during 2020. At the end of the year, the net assets to be reported in unrestricted net assets related to this equipment would be:

A) B) C) D)

$0. $81,000. $90,000. N/A – fixed assets and not part of “net assets”

96) A private not-for-profit organization received a gift of $460,000 with purpose restrictions in 2019. In 2020 funds were expended for the purpose outlined in the gift, however, it was not possible to determine whether the restricted funds or unrestricted funds were used. The presumption should be:

A) the restricted funds would have been used first. B) the unrestricted funds would have been used first. C) the restricted funds and unrestricted funds would have been used equally. D) the restricted funds and unrestricted funds would have been used, based on a weighted average of the amounts.

97) Which of the following pledges of support would not be recognized in the year the pledge was made?

A) B) C) D)

98)

An unconditional pledge restricted to a particular year in the future. A pledge with no restrictions, but conditional on receiving matching pledges. An unconditional pledge restricted to a particular purpose. None of the choices – all would be recognized.

Under FASB standards, reclassifications of net assets are not made:

A) B) C) D)

for satisfaction of time restrictions. for satisfaction of program restrictions. for satisfaction of fixed asset acquisition. for permanently restricted net assets.

99) Which of the following is true of a Statement of Cash Flows for a private sector, private not-for-profit organization?

A) Four categories are used: Operating, Capital Related Financing, Non-capital Related Financing, and Investing. B) If the direct method is used, the not-for-profit must also present a reconciliation between total change in net assets and cash flows from operating activities. C) Cash flows must be presented separately for Unrestricted, Temporarily Restricted, and Permanently Restricted categories. D) None of the choices are true.

100) Which of the following is not true of a Statement of Activities prepared for a private notfor-profit organization?

A) Expenses are shown only as decreases in net assets without donor restrictions. B) Reclassifications for expiration of time restrictions are shown in the revenues/ support section. C) Unrealized gains (losses) on investments are shown only as increases (decreases) in net assets without donor restrictions. D) Expenses are classified by function within the categories of Program Services and Supporting Services either in the Statement or the notes.

101)

The Statement of Functional Expenses (or equivalent note disclosure):

A) B) C) D)

102)

is required of both for-profit and not-for-profit organizations. is no longer a required financial statement of any organization. is required of all private not-for-profit organizations. is only required of voluntary health and welfare organizations.

Which of the following is not a condition for recording donated services?

A) The service requires a specialized skill and the donor possesses those skills. B) The service would have been paid for if not donated. C) The service creates or enhances a non-financial asset. D) The individual providing the service provides an invoice detailing the hours contributed but waives the requirement for payment.

103) In 2020, a major drug company agreed to give a not-for-profit private college $420,000 to perform testing of a new drug. An advance payment of $335,000 was received in 2020. The college was to receive $1,500 per individual test. In 2020, the college completed 160 tests. How much revenue should the college report for 2020?

A) B) C) D)

$495,000. $240,000. $335,000. $420,000.

104) A donor made an unconditional pledge in 2019 of $50,000 to a private not-for-profit organization with the intent to pay the cash in 2020 for unrestricted use in 2020. The organization should:

A) record the pledge receivable and deferred revenue in 2019. B) record the pledge as revenue with donor restrictions in 2019 and reclassify it to without donor restrictions in 2020. C) record the pledge revenue without donor restrictions in 2019. D) record the pledge as revenue with donor restrictions in 2019 and reclassify it to without donor restrictions in 2020, but only in an amount equivalent to the amount that is spent in 2020.

105) A donor gave $1,200,000 to a private not-for-profit organization to be held in endowment. In addition, the governing board permanently designated $500,000 to the endowment. In the Statement of Financial Position, how should these amounts be classified?

A) B) C) D)

With Donor Restrictions: $-0- ; Without Donor Restrictions: $1,900,000. With Donor Restrictions: $700,000; Without Donor Restrictions: $500,000. With Donor Restrictions: $1,200,000; Without Donor Restrictions: $500,000. With Donor Restrictions: $1,900,000; Without Donor Restrictions: $-0-.

106) The FASB has the authority to set accounting standards for all of the following organizations except:

A) B) C) D)

Political parties. City owned hospital. For profit hospitals. Trade associations.

107) Which of the following would not be an example of a voluntary health and welfare organization?

A) B) C) D)

A state community college. A private mental health facility. A senior citizen center. A food bank.

108) Under which of the following conditions is it appropriate for a private not-for-profit to allocate the cost of mass mailings from fund raising to a program related activity, such as Public Education?

A) The purpose of the mailing includes accomplishing program functions. B) The audience is selected based on characteristics other than ability to make contributions. C) The mailing calls for specific action by the recipient that is consistent with the goals of the not-for-profit's mission. D) All of the choices are correct.

109) Which of the following is not a characteristic that distinguishes a private not-for-profit organization from a business?

A) Contributions are from resource providers without an expectation of receiving equivalent value in return. B) Financial statements are intended primarily for use by donors. C) The organization’s revenues exceed expenses. D) Absence of ownership interests.

110)

Which of the following is not an example of a voluntary health and welfare organization?

A) B) C) D)

111)

Meals on Wheels. Trade Associations. Big Brothers/Big Sisters. Girl and Boy Scouts.

FASB standards require contributions to be recorded as revenue when

A) B) C) D)

the contributed asset is actually received. the contribution is likely to be received. the contribution is unconditionally promised. the contribution is probable and measurable.

112) Which of the following statements is false with respect to private not-for-profit organizations?

A) Exchange transactions should be recorded on the accrual basis of accounting where the revenues are recognized when earned. B) An intention to give should be recorded as revenue when the intention is communicated to the not-for-profit. C) In certain situations, contributed services should be recognized as revenue. D) FASB standards require that investments in equity securities with readily determinable values be reported at fair market value.

113) Donors to private not-for-profit entities are primarily concerned with which of the following performance measures?

A) B) C) D)

114)

Supporting activities as classified in the Statement of Activities, normally include:

A) B) C) D)

Return on Investment. Program Expense Ratio. Change in Net Assets. Ending Unrestricted Net Assets.

Management and general. Fund-raising. Membership development. All of the choices are correct.

115) In 2020, Susan tells The Art Museum, a private not-for-profit organization, that she has named the museum in her will. When should the organization recognize the contribution revenue?

A) B) C) D)

116)

When the Museum receives the contribution. Only after Susan dies and the will is declared valid. Ratably over a five year period beginning in 2020. All in 2020.

When should unconditional pledges be recorded as revenue?

A) B) C) D)

When the pledge is made. When full collection is assured. Never. When money is received.

117) A membership pass to the Boys and Girls Club (a private not-for-profit organization) includes unlimited rights to all facilities and a magazine subscription. Non-members do not possess these rights. How must the Boys and Girls Club account for membership dues?

A) The dues are an exchange transaction, so it should report all dues in the year received. B) The dues are a non-exchange transaction, so it should report all dues in the year received. C) The dues are a non-exchange transaction, so it should report dues on a pro-rata basis determined by the length of the individual memberships. D) The dues are an exchange transaction, so it should report dues on a pro-rata basis determined by the length of the individual memberships.

118) The entry to record the expiration of program restrictions includes which of the following?

A) B) C) D)

119)

Debit Reclassification from Net Assets with Donor Restrictions. Credit Performance Expense. Debit Reclassification to Net Assets without Donor Restrictions. Credit Reclassification from Net Assets with Donor Restrictions.

Which of the following is not an example of a donor imposed restriction?

A) B) C) D)

Funds are not to be used until the following year. Funds must be used on certain programs. Funds are to be endowed. All of the choices are examples of donor imposed restrictions.

120) The residual equity section of Statement of Financial Position for private not-for-profits includes which accounts?

A) B) C) D)

Net Assets with donor restrictions, net assets without donor restrictions. Net investment in capital assets, Restricted, and Unrestricted net assets. Unreserved Fund Balance, Reserved Fund Balance. None of the choices are correct.

121) The institution’s governing board decided to create an endowment from contributed funds, this is called a(n) ________ and the funds are unrestricted.

A) B) C) D)

Endowment Term endowment Quasi-endowment None of the choices are correct

122) Which of the following financial statements is required for private not-for-profit organizations?

A) Income Statement. B) Statement of Net Assets. C) Statement of Cash Flows. D) Budgetary Comparison Schedule.

123) The FASB requires that expenses of not-for-profit organizations be reported according to function. Which of the following are FASB required function categories?

A) B) C) D)

124) at:

Operating and Nonoperating. Program and Supporting Services. Operating, Investing and Financing. Capital and Noncapital Related.

Investments by private not-for-profit organizations in equity securities should be carried

A) B) C) D)

Historical cost. Fair Market Value. Lower of cost or Market. None of the choices are correct.

125) How is the receipt of an unconditional pledge of support to a private not-for-profit organization recorded?

A) B) C) D)

Not recorded until received. As revenue when pledged. As unearned revenue when pledged. None of the choices are correct.

126) How does a for-profit organization record contributions made to a private not-for-profit organization?

A) B) C) D)

As an expense when originally pledged. As a reduction in revenue when pledged. As an expense when contributed. As a reduction in revenue when contributed.

127) If a person discloses to a private not-for-profit organization that it will be a beneficiary in his or her will, this is considered a(n) ________ and is ________.

A) B) C) D)

conditional promise to give; not recorded unconditional promise to give; recorded intention to give; recorded intention to give; not recorded

128) The following treatment is correct with regards to payments that are partially exchange transactions and partially contributions:

A) reported only as an exchange transaction. B) the two parts should be separately accounted for. C) reported as either an exchange transaction or contribution, depending on management’s judgment. D) reported only as a contributions.

129) Which of the following would not be recognized as contribution revenue by a private not-for-profit organization?

A) B) C) D)

A pledge to support an educational program for the next 3 years. A gift restricted to purchase equipment. A health clinic is paid to perform clinical trials of a new medicine. Dues paid in excess of the fair value of benefits received.

130) Which of the following is not correct with respect to mergers under the rules established by FASB Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions?

A) If the combination qualifies as a merger, it will be accounted for using the carryover method. B) Goodwill is recognized on long term assets only. C) Assets and liabilities are transferred from both existing entities to the new entity at book value. D) The entity resulting from the merger is a new reporting entity, with no activity before the date of the merger.

131) Which of the following is not correct with respect to acquisitions under the rules established by FASB Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions?

A) If the combination qualifies as an acquisition, the not-for-profit may acquire control of a business enterprise or other not-for-profit organization and will be accounted for using the acquisition method. B) Combinations not meeting the definition of a merger are reported as acquisitions. C) Assets and liabilities of the acquired entity are recorded at fair value on the books of the not-for-profit. D) Entities that derive their revenues from business-like activities are required to expense the goodwill at the date of acquisition.

132)

Which of the following statements is not accurate with respect to private not-for-profits?

A) Private not-for-profits report both current and long-term assets and liabilities and measure revenues and expenses using the accrual basis of accounting. B) The financial statements of private not-profits do not report by fund. C) The excess of assets over liabilities is termed net assets. D) The FASB has identified two classes of net assets for not-for-profits: unrestricted and restricted.

133) Which of the following are required specific disclosure requirements for private not-forprofits? .

A) The amount of unconditional promises (i.e., pledges) receivable due in less than one year, one to five years, and more than five years from the balance sheet date; B) Detailed information regarding the nature of temporarily and permanently restricted resources. C) The total of conditional amounts pledged. D) All of the choices are required disclosures when applicable.

134) Which of the following is not one of the specific disclosure requirements for private notfor-profits?

A) The amount of conditional promises (i.e., pledges) receivable due in less than one year, one to five years, and more than five years from the balance sheet date. B) The amount of recourses received from the federal government. C) The total of conditional amounts pledged. D) The amount of the allowance for uncollectible pledges receivable.

135) Generally speaking, not-for-profit organizations record and measure transactions and events in the same manner as commercial enterprises. They do, however, differ from commercial enterprises in two important ways. Which of the following is one of those differences?

A) Not-for-profit organizations never receive considerable amounts of resources from the sale of goods or services. B) Not-for-profit organizations do not record revenues until money is actually received. C) Donors frequently impose restrictions on the use of donated resources. D) Commercial enterprises use accrual accounting and not-for-profits use modified accrual accounting.

136) Which of the following statements is not correct with respect to conditional and unconditional pledges?

A) Most grants received by not-for-profit organizations represent conditional contributions. B) Conditional pledges to give are not recognized as revenues until the conditions are satisfied. C) If a conditional pledge is made and the money is received by the not-for-profit, but if the condition is not met, the potential donor is not bound by the promise and may require the money be returned. D) Conditional pledges are recorded as unearned revenue.

137)

Which of the following statements is correct with respect to contributions restrictions?

A) The restriction is created by the not-for-profit when the contribution is made. B) The donor can indicate that the contributions are to be expended for a particular purpose but not time. C) The donor can indicate that the contributions are to be expended for a particular purpose or time, but not for plant acquisition. D) Contributions may be restricted as to purpose, time, or for plant acquisition.

138) Which of the following statements is NOT accurate with respect to the recording of expenses for a not-for-profit?

A) Expenses are measured on the accrual basis. B) The FASB requires expenses to be reported by function or program in the Statement of Activities. C) The FASB requires expenses to be classified as program or supporting. D) Expenses are reported in the unrestricted net asset class.

139) With respect to a not-for-profit that holds contributions for others, which of the following is true?

A) If the not-for-profit organization and beneficiary are financially interrelated, the transfer is recorded as an inter-entity transfer. B) Generally, if the not-for-profit organization agrees to transfer the assets to a specified beneficiary, the organization is deemed to be an agent and a liability is recorded. C) If the not-for-profit organization has the ability to redirect the assets to -another beneficiary, the transfer is recorded as a contribution. D) The not-for-profit records an asset restricted as to purpose.

140) Which of the following is NOT a reason for which a not-for-profit organization would need to generate a surplus?

A) B) C) D)

To pay bonuses at year end. Expand or replace physical facilities. Retire debt. Continue a program beyond the period that initial funding is provided.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 141) According to FASB standards, how are not-for-profit organizations distinguished from a business?

142) Answer the following questions regarding financial reporting by private not-for-profit organizations.(1) What are the financial statements required for all private not-for-profit organizations?(2) What are the two classes of Net Assets?

143) When might it be appropriate for a not-for-profit organization to report a surplus (increase in net assets)?

144) What are the criteria established by Statement of Position 98-02 for allocation of costs that involve fund raising?

145) FASB Statement 136 Transfer of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others provides guidance on how intermediary recipient organizations should record receipt of resources held for others. Briefly describe the issue and how such transfers should be recorded.

146) Distinguish between an exchange transaction and a contribution. How is the accounting different for these two events?

147) What are the revenue recognition requirements for:(1) unconditional promises to give (i.e. pledges),(2) conditional promises to give,(3) multi-year pledges,(4) donated services, and(5) donated materials or fixed assets.

148) Identify three types of restrictions placed on donor restricted net assets and outline the accounting requirements for each type.

149) Contrast the reporting of mergers and acquisitions under the rules established by FASB Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions?

150)

What is the treatment of multi-year pledges as required by FASB Statement No. 116?

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 151) As of December 31, 2019, The Halifax Fishing Museum had unrestricted cash of $52,000, building and land with a net book value of $145,000, and donor restricted permanent collections totaling $ 140,000. There were no liabilities. The Museum has two programs: Operation of a Fishing Museum and Educational Programs. During the year ended December 31, 2020 the Museum incurred the following transactions:(1) Cash contributions to the Museum included (a) unrestricted $421,000, (b) restricted for educational programs $45,000 and (c) restricted by the donor for endowment purposes $105,000.(2) Additional unrestricted cash receipts included $61,000 in fees from individuals and organizations using the Museum building as a meeting facility. Included in this is $9,000 for a meeting to be held in January 2019.(3) Incurred cash expenses: Item

Total Amount

Portion for Museum Operations

Portion for Education Programs

Admin.

Utilities – programs

Utilities – administration Salaries − programs

54,000

26,000

28,000

20,700

$ 20,700

136,500

Salaries – administration Supplies – programs

41,000

Supplies – administration

7,000

112,000

41,000

83,100

342,300

24,500

70,000

13,100 7,000

208,000

65,600 $ 68,700

(4) Purchased land for future expansion to the adjoining lot in the amount of $35,000.(5) Depreciation on the Museum building amounted to $55,000 and is allocated on the basis of square feet: $40,000 to Museum operations, $5,000 to Education Programs, and $10,000 to administration.(6) Outstanding purchase orders for administrative supplies at 12-31-2020 totaled $2,000. Required: Prepare a Statement of Activities and Changes in Net Assets for the Museum for the year ended 12-31-2020.

152) Assume Towne Center Art Museum (which has a December 31st year end) received the following contributions in 2020. Prepare journal entries to record these events and any year-end adjusting journal entries resulting from the events.(a) Unrestricted pledges of support were received in the amount of $300,000. All of these are due within the year and it is estimated that 7% will ultimately prove to be uncollectible.(b) 600 Memberships were sold to the public in the amount of $45 each. Membership provides the individual with a monthly magazine and other benefits. The estimated fair value of member benefits is $20. The member year runs from July 1 to June 30.(c) A local carpenter donated supplies and labor with values of $25,000 and $30,000 (respectively) to construct a new exhibition area. Fixed assets are classified as unrestricted net assets.(d) On April 1, 2020 a local businessman made a pledge payable in a future period. The pledge is restricted in purpose and has a present value of $110,000 (effective interest rate of 5%).

153) Assume that The Sandy Creek Nature Center, a private not-for-profit organization, started the fiscal year ending December 31, 2020 with $57,211 in donor restricted net assets. The amounts are restricted for the following:restricted for educational programs relating to preservation of wetlands $15,000.restricted for future equipment purchases $16,000 (Fixed assets are recorded as unrestricted when acquired) anda promise to provide $5,000 each of the next six years for general support. Assume the pledge was made on December 31, 2019 and the present value of six (January 1) payments discounted at 4% is $26,211. During the fiscal year ended December 31, 2020, the following transactions occur: (a) The first $5,000 installment on the pledge receivable was received.(b) Expenses related to educational programs on conservation of wetlands were incurred and paid in the amount of $16,800.(c) The $16,000 received in a prior year for equipment, together with an additional $25,500 was used to acquire equipment.(d) Interest of 5% is recorded on the remaining balance of the pledge receivable.Required: Prepare the journal entries necessary for the above transactions:

154) Below are the complete set of published financial statements taken from the annual report of the Key West Conch Museum. The statements do not comply with generally accepted accounting principles for private not-for-profits in a number of ways. Review these statements and describe instances in which the statements fail to comply with accepted accounting standards. You must be able to justify your assertions - for example you cannot say they failed to capitalize leases if there is no evidence they have a qualifying lease. Example:(1) The financial statements contain no note disclosures. The notes are an integral part of the financial statements and many individual disclosures are required under FASB standards. KEY WEST CONCH MUSEUM SUMMARY OF OPERATING RESULTS AND CHANGES IN FUND NET ASSETS YEAR ENDED JUNE 30, 2020 Operating Revenues: Charges for Services

190,000

Unrestricted Gifts

80,000

Gifts restricted for Scholarships Total Operating Revenues

50,000 $ 320,000

Operating Expenses: Salaries

$ 119,000

Utilities

51,000

Supplies

63,000

Depreciation

40,000

Total Operating Expenses Operating Income

47,000

Nonoperating Income (Expenses): Gifts for Endowments

40,000

Change in Net Assets

273,000

87,000

KEY WEST CONCH MUSEUM STATEMENT OF FINANCIAL POSITION JUNE 30, 2020 Assets: Current Assets: Cash

$ 224,000

Supplies

19,000

Total Current Assets

243,000

Noncurrent Assets: Land Land Improvements

100,000 $

400,000

Less: Accumulated Depreciation Equipment

(40,000 )

Less: Accumulated Depreciation Total Fixed Assets

(20,000 )

Endowment Investments

360,000

200,000 180,000 640,000 400,000

Total Noncurrent Assets

1,040,000

Total Assets

$ 1,283,000

Liabilities: Current Liabilities:

Accounts Payable

55,000

Current portion of Long Term Debt Total Current Liabilities

75,000 130,000

Long-Term Liabilities: Bonds Payable

600,000

Total Liabilities

730,000

Total Net Assets

553,000

Answer Key Test name: Chapter 10: Accounting for Private Not-for-Profit Organizations 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) FALSE 17) TRUE 18) FALSE 19) TRUE 20) FALSE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) FALSE .

26) TRUE 27) FALSE 28) FALSE 29) TRUE 30) TRUE 31) FALSE 32) TRUE 33) FALSE 34) TRUE 35) FALSE 36) TRUE 37) TRUE 38) TRUE 39) FALSE 40) TRUE 41) TRUE 42) FALSE 43) TRUE 44) TRUE 45) FALSE 46) TRUE 47) FALSE 48) FALSE 49) TRUE 50) TRUE 51) FALSE 52) TRUE 53) TRUE 54) TRUE 55) FALSE .

56) TRUE 57) TRUE 58) FALSE 59) A 60) B 61) D 62) D 63) B 64) A 65) B 66) C 67) C 68) B 69) A 70) D 71) D 72) D 73) C 74) B 75) B 76) D 77) C 78) C 79) D 80) B 81) A 82) D 83) B 84) A 85) C .

86) C 87) B 88) C 89) D 90) A 91) A 92) D 93) D 94) B 95) B 96) A 97) B 98) D 99) B 100) C 101) C 102) D 103) B 104) B 105) C 106) B 107) A 108) D 109) C 110) B 111) C 112) B 113) B 114) D 115) B .

116) A 117) D 118) A 119) D 120) A 121) C 122) C 123) B 124) B 125) B 126) A 127) D 128) B 129) C 130) B 131) D 132) D 133) D 134) B 135) C 136) D 137) D 138) B 139) B 140) A

141) An organization that possess the following three characteristics are not-for-profit:Contributions of a significant amount of resources from resources providers who do not expect commensurate or proportionate pecuniary return.Operating purposes other than to provide goods or services at a profit.Absence of ownership interests like those of business enterprises. 142) (1) The financial reports are (a) Statement of Financial Position, (b) Statement of Activities, (c) Statement of Cash Flows and (d) Statement of Functional Expense(2) The classes of Net Assets are: (a) without donor restrictions and (b) with donor restrictions 143) There are a number of reasons why a not-for-profit organization would need to generate a surplus (positive change in net assets). These include establishing working capital, expanding or replacing physical facilities, retiring debt, or continuing a program beyond the period that initial funding is provided. If these needs are satisfied, a not-for-profit organization may also find it desirable to draw upon earlier surpluses and operate at a deficit for a period of time. For these reasons, a positive change in net assets is neither inherently a good or bad condition. 144) Examples of the activities covered by the Statement are mass mailings, annual dinners, and TV or radio commercials. The Statement indicates that it is appropriate to allocate costs from fund raising to another function when the activity meets three conditions:(1) Purpose: The purpose of the joint activity includes accomplishing program functions. (Merely asking the audience to make contributions is not an activity that fulfils the organization's mission).(2) Audience: The audience is selected based on characteristics other than ability or likelihood to make contributions.(3) Content: The activity calls for specific action by the recipient that will help accomplish the organization's mission. If any of the conditions are not met, all costs of the joint activity should be reported as fund raising. .

145) It is not uncommon for a not-for-profit organization to accept cash or other assets that are redirected to other organizations or individuals. Under most circumstances, the recipient organization records the asset. The central issue is whether the recipient organization should record a liability or a contribution as the other half of the journal entry. Generally, if the recipient organization agrees to transfer the assets to a specified beneficiary, the recipient organization is deemed to merely be an agent and a liability, rather than a contribution, is recorded. If the recipient organization has the ability to redirect the assets to another beneficiary, or if the recipient organization and beneficiary are financially interrelated, the transfer is recorded as a contribution. 146) It is sometimes difficult to determine whether a transaction is a contribution (i.e. a non-reciprocal gift) or an exchange of goods and services. Exchange transactions do not meet the definition of a contribution, as provided by FASB Statement 116. Therefore they should be accounted for following accrual basis accounting where revenues are recognized when earned. In contrast to contributions, payments received in advance of exchange transactions are recorded as deferred revenue, a liability, rather than as revenue. This sometimes becomes an issue in evaluating how to record dues or memberships.

147) (1) Unconditional promises to give are recognized as contribution revenue in the period the promise is made, net of an allowance for uncollectible amounts. The revenue is recorded as either with or without donor restrictions depending on the existence of donor imposed restrictions.(2) Conditional pledges are recorded as receivables and as deferred revenues. When the condition has been met, the revenue is recorded as either with or without donor restrictions, as appropriate depending on the existence of donor imposed restrictions. A condition is deemed to exist if the not-for-profit organization must do something before the pledge takes effect, such as obtain matching pledges.(3) Multi-year pledges are recorded as with donor restricted revenues in the year of the pledge at the present value of future expected payments. Each year the increase in the amount of the present value attributable to interest is recorded as additional contribution revenue.(4) Donated services are recorded as revenue only when (1) the service creates or enhances non-financial assets or (2) the services require specialized skills, are provided by individuals possessing those skills, and would have been purchased if not provided by donation.(5) Donated materials or fixed assets are recorded as asset and contribution revenue in the period provided at their fair market value.

148) Time Restricted: Contributions restricted based on time are recorded as revenues with donor restriction when received, then reclassified to net assets without donor restrictions when the time period passes. These include Term endowments: amounts contributed by a donor which are not to be expended for a period of time. These are accounted for as net assets with donor restrictions. When the term expires the assets are reclassified as without donor restrictions.Purpose Restricted: Contributions restricted based on purpose or use are recorded as revenues with donor restrictions when received, then reclassified to net assets without donor restrictions when the purpose has been fulfilled. This usually is when a qualified expense has been incurred.Fixed Asset Acquisition: Contributions restricted based on plant acquisition are recorded as revenues with donor restrictions when received. When the plant assets are acquired, the organization reclassifies the amount to net assets without donor restrictions. 149) If the combination qualifies as a merger, there will be a new notfor-profit entity which will have a newly formed governing body and will be accounted for using the carryover method. Assets and liabilities of the merged entities are recorded at book value in the new entity’s books. Goodwill is not recorded.If the combination qualifies as an acquisition, the not-for-profit may acquire control of a business enterprise or other not-for-profit organization and will be accounted for using the acquisition method. Assets and liabilities are recorded at fair value and goodwill may be recorded. If the not-for-profit derives its revenues from business-like activities, goodwill is recorded as an asset. If the not-for-profit derives its revenues primarily from contributions, goodwill is expenses on the date of acquisition.

150) The donation is recorded as a receivable at the present value of the future collections and revenue is recognized. As time passes, the present value of the pledge receivable will increase. At the end of each accounting period, the difference between the balance in the receivable account and the new present value is recorded as contribution revenue and the receivable is increased. 151) HALIFAX FISHING MUSEUM STATEMENT OF ACTIVITIES FOR THE YEAR ENDED 12-31-2020 Net Assets Net Assets With Without donor donor restrictions restrictions Revenues and Other Support: Contributions

421,000

$ 160,000

Rental Fees

52,000

Net Assets Released from RestrictionSatisfaction of Program Total Revenues and Other Support Expenses:

45,000

(45,000 )

518,000

105,000

$ 571,000 52,000

623,000

Museum Operations

248,000

Education Programs

70,600

Administration

78,700

Total Expenses

397,300

Change in Net Assets

120,700

225,700

Net Assets 1/1/2020

197,000

140,000

337,000

317,700

245,000

$ 562,700

Net Assets 12/31/2020

Total

152) Accounts (a)

Pledges Receivable

Debits 300,000

Allowance for Uncollectible Pledges

21,000

Contribution Revenue – Without Donor Restrictions

(b)

Cash

279,000

27,000

Contribution Revenue - Without Donor Restrictions Deferred Revenues

Deferred Revenues

Credits

15,000 12,000

6,000

Memberships Revenue

6,000

(adjusting entry – December 31, 2020)

(c)

Buildings and Structures

55,000

Contributions Revenue - (Without Donor Restrictions) Donated Services Contributions Revenues - (Without Donor Restrictions) Donated Supplies

(d)

Pledges Receivable Contribution Revenue - With Donor Restrictions

30,000

25,000

110,000 110,000

Pledges Receivable

4,125

Contribution Revenue - With Donor Restrictions (adjusting entry-December 31, 2020: $110,000 × 5% × 9/12)

4,125

153) Accounts (a)

Cash

Debits 5,000

Contributions Receivable

(b)

5,000

Reclassification from Net Assets with Donor Restrictions - Expiration of Time Restrictions Reclassification to Net Assets without Donor Restrictions - Expiration of Time Restrictions (to record expiration of time restrictions)

5,000

Education Programs Expense

16,800

5,000

Cash

(c)

Credits

16,800

Reclassification from Net Assets with Donor Restrictions - Satisfaction of Program Restrictions Reclassification to Net Assets without Donor Restrictions - Satisfaction of Program Restrictions (to record expiration of program restrictions)

15,000

Equipment

41,500

15,000

Cash

Reclassification from Net Assets with Donor Restrictions - Satisfaction of Equipment Acquisition Restrictions Reclassification to Net Assets without Donor Restrictions - Satisfaction of Equipment Acquisition Restrictions (to record expiration of plant acquisition restrictions)

(d)

Pledges Receivable Contribution Revenue - with donor restrictions (Adjusting entry − December 31, 2020: ($26,211 − 5,000) × 4%

41,500

16,000

848 848

154) The statements contain no Statement of Cash Flows as required under FASB Statement 117.The statements contain no detail of Functional Expenses (either as a separate statement or in the notes) as required under FASB Statement 2016-4.The “Summary of Operating Results” should be titled “Statement of Activities”.The Statement of Activities does not articulate with the Statement of Financial Position because beginning net assets have not been added to the change in net assets.“Endowment Investments” appear on the Statement of Financial Position and “gifts to endowments” appears in the Statement of Activity, suggesting the existence of donor restricted resources, but “Net Assets with Donor Restrictions” are not separately reported in the Statement of Financial Position.“Gifts restricted for operations” appear among the revenues, suggesting the existence of donor restricted net assets, but “Net Assets with Donor Restrictions” are not separately reported in the Statement of Financial Position.Expenses are to be classified as Program or Supporting either on the face of the statements or in the notes.Change in Net Assets is to be separately reported for the 2 classes of net assets in the Statement of Activity.The statements fail to reflect any reclassification of net assets from “with donor restrictions” to “without donor restrictions” which is required as net assets are released from restriction.

Chapter 11:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Private colleges and universities use the same accounting and reporting standards as public colleges and universities. ⊚ ⊚

true false

2) Private, not-for-profit colleges and universities and investor-owned schools follow FASB standards and adhere to the accrual basis of accounting. ⊚ ⊚

Private colleges and universities are subject to the standards issued by the GASB. ⊚ ⊚

true false

Public colleges and universities are subject to the standards issued by the GASB. ⊚ ⊚

true false

Investor-owned proprietary schools are subject to the standards issued by the FASB. ⊚ ⊚

true false

6) Private colleges and universities use the same accounting and reporting standards as other private not-for-profit organizations. ⊚ ⊚

true false

7) Public higher education institutions typically report as special-purpose entities engaged in governmental and business-type activities or in governmental-type activities only. ⊚ ⊚

true false

8) Most public colleges and universities report as general-purpose entities engaged in only business-type activities. ⊚ ⊚

true false

9) Public colleges and universities are required to report as special-purpose entities engaged in both governmental- and business-type activities because they receive tax dollars and charge user fees. ⊚ ⊚

true false

10) Public colleges typically report as special-purpose entities engaged only in business-type activities. ⊚ ⊚

11)

true false

Public colleges may be included as component units in the state government’s CAFR. ⊚ ⊚

true false

12) Private, not-for-profit colleges and universities must have a Statement of Financial Position, Statement of Activities, Statement of Cash Flows, and Notes to the Financial Statements included in their financial report. ⊚ ⊚

true false

13) Public higher education institutions that report as special-purpose entities engaged in business-type activities only are still required to prepare a Management's Discussion and Analysis. ⊚ ⊚

true false

14) Private colleges and universities are required to prepare a Management's Discussion and Analysis. ⊚ ⊚

true false

15) Higher education institutions that report as special-purpose entities engaged in businesstype activities only should report the same residual equity classifications (Net investment in capital assets, restricted net position, unrestricted net position) as are reported in the governmentwide statement of Net Position. ⊚ ⊚

true false

16) Private colleges and universities are required to report net assets within the categories of Net Assets without Donor Restrictions or Net Assets with Donor Restrictions. ⊚ ⊚

true false

17) Public colleges and universities are required to report net position within the categories of Net Assets without Donor Restrictions or Net Assets with Donor Restrictions. ⊚ ⊚

true false

18) Private colleges and universities are required to report net position within the categories of unrestricted, restricted and net investment in capital assets.

⊚ ⊚

true false

19) Financial statements prepared for public colleges and universities present net position as: unrestricted, restricted, or net investment in capital assets. ⊚ ⊚

true false

20) Public colleges and universities use the economic resources measurement focus and the accrual basis of accounting. ⊚ ⊚

true false

21) Private colleges and universities record contributed services as revenue if the services create or enhance nonfinancial assets or require specialized skills, are provided by an individual possessing those skills, and would typically be purchased if not provided by donation. ⊚ ⊚

true false

22) Public colleges and universities record contributed services as revenue if the services create or enhance nonfinancial assets or require specialized skills, are provided by an individual possessing those skills, and would typically be purchased if not provided by donation. ⊚ ⊚

23)

true false

Private colleges and universities record depreciation expense and allocate it to functions. ⊚ ⊚

true false

24) Private colleges and universities are required to present a Statement of Cash Flows using the direct method.

⊚ ⊚

true false

25) Public colleges and universities are required to present a Statement of Cash Flows using the direct method. ⊚ ⊚

true false

26) FASB standards require private not-for-profit colleges and universities to present a Statement of Cash Flows. ⊚ ⊚

true false

27) Public institutions of higher education are required to produce a Statement of Cash flows in addition to a Statement of Fund Net Position and a Statement of Revenues, Expenses, and Changes in Fund Net Position. ⊚ ⊚

true false

28) FASB standards require private colleges and universities to present a Statement of Functional Expense or in the notes. ⊚ ⊚

true false

29) Under NACUBO guidelines, tuition waivers resulting from work-study programs are deducted from revenue. ⊚ ⊚

true false

30) With respect to colleges and universities, if a tuition or fee reduction is an employee benefit it should be treated as a compensation expense, rather than a discount.

⊚ ⊚

true false

31) A tuition waiver for a student who works as a graduate assistant is treated as compensation expense. ⊚ ⊚

true false

32) A tuition waiver for a student who works as a graduate assistant is treated as a reduction in revenue. ⊚ ⊚

true false

33) Academic or athletic scholarships that do not require service to the college or university are considered scholarship allowances and treated as reductions in revenue. ⊚ ⊚

true false

34) Tuition revenue for summer classes spanning two fiscal periods must be recorded in the period when the drop date passes and refunds are no longer an option. ⊚ ⊚

true false

35) Tuition revenue for summer classes spanning two fiscal periods must be allocated on a pro-rata basis. ⊚ ⊚

true false

36) NACUBO guidelines require both revenues and expenses for split summer sessions to be apportioned to the two fiscal years.

⊚ ⊚

true false

37) General state appropriations are treated as operating revenue of public colleges and universities. ⊚ ⊚

true false

38) State appropriations for higher education institutions are to be reported as nonoperating revenues in the Statement of Revenues, Expenses, and Changes in Fund Net Position for a public institution. ⊚ ⊚

true false

39) Auxiliary enterprise activities represent revenues and expenses related to units of the college that provide services to students on a user fee basis. ⊚ ⊚

true false

40) Inflows from self-supporting university operations, known as auxiliary enterprises, are unrestricted revenue by private colleges. ⊚ ⊚

true false

41) A donor pledges to support a program for a future year. Private colleges and universities recognize contribution revenue in the year in which the unconditional pledge is made. ⊚ ⊚

true false

42) A donor pledges to support a program for a future year. Public colleges and universities recognize contribution revenue in the year in which the unconditional pledge is made.

⊚ ⊚

true false

43) According to GASB, with respect to public colleges and universities, pledges receivable are recognized as assets and revenues when eligibility requirements are met. ⊚ ⊚

true false

44) Private colleges and universities recognize contribution revenue in the year in which the unconditional pledge is made. ⊚ ⊚

true false

45) Revenue for reimbursement grants may be recognized before expenditures take place, so long as the grant has been awarded. ⊚ ⊚

46)

Pell Grants received by public colleges are classified as non operating revenue. ⊚ ⊚

47)

true false

Pell Grants received by private colleges are classified as nonoperating revenue. ⊚ ⊚

true false

48) Cash paid for equipment is classified as an Investing activity in the Statement of Cash Flows for a public university. ⊚ ⊚

true false

49) Cash paid for equipment is classified as an Investing activity in the Statement of Cash Flows for a private university. ⊚ ⊚

true false

50) Cash paid for interest is classified as an Operating activity in the Statement of Cash Flows for a private university. ⊚ ⊚

true false

51) Cash paid for interest is classified as an Operating activity in the Statement of Cash Flows for a public university. ⊚ ⊚

52)

true false

Public and private colleges account for split-interest agreements in the same way. ⊚ ⊚

true false

53) A college receives cash from a donor under a trust agreement that requires the college to invest the assets and receive a specified dollar amount of earnings. Upon the death of the donor the assets revert to the donor’s estate. This is an example of a charitable lead trust split-interest agreement. ⊚ ⊚

true false

54) Generally speaking, accounting standards for private colleges tend to recognize revenue when a split-interest agreement is created while accounting standards of public colleges defer recognition until it is realized.

⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 55) Public colleges and universities follow ________ guidelines while private colleges and universities follow ________ guidelines.

A) B) C) D)

GAO, FASB. FASB, GAO. GASB, FASB. FASB, GASB.

56) Private colleges and universities are (primarily) subject to financial reporting standards issued by?

A) B) C) D)

FASB. GASB. AICPA. None of the choices are correct.

57) Public colleges and universities are (primarily) subject to financial reporting standards issued by:

A) B) C) D)

FASB. GASB. AICPA. None of the choices are correct.

58) Private universities follow the authoritative standards of ________ and use the ________ basis of accounting.

A) B) C) D)

59)

FASB, Accrual. FASB, Modified-accrual. GASB, Accrual. GASB, Modified-accrual.

With respect to public colleges, which of the following is not correct?

A) GASB requires public colleges to report long-term debt on the Statement of Net Position, to accrue interest and amortize debt discount and premium. B) GASB requires public colleges to report capital assets on the Statement of Net Position, to expense depreciation and to record gains or losses on disposals of capital assets. C) Cash received under Pell Grants is treated as held for the student in an agency relationship with offsetting asset and liability balances. D) All of the choices are correct.

60) Which of the following statements is true regarding accounting and financial reporting for public colleges and universities?

A) Public colleges and universities may choose to report in the same manner as private colleges and universities, using FASB standards. B) Public colleges and universities may choose to report as special-purpose entities. C) Both of the choices are true. D) Neither of the choices is true.

61) Which of the following is not true regarding the Statement of Revenues, Expenses, and Changes in Net Position for a public college?

A) B) C) D)

The accrual basis of accounting is used to measure revenues and expenses. Encumbrances are recorded at the time purchase orders are issued. Depreciation expense is recorded. All of the choices are true.

62) Which of the following would be true regarding the Statement of Net Position for a public college?

A) B) C) D)

Both current and long-term assets and liabilities are presented. Net Asset categories include only Capital Assets. Both of the choices are true. Neither of the choices is true.

63) Which of the following is not true regarding the Statement of Revenues, Expenses, and Changes in Net Position for a public college?

A) Revenues are required to be presented in the categories of with or without donor restrictions, while all expenses are classified as without donor restrictions. B) Tuition fees waived by the institution in return for services provided by employees and student assistants are shown as expenses. C) Interest expense is accrued and bond premiums and discounts are amortized. D) None of the choices.

64) In addition to a Statement of Financial Position and a Statement of Activities, a private college or university is required to present:

A) B) C) D)

65)

A Statement of Functional Expense. A Statement of Cash Flows. Both of the choices are correct. Neither of the choices is correct.

Private colleges are required to report residual equity in the following categories:

A) B) C) D)

66)

Unrestricted and Restricted Net Position. Net Assets without Donor Restrictions and Net Assets with Donor Restrictions. Unrestricted, Temporarily Restricted, and board designated. Restricted, Unrestricted, and Temporarily Restricted Net Assets.

Public colleges are required to report residual equity in the following categories:

A) Unrestricted net position, Restricted net position, and Net Investment in Capital Assets. B) Net Assets with Donor Restrictions and Net Assets without Donor Restrictions. C) Unrestricted, Temporarily Restricted, and board designated. D) Restricted and Unrestricted.

67) Which of the following is not true regarding the Statement of Revenues, Expenses, and Changes in Net Position for a public college?

A) State appropriations and Pell Grants are reported as operating revenue. B) Revenues from residence halls, dining services, and bookstores are reported as Auxiliary Enterprises—within operating revenue. C) Expenses associated with central management, planning, and administration are classified as Institutional Support. D) None of the choices, these are all true.

68) Which of the following is not true regarding the Statement of Revenues, Expenses, and Changes in Net Position for a public college?

A) Reimbursement type grants are recorded as operating revenue when qualifying expenses are made. B) Auxiliary enterprise activities represent revenues and expenses related to units of the college that provide services to students on a user fee basis and is classified as operating revenue. C) Student financial aid is a revenue contra account. D) All of the choices are true.

69)

Which of the following is a required statement for a private college?

A) B) C) D)

Statement of Changes in Fund Balance. Statement of Revenues and Expenditures. Budgetary Comparison Statement. None of the choices is a required statement.

70) Which of the following is not true of a Statement of Activities prepared for a private college or university?

A) Reimbursement type grants are recorded as operating revenue when qualifying expenses are made, not when the grant is approved. B) Reclassifications from donor restricted net assets are reported when the donor’s restrictions have been met. C) Expenses may be without or with donor restrictions depending on donor intent. D) All of the choices are true.

71) Which of the following types of college/university would have these components of the Financial Report?Statement of Financial Position.Statement of Activities.Statement of Cash Flows.Notes to the Financial Statements.

A) Investor Owned. B) Public University. C) Private Not-for-Profit. D) None of the choices are correct.

72) For private colleges and universities, reclassifications of donor restricted net assets could be made:

A) B) C) D)

For satisfaction of purpose restrictions. When time restrictions expire. If the resources donated for fixed assets have been expended on such assets. All of the choices are correct.

73) The equity section of the balance sheet for investor-owned colleges and universities includes which of the following designations?

A) Net Assets without Donor Restrictions, Net Assets with Donor Restrictions. B) Paid in Capital and Retained Earnings. C) Net Investment in Capital Assets, net of related Debt; Restricted Net position; and Unrestricted Net position. D) None of the choices are correct.

74) Which of the following is true regarding accounting and financial reporting for private colleges and universities?

A) Pell Grants are reported as nonoperating revenue. B) Revenues from residence halls, dining services and bookstores are reported as Auxiliary Enterprises – within nonoperating revenue. C) Expenses associated with central management, planning and administration are classified as Institutional Support – within income from operations. D) All of the choices are all true.

75)

Scholarships (tuition discounts) provided to students where no service is required:

A) Are included in tuition revenue and recorded as an expense. B) Are reported as a reduction of revenue by directly reducing the revenue account or increasing a contra-revenue account. C) Are not included in tuition revenue but are included as an "other source". D) Are reported as an adjustment to tuition revenue in the government-wide statements.

76) Fees waived by an educational institution in return for services to be provided by students are reported:

A) As a reduction in tuition revenue by directly reducing the revenue account or increasing a contra-revenue account. B) As an adjustment to tuition revenue in the government-wide statements. C) As an expense. D) By deducting the waived fee from tuition revenue before it is recorded.

77)

Which of the following is true?

A) Tuition and fees charged are included in income and the fees waived for graduate assistants are expensed. B) Scholarship allowances for which no services are required are expensed. C) Fees waived for graduate assistantships for which services are required are deducted directly from tuition revenue. D) Revenues for summer sessions are recorded in deferred revenues and recorded as revenue when the semester ends.

78) A private college had tuition and fees for the year ended June 30, 2020 in the amount of $45,000,000. Scholarships, for which no services were required, amounted to $4,800,000. Graduate assistantships, for which services were required, amounted to $2,300,000. The amount to be reported by the college for net tuition and fee revenue would be:

A) B) C) D)

$37,900,000. $40,200,000. $42,700,000. $45,000,000.

79) A public college had tuition and fees of $21,000,000. Scholarships, for which no services were required, amounted to $2,500,000. Graduate assistantships, for which services were required, amounted to $1,600,000. The amount to be reported by the public college as net tuition and fees would be: .

A) B) C) D)

$21,000,000. $19,400,000. $18,500,000. $16,900,000.

80) According to NACUBO guidelines, what is the correct treatment for recognizing summer school revenues and expenses when a college’s fiscal year ends on June 30?

A) Recognize the entire amount of revenues and expenses in the year in which the summer term is predominantly conducted. B) Recognize the entire amount of revenues and expenses in the year in which the summer term began. C) Apportion the revenues and expenses to the two fiscal years, following accrual accounting practices similar to those employed by commercial enterprises. D) Recognize expenses in the year in which they were billed and the expenses in the year in which they were incurred.

81) Inflows from self-supporting operations by a private college are known as auxiliary enterprises and are classified as:

A) B) C) D)

A. Revenue without donor restrictions. B.Temporarily Restricted Revenue. C. Permanently Restricted Revenue. D. Either A or B choice is correct.

82) When summer school classes at a university cover parts of two fiscal years, the revenues and expenses are:

A) B) C) D)

All recognized in the second of the two years. Apportioned to the two fiscal years. Recognized in the year in which the term was predominantly conducted. All recognized in the first of the two years.

83) With respect to public colleges and universities, state appropriations for operating purposes are shown as:

A) B) C) D)

Nonoperating revenue. Operating revenue. Nonexpendable endowments. None of the choices are correct.

84) Which of the following would not be correct with respect to accounting for colleges and universities under the jurisdiction of the FASB?

A) Contributed services should be recognized only when the services create or enhance nonfinancial assets or require specialized skills, are provided by an individual possessing those skills, and would typically be purchased if not provided by donation. B) Unconditional pledges are deferred and recognized as revenue when collected. C) Depreciation is recorded. D) Investments in stock with determinable fair values and all debt securities are reported at market value.

85) Tuition and fees for Northern University were assessed at $25,000,000. $1,800,000 of the amount due from students was later reduced by need based scholarships. Graduate assistantships and work-study stipends reduced the amounts collectible from student by an additional $2,000,000. What is the journal entry to record tuition revenue?

A) Accounts Receivable Operating Revenue—Student Tuition & Fees

25,000,000 25,000,000

Accounts Receivable

21,200,000

Operating Revenue—Student Tuition & Fees

21,200,000

C) Accounts Receivable

23,000,000

Operating Revenue—Student Tuition & Fees

23,000,000

D) Accounts Receivable

23,200,000

Operating Revenue—Student Tuition & Fees

23,200,000

86) Tuition and fees for Northern University were assessed at $25,000,000. $1,800,000 of the amount due from students was later reduced by need based scholarships. Graduate assistantships and work-study stipends reduced the amounts collectible from student by an additional $2,000,000. What is the journal entry to record the scholarship allowances?

A) Scholarships and Fellowships Expense

1,800,000

Accounts Receivable

1,800,000

B) Operating Revenue Deduction—Scholarship Allowances

1,800,000

Accounts Receivable

1,800,000

C) Operating Revenue Deduction—Scholarship

1,800,000

Allowances Deferred Revenues

1,800,000

D) Not recorded because it was deducted from tuition revenue before revenue was recorded.

87) How should the following revenues be reported by a private college?$15,000 for the improvement of a study lounge,$5,600 in unrestricted contributions,$600 unrestricted investment income on endowment investments,$11,600 sales of services by auxiliary enterprises. Without Donor Restrictions 32,800 17,800 17,200 5,600

A B C D

A) B) C) D)

With Donor Restrictions 0 15,000 15,600 27,200

Option A Option B Option C Option D

88) On December 1, 2019, St. Sebastian University received cash of $60,000 and a pledge for another $30,000 to be paid in 2020. The amounts are to establish a permanent endowment to provide scholarships for music majors. How should this event be recorded on December 31, 2019, assuming St. Sebastian is a private university?

A) Restricted Cash

60,000

Contributions receivable

30,000

Contribution Revenue—without Donor Restrictions

90,000

B) .

Restricted Cash

60,000

Contributions receivable

30,000

Contribution Revenue—with Donor Restrictions

90,000

C) Restricted Cash

60,000

Contribution Revenue—with Donor Restrictions

60,000

D) Restricted Cash

60,000

Contributions receivable

30,000

Contribution Revenue—Revenues—with Donor Restrictions

60,000

Deferred Revenues

30,000

89) On December 1, 2019, Sebastian University received cash of $60,000 and a pledge for another $30,000 to be paid in 2020. The amounts are to establish a permanent endowment to provide scholarships for music majors. How should this event be recorded on December 31, 2019, assuming Sebastian is a public university?

A) Restricted Cash

60,000

Contributions receivable

30,000

Operating—Additions to permanent endowment

90,000

B) Restricted Cash

60,000

Contributions receivable

30,000

Nonoperating—Additions to permanent endowment

90,000

C) Restricted Cash

60,000

Nonoperating—Additions to permanent endowment

60,000

D) Restricted Cash

60,000

Contributions receivable

30,000

Nonoperating—Additions to permanent endowment

60,000

Deferred Revenues

30,000

90) A college receives $500,000 of Pell Grants to be applied to current year student accounts for tuition and fees. What account should be credited upon receipt of the $500,000, assuming: The College is a private institution A) Nonoperating revenue B) Nonoperating revenue C) Liability: Due to student accounts D) Liability: Due to student accounts

A) B) C) D)

The College is a public institution Nonoperating revenue Liability: Due to student accounts Nonoperating revenue Liability: Due to student accounts

Option A Option B Option C Option D

91) On December 1, 2019, a college received a pledge to support a program in the following two years. Which of the following is true with respect to this pledge?

A) If the college is a private institution, the contribution revenue will be recognized within the net assets with donor restriction category provided the pledge is unconditional. B) If the college is a public institution, no contribution revenue will be recognized in 2019 since the time restriction is deemed to be an unsatisfied eligibility requirement. C) Both of the choices are true. D) Neither of the choices is true.

92) On December 1, 2019, a college received a pledge of support for the general endowment. Which of the following is true with respect to this pledge?

A) The contribution will be recognized as revenue in 2019 if the college is a public institution. B) The contribution will be recognized as revenue in 2019 if the college is a private institution. C) Both of the choices are true. D) Neither of the choices is true.

93) Which of the following is true regarding the Statement of Cash Flows for a public college?

A) The direct method must be used. B) The statement is in the same format required for state and local governmental enterprise funds. C) Both of the choices are true. D) Neither of the choices is true.

94) Which of the following is true regarding the Statement of Cash Flows for a public college?

A) A reconciliation is required, reconciling operating income in the Statement of Revenues, Expenses, and Changes in Net Position to the cash flows provided (used) by operating activities. B) Cash purchases of capital assets are reported as outflows in the investing activities section. C) Both of the choices are true. D) Neither of the choices is true.

95) Which of the following is true regarding the Statement of Cash Flows for a private college?

A) B) section. C) D)

Cash Flows from Operating Activities must be presented on the direct method. Cash purchases of capital assets are reported as outflows in the investing activities Both of the choices are true. Neither of the choices is true.

96) Which of the following is true regarding the Statement of Cash Flows for a public college?

A) Cash received for interest is reported as an increase in cash flows from operating activities. B) Cash paid for interest is reported as a decrease in cash flows from either noncapital or capital and related financing activities. C) Both of the choices are true. D) Neither of the choices is true.

97) Which of the following is true of a Statement of Cash Flows for a private college or university?

A) Either the direct or indirect method is acceptable. B) Four categories are used: Operating, Capital Related Financing, Noncapital Related Financing, and Investing. C) Cash flows must be presented separately for with and without donor restrictions categories. D) All of the choices are true.

98) A college borrows money to construct a new biology building. Where will the interest paid on this debt appear in the Statement of Cash Flows, assuming: The College is a private institution A) Cash flows from financing activities B) Cash flows from investing activities C) Cash flows from operating activities D) Cash flows from operating activities

A) B) C) D)

The College is a public institution Cash flows from capital related financing activities Cash flows from investing activities Cash flows from capital related financing activities Cash flows from operating activities

Option A Option B Option C Option D

99) Sam Smith died, leaving a will that provided that $1,500,000 be transferred to a private not-for-profit college. The college is to invest the funds for 10 years and give $50,000 each year to the granddaughter. At the end of the 10 years, the $1,500,000 can be used for any purpose desired by the college. Which of the following is true?

A) The college would record revenue in the amount of $1,500,000, increasing net assets with donor restrictions. B) The college would record revenue in an amount equal to the $1,500,000 less the present value of the 10 payments to the granddaughter. C) The college would record revenue in an amount equal to the present value of the 10 payments to the granddaughter. D) The college would not record revenue for 10 years; then a revenue would be recorded, increasing net assets without donor restrictions.

100) In December 2019, a donor to a college established a trust in which college receives $500,000 to be invested. The college receives $4,000 of the income per year until the donor dies. At that point, the assets revert to the donor’s estate. The college estimates that the present value of the anticipated receipts from the trust amount to $120,000. How should this $120,000 be recorded in 2019, assuming The College is a private institution A) Contribution revenue B) Deferred inflow C) Contribution revenue D) Deferred inflow

A) B) C) D)

The College is a public institution Contribution revenue Contribution revenue Deferred inflow Deferred inflow

Option A Option B Option C Option D

101) In December 2019, a donor to a college established a trust in which college receives $5,000,000 to be invested. The donor’s spouse is to receive $40,000 of the income per year for ten years. At that point, the assets and income revert to the college. The college estimates that the present value of the anticipated receipts from the trust amount to $4,800,000. How should this $4,800,000 be recorded in 2019, assuming

The College is a private institution A) Contribution revenue B) Contribution revenue C) Deferred inflow D) Deferred inflow

A) B) C) D)

The College is a public institution Deferred inflow Contribution revenue Deferred inflow Contribution revenue

Option A Option B Option C Option D

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 102) NACUBO has issued a position paper titled “Accounting and Reporting Scholarship Allowances to Tuition and Other Revenues by Higher Education” to address the issue of scholarship allowances. How are scholarships and allowances treated in the financial statements by colleges and universities?

103) Match the Type of Entity with the Equity sections of the Balance Sheet/ Statement of Net Assets/Position (Match the Letter and Number)Investor OwnedPublic UniversityPrivate Not for ProfitNet Assets without Donor Restrictions, Net Assets with Donor RestrictionsPaid in Capital, Retained EarningsNet Investment in Capital Assets, Restricted Net Position, Unrestricted Net Position.

104) Identify the basis of accounting for (1) a private college or university and (2) a public college or university and what are the principal sources of reporting standards?

105) What accounts appear in the equity section of the balance sheet for a college, assuming the college is:Public – government ownedPrivate not-for-profitFor Profit - Investor owned business

106) Identify the primary financial reporting body for each of the following forms of college or universityPrivate not-for-profitFor Profit - Investor ownedPublic – government owned

107) Indicate the contents required for a financial report for those public colleges and universities that choose to report as special-purpose entities engaged only in business-type activities.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 108) Record the following transactions on the books of Franklin College, a private college. All of the transactions are for the year 2020. (a) The College received $200,000 in funds that were pledged in 2019, to be used for unrestricted purposes in 2020.(b) The College was awarded $500,000 in reimbursement type grants from the federal government. $425,000 was expended on these projects and $400,000 in cash was received.(c) On Dec. 1, the College received a pledge of $10,000,000 to build a new basketball arena. The funds were not expended or received in 2020, but are expected to be received early in 2021.(d) The College had received cash of $150,000 in 2019 to be used to purchase computer equipment for the student labs. The equipment was purchased and put into service in early January 2020. The equipment has a five-year life.(e) On Dec. 31, the College received an unrestricted pledge to receive $25,000 per year each year for six years, beginning on December 31, 2020. The first installment of $25,000 was received on that date. The discount rate is 5%. The present value of six payments of $25,000 is $133,237.

109) Ballard University, a private not-for-profit, billed four students for tuition and fees each in the amount of $ 8,500 each for fall semester. The University estimates 25% of tuition and fees will prove to be uncollectible. The University collected $ 10,000 as follows: Student A paid the full amount billed $ 8,500 Student B was on an assistantship and received a tuition 2,000 and fee waiver. He is required to work 14 hours a week for one of the University’s faculty. Student C received a scholarship through the Graduate 3,000 School based on her high test scores. The scholarship waives most tuition and fees and does not require the student to work. Student D paid repeatedly with checks that later proved to 0 be without sufficient funds. After the end of the semester, the student reportedly joined a circus and the University could find no forwarding address. Total $ 13,500

Required: Prepare the journal entries to record the billing and subsequent collection or write-off for the transactions listed above.

110) Ethan Allen University is a private university following FASB standards for reporting. The following transactions took place during the year ended June 30, 2020.(1) EAU had received $425,000 in tuition in June 2020 for the summer session that runs from June 16 to August 14, 2019 and had deferred $276,250 (65%) at June 30, 2019.(2) EAU received in cash tuition of $3,000,000; unrestricted contributions of $360,000; contributions permanently restricted by donor agreement for the endowment of $1,000,000, unrestricted interest income on endowments of $275,000; and auxiliary enterprise revenue of $2,400,000.(3) Contributions for student scholarships were received in the amount of $300,000. $240,000 was awarded to students during the year. Students receiving these scholarships are required to work 10 hours a week (institutional support).(4) Expenses amounted to $1,100,000 for instruction, $700,000 for research, $400,000 for public service, $1,850,000 for auxiliary enterprises, $270,000 for student services, and $890,000 for institutional support. Included in these amounts is $340,000 of depreciation. All other expenses ($4,870,000) were paid in cash. Plant assets are classified as unrestricted.(5) EAU received $300,000 in tuition in mid June 2020 for the summer session ending in mid-August 2020. (65% relates to the next fiscal year)(6) At year-end, endowment investments were determined to have a fair value of $14,000 in excess of their recorded amounts. No restrictions apply to this income. Required: (a) Prepare journal entries to record these events including closing entries. (b) Prepare a Statement of Activities for the year ending June 30, 2020, assuming the June 30, 2019 balances in net assets are: $1,020,000 unrestricted, $30,000 restricted by donors for purpose, and $8,000,000 restricted by donors for endowment.

111) Union Seminary, a private not-for-profit college, uses the fund basis of accounting for internal record keeping. Presented below is the fully adjusted 12/31/2020 balance sheet for Union, prepared using funds and account groups. The following are fund descriptions: Operating Fund - the fund used for transactions not falling within the definition of other funds. There are no restrictions on these resources.Memorial Fund - Used to account for resources donated from outside parties for specific capital additions.Endowment Fund - Assets received from an outside donor for permanent investment, only the earnings may be expended.Scholarship Fund - Cash set aside by the Seminary's governing board for use as scholarships and student aid.Fixed Assets Account Group - A record of the Seminary's fixed assets and long-term debt. Required: Prepare a Statement of Financial Position following the guidelines provided in FASB Statements 116 and 117 for private not-for-profits.

112) Southeastern State University, a public university, has chosen to report as a public university reporting as a special-purpose entity engaged only in business-type activities. Deferred Revenues were reported as of July 1, 2019 in the amount of $4,000,000. Record the following transactions related to revenue recognition for the year ended June 30, 2020. Include in the account titles the proper revenue classification (operating revenues, nonoperating revenues, etc.): Deferred revenues related to unearned revenues for the summer session, which ended in August 2019.During the fiscal year ended June 30, 2020, student tuition and fees were assessed in the amount of $78,000,000. Of that amount, $62,000,000 was collected in cash. Also, of that amount, $3,400,000 pertained to that portion of the 2020 summer session that took place after June 30, 2020.Student scholarships, for which no services were required, amounted to $1,900,000. Students applied these scholarships to their tuition bills at the beginning of the fall and spring semesters.Student assistantships and work-study stipends, for which services were required, amounted to $3,000,000 and were to their tuition bills. These all relate to institutional support.Auxiliary enterprise revenues amounted to $11,900,000 (received in cash).The state appropriation for operations was received in the amount of $33,000,000.Pell Grants in the amount of $ 20,000,000 were received.The Pell Grants were applied to student accounts receivable.

113) Eastern State University, a public university, had the following account balances as of June 30, 2020. Debits are not distinguished from credits, so assume all accounts have a “normal” balance (i.e. cash is a debit and accounts payable a credit)

Accounts payable

795,000

Accounts receivable (net)

435,000

Capital assets, net of depreciation

8,720,000

Cash and cash equivalents

215,000

Cash and cash equivalents – restricted (noncurrent)

240,000

Deferred revenue-current

325,000

General obligation bonds payable - current portion (related to capital acquisition) General obligation bonds payable (related to capital acquisition) Inventories

390,000

3,000,000 800,000

Investments - Endowment

4,200,000

Investments Long-term

1,500,000

Investments Short-term -unrestricted

750,000

Net Position-restricted-expendable

1,300,000

Net Position-restricted-nonexpendable

4,440,000

Revenue bonds payable (related to capital acquisition)

3,400,000

Net Position

Required: Prepare, in good form, a Statement of Net Position for Eastern State University as of June 30, 2020.

114) Western State University, a public university, had the following account balances for the year ended and as of June 30, 2020. Debits are not distinguished from credits, so assume all accounts have a “normal” balance.

Additions to permanent endowments

2,000,000

Auxiliary enterprise revenue

5,000,000

Capital grants and gifts

1,260,000

Public service expense

2,300,000

Auxiliary enterprise expense

2,410,000

Federal grants and contracts revenue

1,250,000

Gifts

1,940,000

Interest on capital-related debt

800,000

Investment income

380,000

Net Position, beginning of year

19,600,000

Academic support expense

3,400,000

Student services expense

3,600,000

Institutional support expense

4,850,000

Instructional expense

7,900,000

Student financial aid (contra revenue)

700,000

Research expense

1,250,000

State and local grants and contracts revenue

1,950,000

State appropriation for operations

5,900,000

State appropriations for capital additions

1,340,000

State appropriations for capital additions

7,800,000

Required: Prepare, in good form, a Statement of Revenues, Expenses, and Changes in Net Position for Western State University for the year ended June 30, 2020.

Answer Key Test name: Chapter 11: College and University Accounting 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) TRUE 22) FALSE 23) TRUE 24) FALSE 25) TRUE 26) TRUE .

27) TRUE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) TRUE 34) FALSE 35) TRUE 36) TRUE 37) FALSE 38) TRUE 39) TRUE 40) TRUE 41) TRUE 42) FALSE 43) TRUE 44) TRUE 45) FALSE 46) TRUE 47) FALSE 48) FALSE 49) TRUE 50) TRUE 51) FALSE 52) FALSE 53) TRUE 54) TRUE 55) C 56) A .

57) B 58) A 59) C 60) B 61) B 62) A 63) A 64) A 65) B 66) A 67) A 68) D 69) D 70) C 71) C 72) D 73) B 74) C 75) B 76) C 77) A 78) B 79) C 80) C 81) A 82) B 83) A 84) B 85) A 86) B .

87) B 88) B 89) C 90) C 91) C 92) B 93) C 94) A 95) B 96) B 97) A 98) C 99) B 100) C 101) A 102) If the tuition or fee reduction is an employee benefit, the reduction is to be treated as compensation expense rather than a discount. Therefore, tuition waivers associated with graduate assistantships and work-study programs are expenses. Academic or athletic scholarships that do not require service to the college or university are considered scholarship allowances and treated as reduction in revenue. 103) A-2, B-3, C-1

104) (1) Private colleges and universities use accrual accounting. The FASB is the body primarily responsible for reporting standards for these and other private not-for-profit organizations. In addition, the AICPA Audit and Accounting Guide: Not-for-Profit Organizations applies to private colleges and universities. Finally, the National Association of College and University Business Officers (NACUBO) sets standards for issues not addressed by the FASB or AICPA. (2) Public colleges and universities use accrual accounting. The GASB is the body primarily responsible for reporting standards for these and other private not-for-profit organizations. Finally, the National Association of College and University Business Officers (NACUBO) sets standards for issues not addressed by the GASB. 105) Net Position: Unrestricted, Restricted, Net investment in capital assets.Net Assets without Donor Restrictions, Net Assets with Donor Restrictions.Paid in capital, Retained earnings. 106) Private not-for-profit colleges and universities follow FASB standards, including those specifically addressing not-for-profit organizations. For Profit - Investor owned colleges and universities follow FASB standards for commercial organizations. Public – government owned colleges and universities follow GASB standards and typically report as special purpose governments engage in business-type activities.

107) Public colleges and universities choosing to report as specialpurpose entities engaged in business-type activities only would include, in their financial reports: (1) Management's Discussion and Analysis, (2) Statement of Net Position or Balance Sheet, (3) Statement of Revenues, Expenses, and Changes in Net Position, (4) Statement of Cash Flows, (5) Notes to the Financial Statements, and (6) Required Supplementary Information Other than MD&A, when applicable. 108) Accounts a.

Cash

Debits 200,000

Contributions Receivable

200,000

Reclassification from Net Assets with Donor Restrictions-Expiration of Time Restrictions Reclassification to Net Assetswithout Donor Restrictions -Expiration of Time Restrictions (to record expiration of time restrictions)

200,000

Research Programs Expense

425,000

200,000

Cash

Receivable from federal government

425,000

Operating revenue – federal grant

Cash

Credits

425,000

400,000

Receivable from federal government

Pledges Receivable

400,000

10,000,000

Revenues: Contributions with donor restrictions

Equipment

10,000,000

150,000

Cash

150,000

Depreciation Expense

30,000

Accumulated Depreciation

30,000

Pledges receivable

108,237

Cash

25,000

Revenues: - Contributions without Donor Restrictions

133,237

109) Accounts Accounts Receivable

Credits

34,000

Operating Revenues – Tuition and Fees

25,500

Allowance for Uncollectible accounts

8,500

Cash Accounts Receivable

Debits

8,500 8,500

Cash

2,000

Institution Support Expense

6,500

Accounts Receivable

Cash Student Financial Aid (contra-revenue) Accounts Receivable

8,500

Allowance for Uncollectible Accounts

3,000 5,500

8,500

Accounts Receivable

8,500

110) Part a. Accounts 1.

Deferred Revenues

Debits 276,250

Unrestricted Operating Revenues-Tuition and Fees

Cash Unrestricted Operating Revenues - Tuition and Fees Nonoperating Contributions Unrestrictedwithout donor restrictions Nonoperating Revenue – with donor restrictions – Additions to Permanent Endowment Nonoperating Investment Revenues Unrestricted Revenues without donor restrictions

Credits

276,250

7,035,000 3,000,000 360,000 1,000,000

275,000

Revenues-Auxiliary Enterprise-Unrestricted

Cash

2,400,000

300,000

Contributions- with donor restrictions Institutional Support Expense

300,000 240,000

Cash Reclassification from net assets with donor restrictions – Satisfaction of Program Restrictions Reclassification to Net Assets - without donor restrictions Satisfaction of Program Restrictions (to record expiration of program restrictions)

Instruction Expense

240,000 240,000

240,000

1,100,000

Research Expense

700,000

Public Service Expense

400,000

Auxiliary Enterprise Expenses

1,850,000

Institutional Support Expense

890,000

Student Services Expense

270,000

Cash

4,870,000

Accumulated Depreciation

Cash

340,000

300,000

Deferred Revenues

195,000

Unrestricted Operating Revenues-Tuition and Fees

105,000

Investments (endowment)

14,000

Gains on Investments-Unrestrictedwithout donor restrictions

14,000

CLOSING ENTRIES: Reclassification to Net Assets without Donor 240,000 Restrictions Satisfaction of Program Restrictions Unrestricted Operating Revenues-Tuition and Fees 3,381,250 Contributions-without Donor Restrictions

360,000

Revenues-Investment Income without Donor 275,000 Restrictions Revenues-Auxiliary-Enterprises without Donor 2,400,000 Restrictions Gains on Investments- without Donor Restrictions 14,000 Net Assets without Donor Restrictions

1,220,250

Instruction Expense

1,100,000

Research Expense

700,000

Public Service Expense

400,000

Auxiliary Enterprise Expense

1,850,000

Institutional Support Expense

1,130,000

Student Services Expense

Contributions-with Donor Restrictions Reclassification from Net Assets with Donor Restrictions Satisfaction of Program Restrictions Net Assets with Donor Restrictions

270,000

1,300,000 240,000 1,060,000

Part b. Net Assets without Donor Restrictions

Net Assets with Donor Restrictions

Total

Revenues and Other Support: Contributions

$ 3,381,250

Investment Income

360,000

Auxiliary Enterprise Revenues Gains on Investments

275,000

240,000

14,000

Net Assets Released from Restriction-Satisfaction of Program Restrictions Total Revenues and Other Support

14,000

6,670,250

3,381,250 $ 1,300,000

1,660,000

(240,000 )

1,060,000

7,730,250

Program Expenses: Instruction

1,100,000

Research

700,000

Public Service

400,000

1,850,000

270,000

4,320,000

1,130,000

Auxiliary Enterprises Student Services Total Program Expenses

Supporting Expenses: Institutional Support

Total Expenses

5,450,000

Change in Net Assets

1,220,250

1,060,000

2,280,250

Net Assets July 1, 2019

1,020,000

8,030,000

9,050,000

Net Assets June 30, 2020

$ 2,240,250

$ 9,090,000

$ 11,330,250

111) Operatin Memoria g Fund l Fund

Fixed Assets Account Group

Endowmen Scholarshi t Fund p Fund

Total

18,000

82,500

Assets Cash

60,000

4,500

Pledges Rec. (net) Investment s Land & Bldg Accum. Depr.

262,000

18,000

Total Assets

322,000

Liabilitie s Payroll Taxes Payable Mortgage Total Liabilitie s

280,000 210,000

22,500

625,000

(290,00 ) 0

335,000

12,000

210,000

18,000

907,500

12,000

240,000

252,000

Operating Fund Memorial Fund Endowment Fund Scholarshi p Fund Net Investment in PPEq Total Fund Balances

310,000

22,500

95,000

210,000

18,000

655,500

Total Liab & Fund Bal

322,000

22,500

335,000

210,000

18,000

907,500

22,500

22,500 210,000

210,000 18,000

95,000

18,000 95,000

UNION SEMINARY STATEMENT OF FINANCIAL POSITION As of December 31, 2020 Assets: Cash

82,500

Pledges Receivable (net)

280,000

Investments

210,000

Land & Building (net)

335,000

Total Assets

907,500

Liabilities: Payroll Taxes Payable

12,000

Mortgage

240,000

Total Liabilities

252,000

Net Assets: Net Assets without Donor Restrictions*

$ 423,000

Net Assets with Donor Restrictions: Capital Additions Endowment

210,000

Total Net Assets

655,500

Total Liabilities and Net Assets *

$ 907,500

*(310,000 + 18,000 + 95,000) 112) SOUTHEASTERN STATE UNIVERSITY GENERAL JOURNAL YEAR ENDED JUNE 30, 2020 Debits 1.

Deferred Revenues

4,000,000

Operating Revenues-Student Tuition and Fees

Student Accounts Receivable

4,000,000

78,000,000

Operating Revenues-Student Tuition and Fees

Cash

78,000,000

62,000,000

Student Accounts Receivable

Operating Revenues-Student Tuition and Fees

Credits

62,000,000

3,400,000

Deferred Revenues

3,400,000

Student Financial Aid (contra-revenue)

1,900,000

Student Accounts Receivable

1,900,000

Institutional Support Expense

3,000,000

Student Accounts Receivable

Cash

3,000,000

11,900,000

Operating Revenues-Auxiliary Enterprise Revenue

Cash

11,900,000

33,000,000

Nonoperating Revenues-State Appropriation for Operations

Cash

33,000,000

20,000,000

Nonoperating Revenues-Pell Grants

Student Financial Aid (contra-revenue)

20,000,000

Student Accounts Receivable

20,000,000

113) EASTERN STATE UNIVERSITY STATEMENT OF NET POSITION JUNE 30, 2020 Assets:

Current Assets: Cash and Cash Equivalents

215,000

Short-Term Investments

750,000

Accounts Receivable, Net

435,000

Inventories

800,000

Total Current Assets

2,200,000

Noncurrent Assets: Restricted Cash and Cash Equivalents

240,000

Long-Term Investments

1,500,000

Endowment Investments

4,200,000

Capital Assets, Net of Depreciation

8,720,000

Total Noncurrent Assets

14,660,000

Total Assets

$ 16,860,000

Liabilities: Current Liabilities: Accounts Payable

795,000

Deferred Revenue

325,000

Long-Term Liabilities-Current Portion

390,000

Total Current Liabilities

1,510,000

Long-Term Liabilities:

General Obligation Bonds Payable

3,000,000

Revenue Bonds Payable

3,400,000

Total Noncurrent Liabilities

6,400,000

Total Liabilities

7,910,000

Net Position: Net investment in capital assets

1,930,000

Restricted: Nonexpendable

4,440,000

Expendable

1,300,000

Unrestricted

1,280,000

Total Net Position

8,950,000

114) WESTERN STATE UNIVERSITY STATEMENT OF REVENUES, EPXNESES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2020 Revenues: Operating Revenues: Student Tuition and Fees (Net of student financial aid $ of $700,000) Federal Grants and Contracts

7,100,000

State and Local Grants and Contracts

1,950,000

Auxiliary Enterprises

5,000,000

Total Operating Revenues

15,300,000

1,250,000

Expenses: Operating Expenses:

Instructional expense

7,900,000

Institutional support expense

4,850,000

Academic support expense

3,400,000

Auxiliary enterprise expense

2,410,000

Research expense

1,250,000

Public service expense

2,300,000

Student services expense

3,600,000

Total Operating Expenses

25,710,000

Operating Income (Loss)

(10,410,000 )

Non-operating Revenues (Expenses): State Appropriations (operations)

5,900,000

Gifts

1,940,000

Investment Income

380,000

Interest on Capital Related Debt

(800,000 )

Net Non-operating Revenues

7,420,000

Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Appropriations

(2,990,000 )

Capital Grants and Gifts

1,260,000

Additions to Permanent Endowments

2,000,000

Increase in Net Position

1,610,000

1,340,000

Net Position-Beginning of Year Net Position-End of Year

19,600,000 $

21,210,000

Chapter 12:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Like charities and private colleges, private not-for-profit health care organizations follow FASB standards. ⊚ ⊚

true false

2) Private health care organizations, both not-for-profit and for-profit, follow GASB standards while government healthcare organizations follow FASB. ⊚ ⊚

true false

3) Private for-profit health care organizations follow FASB standards excluding those written specifically for not-for-profits. ⊚ ⊚

true false

4) If a health care organization is owned or controlled by a government, it is typically considered a special-purpose entity engaged only in business-type activities and would use proprietary fund accounting. ⊚ ⊚

true false

5) The AICPA Audit and Accounting Guide: Health Care Organizations applies equally to private not-for-profit, investor-owned, and governmentally owned health care organizations. ⊚ ⊚

true false

6) As both the FASB and the GASB approved the AICPA Health Care Guide, its requirements constitute Category B GAAP and must be followed by all health care organizations.

⊚ ⊚

true false

Government-owned health care organizations do not report depreciation expense. ⊚ ⊚

true false

8) Because they are engaged in business-type activities, governmental health care organizations typically use the accrual basis and economic resources measurement focus. ⊚ ⊚

true false

9) Private-sector health care organizations use the three-category FASB format for the Statement of Cash flows, while public sector organizations use the four-category GASB format. ⊚ ⊚

10)

true false

Not-for-profit business-oriented health care organizations use accrual accounting. ⊚ ⊚

true false

11) Government hospitals are typically considered special purpose entities engaged in business-type activities. ⊚ ⊚

true false

12) Both governmental owned and private health care providers use the modified accrual basis of accounting and the economic resources measurement focus. ⊚ ⊚

true false

13) Government owned hospitals follow FASB standards for recognition of contribution revenue ⊚ ⊚

true false

14) Both public and private sector health care organizations measure transactions and events similarly, but use different residual equity accounts. ⊚ ⊚

true false

15) Both commercial and not-for-profit hospitals in the private sector follow FASB standards. ⊚ ⊚

true false

16) The AICPA Health Care Guide applies to investor-owned, private not-for-profit, and government-owned hospitals. ⊚ ⊚

true false

17) The AICPA Health Care Guide provides accounting and reporting requirements that override GASB and FASB standards, but apply only to health care providers. ⊚ ⊚

true false

18) For accounting purposes, health care organizations include HMOs and individual medical practitioners, as well as hospitals. ⊚ ⊚

true false

19) The AICPA Health Care Guide provides additional guidance regarding accounting and reporting requirements for voluntary health and welfare organizations. ⊚ ⊚

true false

20) The AICPA Health Care Guide does not require a performance indicator in the financial statements of private sector not-for-profit health care providers. ⊚ ⊚

true false

21) The AICPA Health Care Guide prescribes a separate Statement of Operations and Statement of Changes in Net Assets rather than a Statement of Activities. ⊚ ⊚

true false

22) Patient Service Revenue of hospitals is to be presented net of contractual adjustments in the Statement of Operations. ⊚ ⊚

true false

23) Contractual adjustments from insurance companies are reported as expenses in the Statement of Operations. ⊚ ⊚

true false

24) Differences between actual and estimated contractual adjustments are treated as changes in accounting estimates. ⊚ ⊚

true false

25) Charity care is reported as both revenue and expense (bad debt) in the Statement of Operations. ⊚ ⊚

26)

true false

Patient service revenue reported by a hospital does not include charges for charity care. ⊚ ⊚

true false

27) The level of charity care is included in revenue and should be disclosed in the notes to financial statements. ⊚ ⊚

true false

28) With respect to health care organizations, expenses must be reported using their natural classifications. ⊚ ⊚

true false

29) Private sector not-for-profit health care entities must disclose expenses by functional classifications, if not provided in the Statement of Operations. ⊚ ⊚

true false

30) Health care organizations that are privately owned and operated to provide a return to investors follow GASB standards. ⊚ ⊚

true false

31) Health care organizations that are privately owned and operated to provide a return to investors follow FASB standards excluding those standards specifically for not-for-profits. ⊚ ⊚

true false

32) The AICPA Audit and Accounting Guide: Health Care Organizations applies to private not-for-profit, governmentally owned, and investor-owned health care organizations. ⊚ ⊚

true false

33) According to The AICPA Health Care Guide, transfers among affiliated organizations should be included in the determination of a performance indicator for a health care organization. ⊚ ⊚

true false

34) According to The AICPA Health Care Guide, transfers among affiliated organizations should not be included in the determination of a performance indicator for a health care organization. ⊚ ⊚

true false

35) For hospitals, contractual adjustments to 3rd party payers, such as insurance companies, are recorded with a debit to Contractual Adjustments (a contra-revenue account) and a credit to Allowance for Contractual Adjustments (a valuation account to patient accounts receivable). ⊚ ⊚

true false

36) For hospitals, contractual adjustments to 3rd party payers, such as insurance companies, are recorded with a debit to Contractual Adjustment expense and a credit to Accounts Receivable.

⊚ ⊚

true false

37) Health care organizations that are privately owned and operated to provide a return to investors report the same net asset classifications as private not-for-profit health care organizations. ⊚ ⊚

true false

38) The cash flow statements of private health care organizations, both not-for-profit and forprofit, must use the indirect method. ⊚ ⊚

true false

39) The cash flow statements of health care organizations, both private and governmentowned, may use the direct or indirect method. ⊚ ⊚

true false

40) The equity section of governmentally-owned hospitals includes net investment in capital assets, restricted net position, and unrestricted net position. ⊚ ⊚

true false

41) All health care organizations must follow the reporting requirements of the AICPA Health Care Guide. ⊚ ⊚

true false

42) While governmental health care organizations follow GASB standards, they typically report as special-purpose entities engaged only in business-type activities.

⊚ ⊚

true false

43) If an investor-owned hospital receives donations whose use is restricted, the cash must be reported as a restricted item on the balance sheet in the equity section. ⊚ ⊚

true false

44) Unlike Investor-owned health care enterprises, not-for-profit business-oriented organizations and governmental health care enterprises must include RSI other than MD&A. ⊚ ⊚

true false

45) Not-for-profit businesses-oriented organizations, investor-owned health care enterprises and governmental health care organizations all must prepare a Statement of Changes in Equity. ⊚ ⊚

true false

46) Private sector not-for-profit health care entities must disclose expenses by their functional classifications (program and supporting) in the notes, if not provided in the Statement of Operations. ⊚ ⊚

true false

47) With respect to governmental health care entities, both GASB and AICPA require presentation of a performance indicator. ⊚ ⊚

true false

48) With respect to governmental health care entities, the Statement of Cash Flows will have three categories.

⊚ ⊚

true false

49) Health care entities may be private not-for-profit, governmental, or for-profit. All, however, are subject to the AICPA Health Care Guide, which is accepted by both FASB and GASB as being Category B GAAP. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 50) Private not-for-profit health care organizations follow standards set by:

A) B) C) D)

GASB. FASB. SEC. All of the choices are correct.

51) Health care organizations that are privately owned and operated to provide a return to investors follow which standards:

A) B) C) D)

52)

The AICPA Audit and Accounting Guide: Health Care Organizations applies to:

A) B) C) D)

GASB. FASB, including standards specifically for not-for-profits. FASB, excluding standards specifically for not-for-profits. None of the choices are correct.

Private not-for-profit health care organizations. Governmentally owned health care organizations. Investor-owned health care organizations. All of the choices are correct.

53) The AICPA Audit and Accounting Guide: Health Care Organizations provides reporting requirements for all of the following organizations except:

A) B) C) D)

54)

The University of Virginia Hospital, a government-owned hospital. A psychiatrist operating as a limited liability corporation. A nursing home operated by the Lutheran Church. Voluntary health and welfare organizations.

The AICPA Audit and Accounting Guide: Health Care Organizations applies to:

A) B) C) D)

Private sector, not-for-profit hospitals. Public sector, government-owned hospitals. Both of the choices are correct. Neither of the choices is correct.

55) The equity section of the Statement of Net Position of a government-owned hospital may contain which of the following descriptions?

A) B) C) D)

Fiduciary, Proprietary, and General. Nonspendable, Committed, Restricted, and Assigned. Net Assets without Donor Restrictions and Net Assets with Donor Restrictions. Net Investment in Capital Assets, Restricted, and Unrestricted Net Position.

56) The equity section of the Statement of Net Assets of a private not-for-profit hospital may contain which of the following descriptions?

A) B) C) D)

57) Which of the following is not correct with respect to reporting of patient service revenue for health care organizations?

A) Patient service revenue does not include amounts representing charity care. B) Changes to estimates of contractual adjustments related to prior periods must be reported as a prior period adjustment if material. C) Unrestricted bequests and investment income for current unrestricted purposes may be reported as either operating or nonoperating revenue, depending on the policy of the entity. D) Patient service revenue must be reported net of estimated adjustments for implicit price concessions.

58) Which of the following is correct with respect to the recording of charity care for health care organizations?

A) Revenues are not recorded for the value of charity care services provided, but related expenses are included with other expenses on the Statement of Operations. B) Charity care is recorded as revenue and an adjustment is recorded for the difference between the value of the revenue and expenses incurred in providing health care services. C) The value of foregone charity care revenue is deducted as a charitable contribution expense in the Statement of Operations. D) Management’s policy for providing charity care and the level of charity care provided is an optional disclosure.

59)

Which of the following is not a required statement of a private not-for-profit hospital?

A) B) C) D)

60)

Statement of Changes in Owner's Equity. Statement of Financial Position. Statement of Cash Flows. Statement of Operations.

Which of the following is not true regarding financial reporting of health care entities?

A) It is important to distinguish between current and noncurrent assets and liabilities. B) Private sector organizations use a three-category format for the Statement of Cash Flows, and public sector organizations us a four-category format. C) Private sector organizations use accrual accounting, while public sector organizations use modified accrual. D) It is important to distinguish operating revenues and expenses from nonoperating.

61) Private sector, not-for-profit health care organizations have a category of assets called "Assets Whose Use is Limited." That category refers to:

A) Assets that have been restricted by donor action. B) Unrestricted assets that have been limited by individuals or entities other than contributors (such as by bond covenants). C) Both of the choices are correct. D) Neither of the choices is correct.

62) The statement reflecting revenues, expenses, and other changes in unrestricted net assets for a private sector, not-for-profit hospital is called the:

A) Income Statement. B) Statement of Changes in Unrestricted Net Assets. C) Statement of Operations. D) Statement of Activities.

63) Which of the following is true regarding the financial statements of a private sector notfor-profit hospital?

A) B) C) D)

Revenues are measured using the accrual basis of accounting. Changes in net assets must be shown by net asset classification. The Statement of Cash Flows uses a three-category format. All of the choices are true.

64) Which of the following is true regarding revenue recognition for health care organizations?

A) B) C) D)

Patient service revenue includes an imputed charge for charity care. Patient service revenue is reported net of contractual adjustments. Both of the choices are true. Neither of the choices is true.

65) A private sector, not-for-profit hospital received a pledge of $100,000 in 2019, with no purpose restriction. The pledge card indicated that the funds were to be paid and used in 2020. Cash was turned over to the hospital in 2020. The not-for-profit hospital would recognize contribution revenue in:

A) B) C) D)

When the funds are expended. 2019. 2020. Either 2019 or 2020, depending on the policy of the hospital.

66) A private sector, not-for-profit hospital received a pledge of $250,000 in 2019 to be used for a building to be constructed in 2020 but contingent on the hospital being able to raise an equivalent amount from other donors. As of the end of 2019, 75% of the amount had been raised from other donors. In 2020, the hospital raised the remaining amount from other donors. The donor gave the $250,000 to the hospital in 2020 and the building was completed in 2021. In which year should the hospital recognize the $250,000 from the pledge?

A) B) C) D)

$187,500 in 2019 and $62,500 in 2020. $187,500 in 2020 and $62,500 in 2021. $250,000 in 2021. $250,000 in 2020.

67) Which of the following is true regarding the reporting of expenses by private sector, notfor-profit hospitals?

A) All expenses are considered reductions in net assets without donor restrictions. B) Expenses must be reported by natural (i.e. salaries, supplies, etc.) classification in the statements. C) Both of the choices are true. D) Neither of the choices is true.

68) Not-for-profit health care entities are distinguished from voluntary health and welfare organizations in the following manner:

A) Health care organizations do not provide services to individuals who are unable to pay. B) Health care organizations provide health care services while voluntary health and welfare organizations do not. C) Health care organizations use accrual accounting whereas voluntary health and welfare organizations do not. D) Health care organizations are considered to be primarily business-oriented whereas voluntary health and welfare organizations raise a significant portion of their money from voluntary contributions.

69) Which of the following health care organizations must follow standards established by the Governmental Accounting Standards Board (GASB)?

A) B) C) D)

Private not-for-profit hospitals. Government owned hospitals. Both of the choices are correct. Neither of the choices is correct.

70) Which of the following health care organizations have "Category B" GAAP established by the AICPA's Audit and Accounting Guide: Health Care Organizations?

A) B) C) D)

Cook County Hospital, a department of Cook County. Kishwaukee Hospital, a nongovernmental, not-for-profit hospital. Open Door Urgent Care, a privately owned for-profit organization. All of the choices are correct.

71) A "performance indicator" is required in the Statement of Operations for health care entities. Which of the following must be reported below that performance indicator?

A) B) C) D)

Other revenue, such as parking lot or cafeteria revenue. Net assets released from restrictions for operating purposes. Both of the choices are correct. Neither of the choices is correct.

72) A donor contributed $1,000,000 to a not-for-profit hospital with the restriction that the funds be invested indefinitely and the income be used for cancer research. Which of the following would be true?

A) The gift would be recorded as an increase in net assets with donor restrictions. B) The income from the endowment would be recorded as an increase in net assets with donor restrictions. C) Both of the choices are true. D) Neither of the choices is true.

73) Which of the following is true regarding accounting and financial reporting for not-forprofit health care organizations?

A) Charity care is reported as operating revenue at the normal and customary rate and bad debt expense is reported for an equal amount. B) Contractual adjustments with insurance companies are reported as a reduction in patient service revenue. C) Both of the choices are true. D) Neither of the choices is true.

74) A donor pledged $1,000,000 to a not-for-profit hospital in 2019 to conduct medical research, conditional on the hospital raising $1,000,000 from other donors. The other donors met the condition in 2019. The donor transferred the funds to the hospital in 2020. In which year would the revenue be recognized?

A) 2019. B) 2020. C) Half in 2019 and half in 2020. D) None of the above; the hospital would only recognize revenue when the amounts had been expended according to the donor's wishes.

75) Which of the following could be recognized as contributed services revenue by a not-forprofit hospital?

A) A high school student class volunteered to answer the telephone during the Friday night midnight shift. B) An architect developed building plans for a new outpatient clinic. C) Both of the choices are correct. D) Neither of the choices is correct.

76) Which of the following is not true regarding accounting and financial reporting for private not-for-profit hospitals?

A) The Statement of Cash Flows may use either the direct or indirect method. B) Net assets are classified as with or without donor restrictions. C) Expenses may be classified as with or without donor restrictions, depending on donor intent. D) N/A – all of the choices listed are true.

77) Which of the following is true regarding revenue recognition for health care organizations?

A) B) C) D)

78)

Which of the following is a required statement for a governmental hospital?

A) B) C) D)

79)

Patient service revenues are reported net of contractual adjustments. Revenues do not include charity care. Other revenues may include fees for parking, cafeteria sales, and gift shops. All of the choices are true.

Statement of Cash Flows. Statement of Revenues and Expenditures. Statement of Functional Expense. Statement of Changes in Fund Balance.

A hospital reported the following uncollectible amounts:

$15,000 for services rendered to homeless individuals with no intention of collection.$35,000 for services rendered with the expectation that the amount collected would likely be $10,000 less than the standard rate billed. What amount should be reported in revenues and provision for bad debt for these items?

A) B) C) D)

Net Patient Service Revenue: $50,000; Provision for Bad Debt: $25,000. Net Patient Service Revenue: $35,000; Provision for Bad Debt: $10,000. Net Patient Service Revenue: $25,000; Provision for Bad Debt: $0. Net Patient Service Revenue: $25,000; Provision for Bad Debt: $25,000.

80) The difference between accounting for private not-for-profit hospitals and governmentowned hospitals is:

A) B) C) D)

Government owned hospitals do not have to prepare a Statement of Cash Flows. Government owned hospitals do not have to record depreciation. The residual equity accounts have different titles and definitions. All of the choices are correct.

81) Private health care organizations follow _____ standards while governmentally owned health care organizations follow _____ standards.

A) B) C) D)

GASB; FASB. FASB; GASB. FASB; FASAB. GASB; FASAB.

82) A private not-for-profit entity estimated its Allowance for Contractual Adjustment. During the next year, the hospital found that the actual total of contractual adjustments applied to receivables on hand at the end of the previous year was $7,000 higher than the estimate. How should the difference be reported?

A) The hospital should record a current period expense for the $7,000. B) The hospital should record a "cumulative effect of a change in accounting principle" for the $7,000. C) The hospital should reduce current period net patient service revenues for the $7,000. D) The hospital should make a prior period adjustment to retained earnings for $7,000.

83) Private not-for-profit health care organizations include what categories in the equity section of the Statement of Changes in Net Assets?

A) B) C) D)

Paid in capital and retained earnings. Net investment in capital assets, restricted, and unrestricted. Operating, investing, financing. Net Assets without Donor Restrictions and Net Assets with Donor Restrictions.

84) According to the AICPA Audit and Accounting Guide: Health Care Organizations, which of the following items should be included in the determination of the performance indicator?

A) Receipt of donor restricted contributions. B) Items requiring separate display (such as extraordinary items, discontinued operations, and the effect of changes in accounting principle). C) Premium revenue. D) None of the choices are correct.

85)

Which of the following is false regarding revenues of health care organizations?

A) Patient service revenues are to be reported net of estimated contractual adjustments in the operating statement. B) Operating Revenues are often classified as net patient service revenue and other revenue. C) Patient service revenue includes charge for charity care. D) Implicit price reductions are reported as a reduction in patient service revenue.

86) St. Mary’s Medical Center performed charity care at a cost (supplies etc.) of $18,000. The standard charge to patients for these services is $60,000. How much should the hospital recognize as revenue?

A) B) C) D)

No revenue should be recognized. $42,000. $18,000. $60,000.

87) If a clinic raises a significant amount or nearly all their resources from voluntary contributions or grants, they are subject to the guidance in the AICPA:

A) B) C) D)

Not-for-Profit Guide. Health Care Guide. Voluntary Health and Welfare Guide. Contributions and Grants Guide.

88)

When accounting for health care organizations, implicit price concessions are:

A) B) C) D)

89)

Contractual adjustments for amounts billed to 3rd parties are treated as:

A) B) C) D)

90)

Recorded as Uncollectible Accounts Expense. Reported as a reduction in Patient Service Revenue. Not recorded as revenues and the costs are not expensed. None of the choices are correct.

Contractual allowance expense. An other financing use. A bad debt expense. A contra-revenue.

Which of the following is/are true with respect to health care organizations?

A) Expenses must be reported using their natural classifications. B) Assets that have limited use are not reported on the balance sheet. C) Private sector not-for-profits health care entities must disclose expenses by functional classifications, if not provided in the Statement of Operations. D) All of the choices are true.

91) According to AICPA Health Care Guide, which of the following should not be included in the determination of a performance indicator for a health care organization?

A) B) C) D)

92) .

Transfers among affiliated organizations. Receipt of donor restricted contributions. Transactions with the owners, other than in exchange for services. All of the choices should be excluded.

Investor owned health care organizations have the following equity section accounts: 20

A) B) C) D)

Paid in capital and retained earnings. Restricted and unrestricted net assets. Net Assets without Donor Restrictions, Net Assets with Donor Restrictions. Net Investment in Capital Assets, Restricted, and Unrestricted Net Position.

93) During the month of December, Mary & David Memorial Hospital billed patients $75,000, billed 3rd parties $90,000, and provided $22,000 of charity care. How much should the hospital report as (gross) Patient Service Revenue?

A) B) C) D)

$75,000. $90,000. $165,000. $187,000.

94) The Health Care Guide makes a distinction between a health care organization and a voluntary welfare organization. Which of the following is accurate?

A) If essentially all revenues from services are provided by contributions or grants, they are a health care organization subject to The Health Care Guide. B) If essentially all revenues from services provided to patients or clients they are a health care organization subject to the Health Care Guide. C) If essentially all revenues from services are provided by contributions or grants, The Health Care Guide calls these organizations Not-for-Profit Business Oriented Organizations. D) If essentially all revenues from services provided to patients or clients they are called Not-for-Profit Nonbusiness-Oriented Organizations.

95)

Which of the following organizations must follow GASB standards?

A) B) C) D)

Not-for-Profit Business-Oriented Organizations. Investor-Owned Health Care Enterprises. Not-for-Profit Nonbusiness-Oriented Organizations. Governmental Health Care Organizations.

96) While the different types of health care organizations follow different sets of generally accepted accounting standards, the differences lie mainly in presentation. Which of the following statements is accurate?

A) Not-for-Profit Business-Oriented Organizations and Investor-Owned Health Care Enterprises must prepare a Balance Sheet or Statement of Financial Position and the equity section consists of paid-in capital and retained earnings. B) Not-for-Profit Business-Oriented Organizations and Government Health Care Organizations must prepare a Statement of Net Position and Statement of Revenues, Expenses, and Changes in Fund Balance. C) Investor-Owned Health Care Enterprises and Government Health Care Organizations must prepare a Statement of Cash Flows and Notes to the Financial Statements. D) Not-for-Profit Business-Oriented Organizations and Government Health Care Organizations must follow GASB standards while Investor-Owned Health Care Enterprises must follow FASB standards.

97) St. Mary’s Hospital is a not-for-profit business-oriented hospital. During the year, premium revenue from capitation agreements amounted to $210,000, all of which was received in cash. Other Operating revenues, also collected in cash, are: $7,200 from the gift shop, $8,900 from parking lot fees, $4,100 from cafeteria operations and $25,300 from tuition. What is the appropriate journal entry to record this event?

A) Cash

255,500

Operating revenues-W/o donor restrictionsPremium Revenue

210,000

Operating revenues-W/o donor restrictions-Other Revenue

45,500

B) Cash Operating revenues-W/o donor restrictionsPremium Revenue

255,500 210,000

Operating revenues-With donor restrictions-Other Revenue

45,500

C) Cash

255,500

Operating revenues-W/o donor restrictionsPremium Revenue

210,000

Operating revenues-W/o donor restrictions-Other Revenue

20,200

Operating revenues-With donor restrictions-Other Revenue

25,300

D) Cash

255,500

Operating revenues-W/o donor restrictionsPremium Revenue

210,000

Non-Operating revenues-W/o donor restrictionsOther Revenue

45,500

98) Investment income related to Assets Whose Use Is Limited amounted to $15,000 for St, Mary’s Hospital, is a not-for-profit business-oriented hospital. The hospital’s board designated the money for future capital improvements. What is the journal entry to record this event?

A) Cash

15,000

Nonoperating Income-Restricted-Assets Whose Use is Limited for Capital Improvements-Investment Income

15,000

B) Cash Nonoperating Income-Unrestricted-Investment Income

15,000 15,000

Cash-Assets Whose Use is Limited

15,000

Nonoperating Income-Restricted-Assets Whose Use is Limited for Capital Improvements-Investment Income

15,000

D) Cash-Assets Whose Use is Limited Nonoperating Income-Unrestricted-Assets Whose Use is Limited for Capital Improvements-Investment Income

15,000 15,000

99) Which of the following is accurate with respect to accounting for an investor-owned, forprofit hospital?

A) The hospital would be subject to the FASB (category A GAAP) and the AICPA Health Care Guide (category B GAAP). B) The hospital would use accrual accounting in the same manner as a commercial business with the exception of the recording of donations which would be recorded using the modified accrual method. C) The hospital would be subject to the AICPA Health Care Guide and FASB pronouncements for not-for-profits, such as Statements 116 and 117. D) The hospital must the direct method of presenting operating cash flows.

100)

Which of the following is NOT TRUE with respect to governmental health care entities?

A) Governmental health care entities can report as special-purpose entities that are engaged in business-type activities or as an enterprise funds. B) Governmental health care entities reported as enterprise funds of a state or local government must use modified accrual accounting. C) The Statement of cash flows must follow GASB standards and will have four categories. D) A reconciliation is made between operating income and the cash flows from operating activities.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 101) What are the components of the equity section of the financial statements for the following types of organizations?Not-for-profit, Business-Oriented OrganizationsInvestorOwned Health Care EnterprisesGovernment Health Care Organizations

102) What is the basis of accounting for hospitals and other health care organizations, and what organizations are responsible for setting Category A GAAP?

103)

Answer the following questions:

(a) Other than a Statement of Financial Position (i.e. balance sheet), what are the remaining financial statements required of private not-for-profit health care entities? (b) What accounts appear in the equity section of the balance sheet of commercial hospitals, government owned hospitals, and private not-for-profit hospitals?

104) Assume you are reviewing the financial statements of a not-for-profit hospital. Where would you find the account “Assets whose use is limited” and how is it used?

105) Identify income items which should not be included in the determination of the performance indicator by a hospital in its Statement of Operations.

106) Identify the three types of donor imposed restrictions placed on contributions to a private sector not-for-profit health care organization and outline the accounting requirements for each type.

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 107) St. Paul’s is a private not-for-profit hospital. At the end of December 2019, a donor pledged to make six payments of $75,000, beginning on January 1, 2020. The contributions are restricted to pay for operations in those years. The present value of these payments is $399,711, discounted at 5%. The contribution was not restricted as to purpose. Record all entries required for 2019 and 2020.

108) Record the following transactions on the books of St. Marie’s Hospital, a private not-forprofit hospital. (a) The Hospital billed patients $692,000 for services rendered. Of this amount, 5% is expected to be uncollectible due to implicit price concessions. Contractual adjustments with insurance companies are expected to total $103,000.(b) The Hospital received $800,000 in pledges of support in a campaign undertaken to purchase new MRI equipment. All of the pledges are payable within one year and 7% are expected to be uncollectible.(c) Charity care in the amount of $41,000 (at standard charges) was performed on an indigent patient.(d) The Hospital collected $550,900 for the services performed in (1) above. Actual contractual adjustments for these services amounted to $106,400. $ 15,490 of receivables were identified as uncollectible and written off.

109) St. David’s Hospital, a private not-for-profit, began the year 2020 with the following trial balance: Debits Cash

715,000

Patient Accounts Receivable

575,000

Allowance for Contractual Adjustments Property, Plant, and Equipment – Net of Depreciation Accounts Payable

140,000 800,000 450,000

Net Assets without Donor Restrictions

1,000,000

Net Assets with Donor Restrictions

500,000 2,090,000

Credits

2,090,000

Transactions for 2020 are as follows:(a) Collected $360,000 of the Patient Accounts Receivable that was outstanding at 12-31-2019. Actual contractual adjustments on these receivables totaled $149,000.(b) The Hospital billed patients $2,230,000 for services rendered. Of this amount, 6% is expected to be uncollectible due to implicit price concessions. Contractual adjustments with insurance companies are expected to total $789,000. (Hint: use an allowance account to reduce accounts receivable for estimated contractual adjustments). The Hospital collected $1,235,000 of the amount billed to patients(c) In 2019 the Hospital had received a contribution of $500,000 to purchase new ultrasound equipment. The equipment was purchased for $600,000 in 2020.(d) Charity care in the amount of $70,000 (at standard charges) was performed for indigent patients.(e) The Hospital received $700,000 in securities to establish a permanent endowment. Income from the endowment is unrestricted.(f) Other revenues collected in cash were: gift shop $16,000 and cafeteria $39,000.(g) The Hospital received in cash unrestricted interest income on endowments of $7,500. Unrealized gains on endowment investments totaled $6,000.(h) Expenses amounting to $1,093,000 for Professional Care of Patients, $320,000 for General Services, and $206,000 for Administration were paid in cash.(i) Depreciation on fixed assets, including the ultrasound equipment, totaled $130,000 for the year. ($94,000 for Professional Care of Patients, $19,000 for General Services, and $17,000 for Administration.)(j) Closing entries were prepared. Required: A. Record the transactions described above. B. Prepare in good form, a Statement of Operations for the year ended December 31, 2020. C. Prepare in good form, a Statement of Changes in Net Assets for the year ended December 31, 2020.

Answer Key Test name: Chapter 12: Accounting for Hospitals and Other Health Care Providers 1) TRUE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) FALSE .

26) TRUE 27) FALSE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) TRUE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) FALSE 38) FALSE 39) FALSE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) FALSE 45) FALSE 46) TRUE 47) TRUE 48) FALSE 49) TRUE 50) B 51) C 52) D 53) D 54) C 55) D .

56) C 57) B 58) A 59) A 60) C 61) B 62) C 63) D 64) B 65) B 66) D 67) A 68) D 69) B 70) D 71) D 72) C 73) B 74) A 75) B 76) C 77) D 78) A 79) C 80) C 81) B 82) C 83) D 84) C 85) C .

86) A 87) A 88) B 89) D 90) C 91) D 92) A 93) C 94) B 95) D 96) C 97) A 98) D 99) A 100) B 101) Not-for-profit, Business-Oriented OrganizationsNet Assets with Donor Restrictions andNet Assets without Donor Restrictions.InvestorOwned Health Care Enterprises-Paid In Capital-Retained Earnings Government Health Care Organizations-Net Investment in Capital Assets,-Restricted Net Position-Unrestricted Net Position

102) Hospitals may be for-profit commercial businesses, governmental, or private not-for-profits. All three classes use accrual accounting; however, the specific professional standards to apply depend on the type of hospital:The GASB is the principal source of reporting standards for public hospitals. Under GASB Statement 34, most government hospitals are treated as special purpose entities that are engaged only in businesstype activities. Accordingly, the financial reporting standards for these hospitals are the same as for enterprise funds.The FASB is the principal source of reporting standards for private not-for-profit hospitals. FASB Statements 93, 116, 117, 124 and 136 are related specifically to these entities.Like all commercial business entities, the FASB is the principal source of reporting standards for private commercial hospitals. FASB Statements, except those specifically for not-for-profits (93, 116, 117, 124, 136, 2016-04 and 2018-08), apply to these entities.

103) (a) Health care entities are required to present a Balance Sheet, Statement of Operations, a Statement of Changes in Net Assets, and a Statement of Cash Flows. (b) Health care entities may be commercial (for profit) businesses or nonprofit. The nonprofit entities may be further categorized as private not-for-profits or public (government-owned). The accounts appearing in the equity section of the balance sheet depend on the type of health care entity. Commercial entities will have paid in capital (e.g. common stock) and retained earnings. Private not-for-profit entities will have Net Assets with Donor Restrictions and Net Assets without Donor Restrictions. Net Assets without Donor Restrictions may be further broken down between Designated and Undesignated. Public entities will display Net Investment in Capital Assets, Restricted Net Position, and Unrestricted Net Position. Unrestricted may not be further broken down between designated and undesignated. 104) “Assets whose use is limited” is an account used in the equity section of private not-for-profit hospitals to show limitations on the use of assets due to bond covenant restrictions and governing board plans for future use. It is classified within Net Assets without Donor Restrictions. This category is especially important for private sector, not-for-profit health care entities because the “restricted” category is limited to restrictions placed on contributions by the outside donor.

105) Transactions with the owners, other than in exchange for services,Transfers among affiliated organizations,Receipt of donor restricted contributions,Items identified by FASB standards as elements of other comprehensive income (such as foreign currency translation adjustments),Items requiring separate display (such as extraordinary items, discontinued operations, and the effect of changes in accounting principle), andUnrealized gains and losses on investments other than those classified as trading securities. 106) Time Restricted: Contributions (including pledges) restricted based on time are recorded as revenues with donor restrictions when received, then reclassified to net assets without donor restrictions when the time period passes. Purpose Restricted: Contributions restricted based on purpose or use are recorded as revenues with donor restrictions when received, then reclassified to net assets without donor restrictions when the purpose has been fulfilled. This usually is when a qualified expense has been incurred. Fixed Asset Acquisition: Contributions restricted based on fixed asset acquisition are recorded as revenues with donor restrictions when received then reclassified to net assets without donor restrictions when the fixed asset has been acquired. 107) Debit

Credit

2019 Pledges Receivable Contribution Revenue - with Donor Restrictions

399,711 399,711

2020 1-01-2020 Cash

75,000

Pledges Receivable

Reclassifications from Net Assets with Donor Restrictions - Satisfaction of Time Restrictions Reclassification to Net Assets - w/o donor restrictions Satisfaction of Time Restrictions

75,000

75,000 75,000

12-31-2020 Pledges Receivable

16,236

Contribution Revenue-with Donor Restrictions (399,711 - 75,000) * 5%

16,236

108) Debit a.

Patient Accounts Receivable

692,000

Operating Revenues - Patient Service Revenue - Without restrictions

Provision for Implicit Price Concessions

692,000

34,600

Allowance for Implicit Price Concessions

Contractual Adjustments Allowance for Contractual Adjustments

Credit

34,600

103,000 103,000

Pledges Receivable

800,000

Allowance for Uncollectible Pledges

56,000

Nonoperating revenues Contributions - with Donor Restrictions

744,000

No Journal Entry

Cash

550,900

Patient Accounts Receivable

Allowance for Contractual Adjustments Contractual Adjustments

550,900

103,000 3,400

Patient Accounts Receivable

Allowance for Implicit Price Concessions

106,400

15,490

Patient Accounts Receivable

15,490

109) Part A. Accounts a.

Cash

Debit 360,000

Patient Accounts Receivable

Allowance for Contractual Adjustments Contractual Adjustments Patient Accounts Receivable

Credit

360,000

140,000 9,000 149,000

Patient Accounts Receivable

2,300,000

Operating Revenues - Patient Service -

Provision for Implicit Price Concessions

2,300,000

133,800

Allowance for Implicit Price Concessions

Contractual Adjustments - unrestricted

133,800

789,000

Allowance for Contractual Adjustments

Cash

789,000

1,235,000

Patient Accounts Receivable

Equipment

1,235,000

600,000

Cash

Reclassification from Net with Donor Restrictions -Satisfaction of Equipment Acquisition Restrictions Reclassification to Net Assets without Donor Restr Satisfaction of Equipment Acquisition Restrictions

600,000

500,000

No Journal Entry Required

Investments-Endowment

700,000

Nonoperating Revenue –Contributions with donor restrictions

Cash

700,000

55,000

Operating Revenues - Other

55,000

Cash

7,500

Investments: Fair Value Adjustment

6,000

Nonoperating - Investment Incomewithout donor restrictions Nonoperating -Net Realized and Unrealized Gains on Investments - without donor restrictions

Operating expenses - Professional Care of Patients Operating expenses - General Services Operating expenses - Administration

7,500

6,000

1,093,000 320,000 206,000

Cash

Operating expenses - Professional Care of Patients Operating expenses - General Services

94,000

Operating expenses - Administration

17,000

Accumulated Depreciation

1,619,000

19,000

130,000

Reclassification to Net Assets-without 500,000 donor restrictions Satisfaction of Equipment Acquisition Restrictions Operating revenues -Patient Service Revenue 2,230,000 Operating revenues - Other Revenue

55,000

Nonoperating Investment Income - w/o donor restrictions Nonoperating - Net Realized and Unrealized Gains on Investments w/o donor restrictions Net Assets w/o donor restrictions

7,500 6,000

117,700

Contractual Adjustments

798,000

Operating expenses - Professional Care of Patients Operating expenses - General Services

1,187,000 472,800

Operating expenses - Administration

223,000

Net Assets with Donor Restrictions Reclassification from Net Assets with Donor Restrictions-Satisfaction of Plant Acquisition Restrictions

500,000

Nonoperating Contribution Revenue-with Donor Restr. Net Assets with Donor Restrictions

700,000

500,000

700,000

Part B. ST. DAVID’S HOSPITAL STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020

Operating Revenues: Patient Service Revenue (net of contractual adjustments of $798,000) Other Revenues

$ 1,432,000 55,000

Total Operating Revenues

1,487,000

Operating Expenses: Professional Care of Patients

1,187,000

General Services

472,800

Administration

223,000

Total Operating Expenses

1,882,800

Operating Income (loss)

(395,800 )

Other Income: Income on Investments of Endowments

7,500

Net Realized and Unrealized Gains on Investments of Endowments Excess of Expenses over Revenues

6,000 (382,300 )

Net Assets Released from Restrictions for Satisfaction of Equipment Acquisition Restrictions Increase in Net Assets without Donor Restrictions

500,000 $

117,700

(382,300 )

Part C. ST. DAVID’S HOSPITAL STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2020 Net Assets without Donor Restrictions Excess of Expenses over Revenues Net Assets Released from Restrictions for Satisfaction of Plant Acquisition Restrictions

500,000

Increase in Net Assets without Donor Restrictions

117,700

Net Assets with Donor Restrictions

Net Assets Released from Restrictions for Satisfaction of Plant Acquisition Restrictions Endowment Contributions

(500,000 )

Increase in Net Assets

317,700

700,000

Net Assets, Beginning of Year

1,500,000

Net Assets, December 31, 2020

$ 1,817,700

Chapter 13:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The Single Audit Act is intended to provide assurance to the federal government that federal funds have been expended in accordance with laws and regulations, but does not include a report on internal controls. ⊚ ⊚

true false

2) Entities that expend $500,000 or more of federal funds are generally required to have a single audit. ⊚ ⊚

true false

3) The Single Audit Act is intended to provide assurance to the federal government that federal funds are expended in accordance with grant agreements and with financial management and other standards promulgated by the federal government. ⊚ ⊚

true false

4) The Sarbanes Oxley Act is intended to improve corporate governance and limit the services accounting firms may provide to their audit clients. ⊚ ⊚

true false

5) Governmental Auditing Standards identifies four categories of professional engagements: financial audits, performance audits, attestation engagements, and non-audit services. ⊚ ⊚

true false

6) The use of opinion units allows an auditor to issue different opinions on different statements, instead of issuing a single opinion.

⊚ ⊚

true false

7) Governmental attestation engagements must comply with both the Government Auditing Standards and with the AICPA’s attestation standards. ⊚ ⊚

true false

8) Governmental attestation engagements must comply with the Government Auditing Standards but are exempt from compliance with the AICPA’s attestation standards. ⊚ ⊚

true false

9) The Government Accounting Standards Board has authority for issuing Governmental Auditing Standards, but not auditing standards for private companies and not-for-profits. ⊚ ⊚

true false

10) The Government Accountability Office has authority for issuing Generally Accepted Auditing Standards. ⊚ ⊚

true false

11) Governments and other nonprofits receiving federal funds follow Governmental Auditing Standards and do not have to comply with AICPA Statements of Auditing Standards. ⊚ ⊚

true false

12) If a government failed to report infrastructure assets, the auditor would have to express an adverse opinion on the fund level financial statements.

⊚ ⊚

true false

13) While the principal users of corporate audit reports are investors and creditors, the main user of Single Audit reports is the federal government. ⊚ ⊚

true false

14) The purpose of audits conducted under the Single Audit Act is to provide assurance that federal and state funds are expended in accordance with grant agreements, and with financial management and other standards promulgated by the federal government. ⊚ ⊚

true false

15) The single audit requirements apply only to state and local governments. Private not-forprofits do not have to comply with these requirements, even if they receive federal grants. ⊚ ⊚

true false

16) While the Sarbanes-Oxley Act applies to corporations filing with the Securities and Exchange Commission, several provisions of the Act already existed in governmental auditing standards. ⊚ ⊚

true false

17) In a governmental audit, the auditor is required to report directly to appropriate officials in addition to the board or audit committee. ⊚ ⊚

true false

18) In a governmental audit the auditor is only required to report to the board or audit committee. ⊚ ⊚

19)

true false

Government financial audits are subject only to GAGAS. ⊚ ⊚

true false

20) Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee. ⊚ ⊚

true false

21) Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 25 percent of federal funds expended by the auditee. ⊚ ⊚

true false

22) Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee. ⊚ ⊚

true false

23) Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 90 percent of federal funds expended by the auditee.

⊚ ⊚

24) acts.

true false

Governmental Audit Reports may include a report describing instances of fraud or illegal

⊚ ⊚

true false

25) A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent. ⊚ ⊚

26)

true false

In a disclaimer of opinion, the auditor states that no opinion is being expressed. ⊚ ⊚

true false

27) Governmental units and many not-for-profit organizations are subject to Government Auditing Standards in addition to the Statements on Auditing Standards, issued by the American Institute of Certified Public Accountants (AICPA). ⊚ ⊚

true false

28) Government Auditing Standards are issued by the U.S. Government Accountability Office (GAO). ⊚ ⊚

true false

29) Government Auditing Standards do not apply to audits conducted to satisfy the requirements of the Single Audit Act as well as other governmental audits.

⊚ ⊚

true false

30) Government Auditing Standards identify four categories of professional engagements: financial audits, performance audits, and nonaudit services but not attestation engagements. ⊚ ⊚

true false

31) The classification of Net Assets in the Form 990 for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations. ⊚ ⊚

true false

32) The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies, upon request, of the three most recent annual form 990s. ⊚ ⊚

33)

true false

Churches must file a Form 990. ⊚ ⊚

true false

34) Nonprofit entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $75,000 may file Form 990-N (electronic postcard). ⊚ ⊚

true false

35) Entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

⊚ ⊚

true false

36) Entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $500,000 and total assets less than $2.5 million may file Form 990-EZ. ⊚ ⊚

true false

37) Tax-exempt organizations are required to disclose the compensation of its officers, directors, trustees, highest paid employees and independent contractors in the Form 990. ⊚ ⊚

true false

38) Tax-exempt organizations are required to pay tax at the corporate rate on the income generated from any trade or business activities unrelated to the entity’s tax-exempt purposes. ⊚ ⊚

true false

39) Entities that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code do not have to pay income taxes, even if some of their activities compete with commercial enterprises. ⊚ ⊚

true false

40) The purpose of the Unrelated Business Income Tax is to eliminate advantages that taxexempt organizations have over commercial enterprises providing goods or services for sale. ⊚ ⊚

true false

41) Unrelated Business Income Tax is an excise tax, applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant. .

⊚ ⊚

true false

42) If a tax-exempt organization is found by the IRS to have paid unreasonable benefits, the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty. ⊚ ⊚

true false

43) Entities that are tax-exempt under IRS Section 501(c)(3) are prohibited from having surpluses (revenues exceed expenses). ⊚ ⊚

true false

44) Entities that are tax-exempt under IRS Section 501(c)(3) are permitted to endorse political candidates or attempt to influence legislation. ⊚ ⊚

true false

45) When computing Unrelated Business Income Tax, charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed. ⊚ ⊚

true false

46) Section 501(c)(3), exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation. ⊚ ⊚

47)

true false

To apply for tax-exempt status, an organization must complete an IRS Form 1023.

⊚ ⊚

true false

48) Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status. ⊚ ⊚

true false

49) Tax-exempt organizations are required to file Form 990 by the 15th day of the 9th month following the organization’s taxable year. ⊚ ⊚

true false

50) A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entity’s tax-exempt purposes. ⊚ ⊚

true false

51) Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes. ⊚ ⊚

true false

52) An organization that receives more than two-thirds of its support from a combination of contributions, membership fees, and gross receipts from exempt and no more than one-third of its support from a combination of investment income and net unrelated income after taxes is a public charity. ⊚ ⊚

53) .

true false

Churches, schools and hospitals are public charities. 9

⊚ ⊚

true false

54) The three major user groups identified by the GASB are (1) citizen groups, (2) legislative and oversight officials, and (3) investors and creditors. ⊚ ⊚

55)

true false

Bonds which carry the full faith and credit of a government are called revenue bonds. ⊚ ⊚

true false

56) Bonds which carry the full faith and credit of a government are called general obligation bonds. ⊚ ⊚

true false

57) Debt service coverage can only be directly measured from proprietary fund statements since cash flow statements are not prepared for governmental funds or at the government-wide level. ⊚ ⊚

true false

58) According to GASB, Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entity’s performance. ⊚ ⊚

true false

59) Service Efforts and Accomplishments Reporting is best completed by using a variety of measures, which are reported consistently.

⊚ ⊚

true false

60) The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses. ⊚ ⊚

true false

61) The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to administrative expenses. ⊚ ⊚

true false

62) Fund-raising efficiency is a measure of performance that expresses how much an organization spends in raising a dollar of donations. ⊚ ⊚

63)

true false

The program expense ratio is calculated as Program service expenses / Total expenses. ⊚ ⊚

true false

64) The program expense ratio is calculated as (Program service expenses + supporting service expenses) / Total expenses. ⊚ ⊚

true false

65) The program expense ratio is calculated as follows: Total expenses / (Program service expenses + supporting service expenses).

⊚ ⊚

66)

Supporting expenses are included in the numerator of the program expense ratio. ⊚ ⊚

67)

true false

Supporting expenses are not included in the denominator of the program expense ratio. ⊚ ⊚

true false

68) Service Efforts and Accomplishments Reporting is intended to communicate information about the effectiveness of governmental services. ⊚ ⊚

true false

69) Service Efforts and Accomplishments Reporting includes measures of service inputs, outputs, and outcomes. ⊚ ⊚

true false

70) Service Efforts and Accomplishments Reporting is limited to financial measures such as revenues and expenses. ⊚ ⊚

true false

71) Service Efforts and Accomplishments Reporting is voluntary for not-for-profit organizations. ⊚ ⊚

true false

72) Service Efforts and Accomplishments Reporting is mandatory for government organizations. ⊚ ⊚

true false

73) The most commonly used measure of not-for-profit efficiency is the fund raising expense ratio. ⊚ ⊚

true false

74) Working capital ratio for a not-for-profit is the ratio: current assets divided by total expenses. ⊚ ⊚

true false

75) The working capital ratio provides a measure of how long a not-for-profit could sustain its operations without generating new revenue. ⊚ ⊚

true false

76) Service efforts are measures of costs and other resources dedicated to a program or service. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 77) What organization oversees the promulgation of Government Auditing Standards?

A) B) C) D)

78)

U.S. Government Accountability Office. Governmental Accounting Standards Board. Public Companies Accounting Oversight Board. Government Accounting Oversight Committee.

Government financial audits must comply with the following:

A) B) C) D)

A. Generally Accepted Auditing Standards. B. Government Auditing Standards. C. Both A and B choices are correct. D. Generally Accepted Accounting Principles.

79) Public sector audits differ from those of commercial businesses in which of the following ways?

A) B) C) D)

The auditor is not required to be independent. The auditor reports to outside agencies as well as management of the organization. The auditor is not permitted to use sampling. None of the choices are correct.

80) The Single Audit Act intends that auditors conducting regular financial audits of state and local governments and not-for-profits organizations provide assurance to the federal government that:

A) Federal funds have been expended in accordance with laws and regulations. B) Federal funds are protected through a system of internal controls and sound financial management practices. C) Both of the choices are correct. D) Neither of the choices is correct.

81)

Which of the following applies to governmental auditing and not private sector auditing?

A) The public availability of audit reports. B) Testing of compliance with laws and regulations. C) Governmental audits require auditor knowledge of government accounting and auditing. D) All of the choices; these are all required for governmental auditing and not private sector auditing.

82)

Which of the following is not a type of governmental audit?

A) B) C) D)

83)

Attestation engagements. Consulting engagements. Financial audits. Performance audits.

The use of opinion units allows the auditor to:

A) B) C) D)

Plan the audit better and increase the effectiveness of substantive procedures. Eliminate the need for Test of Controls. Provide different opinions on different components of the reporting entity. Only allow one opinion for entire entity not its components.

84) Which of the following is a governmental audit that is concerned with examining, reviewing, or performing agreed upon procedures on a subject matter of an assertion and reporting on the results?

A) B) C) D)

Financial Audit. Attestation Engagement. Performance Audits. Nonaudit Services.

85) Government Auditing Standards identify which of the following categories of professional engagements:

A) B) C) D) services.

Financial audits. Financial audits and performance audits. Financial audits, agreed-upon procedures and performance audits. Financial audits, attestation engagements, performance audits, and nonaudit

86) Which of the following is a governmental audit type that has a primary concern with providing reasonable assurance about whether financial statements are presented fairly?

A) B) C) D)

Attestation Engagement. Performance Audit. Nonaudit services. Financial Audit.

87) Government Auditing Standards, published in a document called the Yellow Book, incorporate the AICPA standards and provide extensions that are necessary due to the unique nature of public entities. Which of the following is not one of the extensions?

A) B) C) D)

88)

Which organization promulgates the Government Auditing Standards?

A) B) C) D)

Public availability of audit reports. Written evaluation of internal controls. Higher materiality thresholds than in the private sector. Requirement that auditors have knowledge of government accounting and auditing.

The U.S. Government Accountability Office. The American Institute of Certified Public Accountants. The U.S. Office of Management and Budget. The U.S. Congressional Budget Office.

89) Which of the following would be a financial audit (or a part of a financial audit) under the Government Auditing Standards?

A) An audit expressing an opinion on the basic financial statements of a state or local government audit. B) An examination to determine whether purchasing procedures are appropriately designed to assure program supplies meet standards. C) Both of the choices are correct. D) Neither of the choices is correct.

90) Which of the following would be considered a performance audit under the Government Auditing Standards?

A) An investigation into whether a purchasing department of a government was operated efficiently. B) An investigation into whether a social service agency of a state government improved the lives of its clients. C) Both of the choices are correct. D) Neither of the choices is correct.

91)

Which of the following is not true regarding the Single Audit Act and its amendments?

A) Governments and not-for-profit organizations that exceed $50 million in federal awards are normally assigned a cognizant agency to provide guidance. B) Smaller entities report to oversight agencies, typically the agency providing more funding than any other agency. C) The auditor is not required to test internal controls to gain an understanding of internal controls. D) All of the choices are true.

92)

Which of the following is true regarding the Single Audit Act and its amendments?

A) An auditor is expected to express an opinion on "major programs," which are chosen based on size. B) An auditor is required to select all "Type A" programs as major programs. C) Both of the choices are true. D) Neither of the choices is true.

93)

Which of the following is true regarding the Single Audit Act and its amendments?

A) Major programs selected for audit must equal 50 percent or more of federal expenditures, unless the organization is deemed to be low risk. B) Separate reports are filed with every federal agency from which the audited organization receives funds. C) Both of the choices are true. D) Neither of the choices is true.

94)

Which of the following is true regarding the Single Audit Act and its amendments?

A) B) C) D)

95)

A risk-based approach is used. An opinion is required on compliance of all programs. Both of the choices are true. Neither of the choices is true.

Which of the following is true regarding the Single Audit Act and its amendments?

A) All governmental entities with expenditures of federal funds in excess of $750,000 must have a single audit, if more than one program exists. B) An audit must be designed to cover 25 percent of federal funds expended, unless the organization is deemed to be low risk. C) Both of the choices are true. D) Neither of the choices is true.

96)

Which of the following would be an example of an attestation engagement?

A) B) C) D)

Report on cost under contract Report on prospective financial information Report on internal controls All of the choices are correct

97) Under the terms of the Single Audit Act and its amendments, what percentage ofmajor program expenditures must be selected for audit?

A) B) C) D)

98)

Which of the following is not part of a financial audit?

A) B) C) D)

99)

100%; or 25% if organization is deemed to be Low Risk Auditee. 100%; or 50% if organization is deemed to be Low Risk Auditee. 50%; or 0% if organization is deemed to be Low Risk Auditee. 50%; or 25% if organization is deemed to be Low Risk Auditee.

Forming judgments about internal controls Testing compliance with laws and regulations Providing an opinion on compliance with GAAP Assessing the degree to which program objectives have been met

The term "opinion unit" refers to which of the following:

A) opinion B) C) D)

One of the four statements required in the second paragraph of an Unmodified audit A division of a CPA firm A state or local government together with its component units A level of reporting of a government that requires a separate materiality level

100) Which of the following audit opinions is issued when a government fails to comply with generally accepted accounting principles? .

A) B) C) D)

Qualified Adverse Either of the choice, depending on the severity of the noncompliance Neither Qualified nor Adverse

101) Which of the following provisions of the Sarbanes-Oxley Act already existed in governmental auditing standards?

A) Auditors are required to report deficiencies in the design or operation of internal controls. B) Not-for-profit organizations are required to establish audit committees composed of non-management board members. C) All nonaudit services performed by the auditors must be approved by the audit committee. D) None of the choices are correct.

102)

Which type of audit opinion is appropriate if an auditor is not deemed to be independent?

A) B) C) D)

Adverse. Disclaimer of opinion. Qualified. Unmodified.

103) If an auditee is not considered low-risk, what percent of federal funds expended are auditors required to express an opinion on?

A) B) C) D)

25%. 50%. 70%. 100%.

104) Currently, a single audit is required for organizations receiving what amount of federal funds?

A) B) C) D)

105)

> $100,000. > $375,000. > $500,000. > $750,000.

In a governmental audit the auditor:

A) Is required to report directly to appropriate officials in addition to the board or audit committee. B) Is only required to report to the board or audit committee. C) Is only required to report directly to the appropriate officials. D) Neither of the choices is correct.

106)

Which of the following would not be an opinion unit of a general purpose government?

A) B) C) D)

107)

Governmental activities Business-type activities Each Major Fund All of the choices are opinion units

Which of the following statements is not correct?

A) Governmental units and many not-for-profit organizations are subject to Government Auditing Standards in addition to the Statements on Auditing Standards, issued by the American Institute of Certified Public Accountants (AICPA). B) Government Auditing Standards are issued by the U.S. Government Accountability Office (GAO) and do not apply to audits conducted to satisfy the requirements of the Single Audit Act as well as other governmental audits. C) Standards issued by the AICPA are known as GAAS (Generally Accepted Auditing Standards). D) Standards issued by the GAO are known as GAGAS (Generally Accepted Government Auditing Standards).

108) Which of the following are the four categories of professional engagements that the Government Auditing Standards identifies?

A) Financial audits, attestation engagements, performance audits, and nonaudit services. B) Preparation of financial statements, attestation engagements, performance audits, and financial audits. C) Financial statement preparation, consulting, performance audits, and financial audits. D) Financial statement preparation, financial audits, performance audits, and preparation of financial statements.

109) There are five ethical concepts underlying effective auditing in the Yellow Book. Which of the following is NOT one of them?

A) Public interest focuses auditors’ attention on serving the citizenry and honoring the public trust. B) Integrity requires auditors to conduct their work with an attitude that is objective, fact-based, and nonpartisan. C) Disclosure of potential conflicts requires the auditor to disclose even immaterial conflicts of interest in the audit report. D) Proper use of government information, resources, and position precludes auditors from using sensitive or classified information or resources for personal gain.

110) Reporting requirements are a combination of requirements of the Government Auditing Standards and the single audit requirements. The auditor is required to prepare up to five reports. Which of the following is NOT one of the reports?

A) A report discussing the evaluation and testing of internal control and compliance with laws and regulations. B) A report discussing the effectiveness of the government’s programs. C) A report describing instances of fraud, illegal acts, or other material noncompliance. D) A report containing the views of responsible officials of the audited organization regarding any reported significant deficiencies.

111)

To qualify for tax-exempt status, an organization must do all of the following except:

A) B) C) D) services.

Have an Employer’s Identification Number. Be organized as a corporation, trust, or association. Complete IRS form 1023. Receive most of its income from contributions rather than by providing goods or

112) What is the principal advantage of having 501(c) (3) status to an organization that receives substantial support from outside contributors?

A) B) C) D)

113)

The organization does not have to pay federal income tax. Donors to the organization may deduct their contributions as charitable donations. The organization does not have to pay state sales taxes on purchases. All of the choices are correct.

Which of the following is not true of Tax-exempt Entities having 501(c) (3) status?

A) Donors to the organization may deduct their contributions as charitable donations. B) Churches and public charities with tax-exempt status must file an information return (Form 990, 990EZ or 990-N) with the IRS annually. C) Tax-exempt entities are prohibited from certain activities such as supporting political candidates. D) None of the choices, these are all true of tax-exempt entities.

114) Form 990, Return of Organization Exempt From Income Tax, requires all of the following except:

A) B) C) D)

Statement of Program Accomplishments. Governance, Management and Disclosures. Compensation Schedules. Statement of Cash Flows.

115) Which of the following is (are) prohibited of organizations receiving tax-exempt status under IRS Section 501(c)(3)?

A) B) C) D)

116)

A. Distributing earnings to the benefit of members or officers. B. Endorsing political candidates or attempting to influence legislation. C. Earning a profit (increase in net assets). D. A and B are prohibited activities of Tax-exempt organizations.

What is not an advantage of obtaining section 501(c)(3) status?

A) A. The charitable organization is permitted to engage in a trade or business unrelated to its mission without having to pay income taxes. B) B. Donors to the charitable organization are permitted to deduct contributions to the organization in computing their income taxes. C) C. The charitable organization does not have to pay state sales tax. D) D. Neither A nor C choice is an advantage.

117) What is the maximum threshold for a tax-exempt organization to file a form 990-N (electronic postcard) for tax years after 2011?

A) B) C) D)

118)

A charity with gross receipts less than $25,000. A charity with gross receipts less than $50,000. A charity with gross receipts less than $200,000. A charity with gross receipts less than $500,000.

What is the maximum threshold for a tax-exempt organization to file a form 990-EZ?

A) B) C) D)

A charity with gross receipts less than $50,000 and assets less than $250,000. A charity with gross receipts less than $200,000 and assets less than $500,000. A charity with gross receipts less than $500,000 and assets less than $1 million. A charity with gross receipts less than $500,000 and assets less than $5 million.

119) Which of the following is true regarding the Internal Revenue Service’s concern regarding tax-exempt organizations?

A) B) C) D)

120)

Which of the following are not required disclosures in a Form 990?

A) B) C) D)

Organizations are charging many of their program expenses to fund-raising. Executives of tax-exempt organizations are receiving excessive salaries and benefits. Both of the choices are true. Neither of the choices is true.

A Statement of Functional Expense. A discussion of program effectiveness. A Statement of Revenues, Expenses, and Changes in Net Assets. All of the choices. They are all required disclosures.

121)

A tax-exempt organization is required to pay income taxes on:

A) B) C) D)

122)

Profit that is earned. Investment gains or losses. Unrelated business income. Contributions received.

Which of the following activities give rise to Unrelated Business Income Tax?

A) Investment income arising from investment of unrestricted funds. B) Business operated for the convenience of employees and patients. C) Sale of donated merchandise. D) None of the choices are correct.

123) Which of the following may be deducted in computing income from unrelated business activities?

A) B) C) D)

124)

$1,000 special deduction. Charitable contributions. Ordinary and necessary business expenses. All of the choices are correct.

To apply for tax-exempt status, a non-profit organization must file:

A) IRS Form 501(c)(3). B) IRS Form 990. C) IRS Form 1023. D) None of the choices are correct.

125)

Which of the following is a prohibited activity for a Tax-exempt Organization?

A) B) C) D)

126)

Make a Profit. File a tax return. Give money away. Make financial contributions to a political candidate.

A public charity is:

A) An organization founded and operated exclusively for public safety. B) An organization that receives more than one-third of its support from a combination of contributions, membership fees, and gross receipts from exempt activities. C) An organization operated exclusively for the benefit of a church. D) All of the choices are considered to be public charities.

127) Which of the following is an area of concern by the IRS with respect to tax-exempt organizations?

A) B) C) D)

Cost allocations. Excess executive compensation. Organizations operating out of their tax-exempt purpose. All the choices are correct.

128) Which of the following conditions would exempt income-producing activities from the Unrelated Business Income Tax (UBIT)?

A) B) C) purpose. D)

Majority of labor is performed by paid employees. The business sells donated merchandise. The business is carried on regularly but is unrelated to the organization’s tax-exempt The business is operated for a profit.

129) Which of the following is true concerning tax-exempt organizations with respect to unrelated business income?

A) B) C) D)

130)

They may deduct the first $1,000 of unrelated business income. They must include income from donated merchandise. They must include investment income in computing their tax liability. None of the choices are true.

Which of the following is not required to qualify as tax exempt?

A) B) C) D)

A mission that covers a broad scope. Not have the authority to engage in activities other than exempt purposes. The organization agrees to not be engaged in political activities. No part of the net earnings inures to the benefit of any individual or shareholder.

131) Unreasonable executive compensation paid to executives of 501(c)(3) organizations is an area of concern for the IRS. Which of the following is a sanction available to the IRS?

A) If the executive receiving the excess benefits fails to repay the amount in a timely manner, an additional tax equal to 100% may be imposed. B) Revoke the organization’s 501(c)(3) status. C) In the event compensation is found to be unreasonable, the organization will receive a penalty equal to 200% of the excess compensation. D) In the event compensation is found to be unreasonable, the executive is required to pay back the excess benefit to the tax-exempt organization plus a penalty of 25% of the excess benefit on the individual receiving the compensation and a penalty of 10% on the individuals responsible for approving it.

132) Which of the following is not accurate with respect to unrelated business income for a 501(c)(3) organization?

A) A tax-exempt organization is required to pay tax at the corporate on income generated from any trade or business activities unrelated to the entity’s tax-exempt purposes. B) The purpose of the requirement to tax unrelated business income of a 501(c)(3) organization is to eliminate advantages that tax-exempt organizations have over profit-making organizations. C) As long as the proceeds are used to further the tax exempt organization’s purpose, the income will not be taxed. D) If volunteers perform most of the labor, income-producing activities from will be exempt from unrelated business income tax.

133)

Which of the following is not considered to be a major user group by the GASB?

A) B) C) D)

134)

Citizen groups. Investors and creditors. Government executive branch officials. Legislative and oversight officials.

The highest bond rating assigned by Moody's is:

A) B) C) D)

A+. Aa. Aaa. Aaa+.

135) Which of the following items, helpful for analysis, could be found in the statistical section of the CAFR?

A) B) C) D)

Assessed and actual (market) value of property. Population trends. Debt limit and margin. All of the choices are correct.

136) The document often relied on for financial analysis by investors and creditors for bonds in the secondary market is:

A) B) C) D)

The official statement issued by the government issuing the bonds. The comprehensive annual financial report. An analysis prepared by the government's auditor. None of the choices are correct.

137) To compute the Financial Position-General Fund ratio, one would need to look in the CAFR for the:

A) B) Balances. C) D)

Governmental funds Balance Sheet. Governmental funds Statement of Revenues, Expenditures, and Changes in Fund Both of the choices are correct. Neither of the choices is correct.

138) To compute the debt service to total expenditures, one would need to look in the CAFR for the:

A) B) Position. C) D)

Government-wide Statement of Net Position. Proprietary funds Statement of Revenues, Expenses, and Changes in Fund Net Governmental fund-basis statements. Enterprise fund Statement of Cash Flows.

139) To compute the net debt per capita, a user of financial statements would need to look at (in the CAFR):

A) The government-wide Statement of Net Position and the population from the statistical section. B) The debt and the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section. C) The debt in the governmental funds Balance Sheet, the amount available in the government-wide Statement of Net Position, and the population from the statistical section. D) The debt in the government-wide Statement of Net Position, the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section.

140) In order to compute the operating ratio-enterprise funds, one would look in the CAFR in which of the following sections?

A) In the government-wide Statement of Net Position. B) In the proprietary funds Statement of Net Position. C) In the proprietary funds Statement of Revenues, Expenses, and Changes in Fund Net Position. D) In the proprietary funds Statement of Cash Flows.

141) Which of the following is true regarding Service Efforts and Accomplishments Reporting?

A) SEA reporting utilizes both financial and non-financial performance measures. B) GASB standards require the reporting of service efforts and accomplishments for public school systems. C) Service efforts and accomplishments reporting is commonly covered by the auditor’s opinion. D) All of the choices are true.

142)

Service Efforts and Accomplishments reporting is relevant because:

A) SEA reporting provides more complete information about a government entity's performance than can be provided by the basic financial statements. B) The GASB requires supplemental reporting of service efforts and accomplishments. C) Enterprise fund statements do not do a good job of measuring efficiency or effectiveness. D) All of the choices are correct.

143)

Service Efforts and Accomplishments Reporting is best completed by using:

A) A standard single measure to evaluate or present information. B) A variety of measures which vary from year to year in order to evaluate and present information. C) Only the information that is favorable to the organization. D) A variety of measures which are consistent from year to year.

144)

All of the following are examples of service outputs for a public school, except:

A) B) C) D)

Enrollment increases. The number of students progressing to the next grade level. Dropout rates. Degrees conferred.

145) A government publishes information about its fire department. What type of service efforts and accomplishments measure would Fire Loss per Capita represent?

A) Input B) Output C) Outcome D) Efficiency

146)

A ratio that measures a not-for-profit organization’s solvency is:

A) B) C) D)

147)

Net assets/expenses. Working capital ratio. Program expense ratio. Fund-raising efficiency.

The program expense ratio is calculated as follows:

A) B) C) D)

Total expenses / Program service expenses. Program service expenses + supporting service expenses / Total expenses. Program service expenses / Total expenses. Total expenses / (Program service expenses + supporting service expenses).

148) A measure of performance that expresses how much an organization expends in raising a dollar of donations is:

A) B) C) D)

Fund-raising efficiency. Program expense ratio. Working capital ratio. None of the choices are correct.

149) The Museum of Creative Arts had the following expenses: $4,000 of membership development expense, $2,000 of Fund-raising expense, $5,000 of Instructional Classes expense, and $1,000 of general and administrative expense. What is the program expense ratio (rounded)?

A) B) C) D)

24%. 33%. 42%. 50%.

150) GASB’s Analyst’s Guide to Government Financial Statements identifies four categories of financial ratios. What are these categories?

A) B) C) D)

Financial leverage, Liquidity, solvency, and ability to pay. Solvency, ability to pay, financial position, and financial leverage. Long-term liquidity, short-term liquidity, financial position, and solvency. Financial position, liquidity, solvency, and ability to pay.

151) Which of the following is not correct with respect to Service Efforts and Accomplishments (SEA) reporting?

A) The fundamental problem is that government and not-for-profit effectiveness cannot be expressed solely in financial terms. B) Ratio analysis is sufficient to illustrate program efficiency and effectiveness. C) Effectiveness in nonbusiness organizations must be measured in terms of the quality of the service provided or the extent to which an organization fulfills its mission. D) To demonstrate effectiveness, many governments and not-for-profits report nonfinancial information in addition to their financial statements.

152) Which of the following is accurate with respect to Service Efforts and Accomplishments (SEA) reporting?

A) According to the GASB, output measures are the quantity of a service provided or the quantity of a service that meets a certain quality requirement. B) Government and not-for-profit effectiveness can be quantified and illustrated in financial terms. C) Ratio analysis is typically used to illustrate program efficiency and effectiveness. D) Effectiveness in nonbusiness organizations must be measured in terms of the quality of the service provided or the extent to which an organization fulfills its mission which is calculated using a matrix that includes several inputs and outputs.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 153) Reporting requirements are a combination of requirements of the Government Auditing Standards and the single audit requirements. The auditor is required to prepare up to five reports. Name four of the reports.

154) Describe the types of audit opinions that may be issued on a governmental or not-forprofit financial report.

155) What is an “opinion unit” and what are the five opinion units for state and local governments?

156) Explain what is meant by each of the five ethical concepts outlined by the Yellow Book.Public interestIntegrityObjectivityProper use of government informationProfessional behavior

157) Describe each of the following different types of governmental audit and attestation engagements.Financial auditsAttestation engagementsPerformance auditsNonaudit services

158)

What is the objective of the single audit process?

159) What are major programs with respect to the Single Audit Act of 1984 and amendment of 1996? Distinguish between Type A and Type B programs.

160) What factors would cause income that would otherwise qualify as unrelated business income to not be taxed?

161)

What is required for an organization to qualify for tax-exempt status?

162)

What is the purpose of the Unrelated Business Income Tax?

163)

How is the Unrelated Business Income Tax computed?

164)

List four sources of income that are not subject to the unrelated business income tax.

165) The Comprehensive Annual Financial Report of a local governmental unit includes several statements and sections. When a financial analyst is computing ratios and extracting other information, he or she needs to know where in the CAFR to look. Use the following classification to indicate where an analyst would look in the CAFR to compute the ratios and gather information by placing the appropriate letter(s) in the space next to each item. When possible, choose the location in the basic financial statements or notes that would be subject to examination: Letter of transmittal-introductory sectionManagement’s Discussion and AnalysisAuditor’s opinionGovernment-wide Statement of Net PositionGovernment-wide Statement of ActivitiesGovernmental funds Balance SheetGovernmental Funds Statement of Revenues, Expenditures, and Changes in Fund BalancesProprietary funds Statement of Net PositionProprietary funds Statement of Revenues, Expenses, and Changes in Fund Net PositionProprietary funds Statement of Cash FlowsFiduciary funds Statement of Fiduciary Net PositionFiduciary funds Statement of Changes in Fiduciary Net PositionNotes to the Basic Financial StatementsRequired Supplementary Information other than MD&ACombining and individual fund statements (Other Supplementary Information)Statistical Section Ratios and Other Items: ______ 1. Net debt per capita ______ 2. Net debt to fair value of property ______ 3. Interest coverage-revenue bonds ______ 4. Operating ratio-enterprise funds ______ 5. Governmental revenues per capita ______ 6. Debt service/total governmental revenues ______ 7. Unreserved fund balance/revenues-General Fund ______ 8. Actual expenditures/budgeted expenditures-General Fund ______ 9. Unrestricted Net Position-governmental activities/general government expensesgovernmental activities ______ 10. Cash expended on capital assets- enterprise activities ______ 11. Summary information regarding overall government financial performance for the year ______ 12. City management organizational chart ______ 13. Unfunded pension liability for the government as a whole ______ 14. Information regarding actual and planned maintenance of infrastructure, when the modified approach is used ______ 15. Debt limit and debt margin ______ 16. Total expenses for interest for a major enterprise fund ______ 17. Assessed value of property ______ 18. Information regarding balances for a nonmajor enterprise fund ______ 19. Schedule of direct and overlapping debt ______ 20. Cash balances in a pension trust fund

166)

Assume the mission statement for the Area Homeless Shelter is as follows:

To provide temporary shelter and meals to area homeless and to assist them in obtaining selfsufficiency. The Shelter has approached you about contributing a substantial amount of money to support their operations. Before contributing your money, you would like to evaluate the Shelter's service efforts and accomplishments. Give an example of Input, Output, Outcome, and Efficiency measures that you might find useful in assessing the Service Efforts and Accomplishments of the Area Homeless Shelter.

167)

Assume the mission statement for the City Fire Department is as follows:

To minimize the combined cost of fire prevention and fire loss. Give an example of Input, Output, Outcome, and Efficiency measures that might be used in Service Efforts and Accomplishments Reporting.

168) Why is Service Efforts and Accomplishments reporting especially important for governmental and not-for-profit entities?

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 169) A local government has four federal grants. Expenditures during the year ended June 30, 2020, are below:

Type A HHS grant, new this year and never audited HHS grant, audited last year, no major findings

920,000 810,000

Type B Department of Agriculture

90,000

Department of Transportation

520,000

Total all funds

$ 2,340,000

A. Which grants would the auditor be required to audit, assuming the government is not found to be low risk? B. Which grants would the auditor be required to audit, assuming the government is found to be low risk?

Answer Key Test name: Chapter 13: Auditing, Tax-Exempt Organizations, and Evaluating Performance 1) FALSE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) FALSE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) TRUE .

26) TRUE 27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) TRUE 32) TRUE 33) FALSE 34) FALSE 35) FALSE 36) FALSE 37) TRUE 38) TRUE 39) FALSE 40) TRUE 41) FALSE 42) TRUE 43) FALSE 44) FALSE 45) TRUE 46) TRUE 47) TRUE 48) TRUE 49) FALSE 50) TRUE 51) TRUE 52) FALSE 53) TRUE 54) TRUE 55) FALSE .

56) TRUE 57) TRUE 58) TRUE 59) TRUE 60) TRUE 61) FALSE 62) TRUE 63) TRUE 64) FALSE 65) FALSE 66) FALSE 67) FALSE 68) TRUE 69) TRUE 70) FALSE 71) TRUE 72) FALSE 73) FALSE 74) FALSE 75) TRUE 76) TRUE 77) A 78) C 79) B 80) C 81) D 82) B 83) C 84) B 85) D .

86) D 87) C 88) A 89) A 90) C 91) C 92) D 93) A 94) A 95) A 96) D 97) D 98) D 99) D 100) C 101) A 102) B 103) B 104) D 105) A 106) D 107) B 108) A 109) C 110) B 111) D 112) B 113) B 114) D 115) D .

116) D 117) B 118) B 119) B 120) D 121) C 122) D 123) D 124) C 125) D 126) D 127) D 128) B 129) A 130) A 131) D 132) C 133) C 134) C 135) D 136) B 137) C 138) C 139) D 140) C 141) A 142) A 143) D 144) C 145) C .

146) B 147) C 148) A 149) C 150) D 151) B 152) A 153) (any 4 of the following)A report containing an opinion on the financial statements.A report discussing the evaluation and testing of internal control and compliance with laws and regulations.A report discussing significant deficiencies in internal controls.A report describing instances of fraud, illegal acts, or other material noncompliance.A report containing the views of responsible officials of the audited organization regarding any reported significant deficiencies. 154) Unmodified – indicates that the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.Qualified – states that except for the effects of matters to which the qualification relates, the financial statements are fairly presented.Adverse – states that the financial statements are not fairly presented.Disclaimer – states that the auditor does not express an opinion on the financial statements.

155) In any audit engagement, the auditor must determine a level of materiality. This determination is then used to plan, perform, and evaluate the results of audit procedures. Because of the various levels of reporting by governments (government-wide, fund-type and individual fund), separate materiality evaluations are needed for the different levels of reporting. The five opinion units are: Governmental activities.Business-type activities.Each major fund (both governmental and enterprise).The aggregate of all discretely presented component units.The aggregate of all remaining fund information. 156) Public interest which focuses auditors’ attention on serving the citizenry and honoring the public trustIntegrity requires auditors to conduct their work with an attitude that is objective, fact-based and nonpartisanObjectivity includes independence in fact and appearance and being free of conflicts of interestProper use of government information, resources and position precludes auditors from using sensitive or classified information or resources for personal gainProfessional behavior includes auditors conducting their services in accordance with technical and professional standards

157) Financial audits primarily concern providing reasonable assurance about whether financial statements are presented fairly in all material respects in conformity with generally accepted accounting principles or with a comprehensive basis of accounting other than GAAP.Attestation engagements concern examining, reviewing, or performing agreed upon procedures on a subject matter or an assertion about a subject matter and reporting on the results. … Attestation engagements can cover a broad range of financial or nonfinancial objectives and can be part of a financial audit or other type of engagement.Performance audits are an objective and systematic examination of evidence to provide an independent assessment of the performance and management of a program against objective criteria or an assessment of best practices and other information. Performance audits provide information to improve program operations and facilitate decision making by parties with responsibility to oversee or initiate corrective action, and improve public accountability.Nonaudit services consist of gathering, providing, or explaining information requested by decision makers or providing advice or assistance to management officials. 158) Single audits are intended to provide assurance to the federal government that federal and state funds are expended in accordance with grant agreements and with financial management and other standards issued by the federal government. The single audit process is viewed as a more efficient means than requiring grant-by-grant audits from a host of federal government offices and agencies.

159) A major program is one that is selected for audit for compliance under the provisions of OMB Circular A-133. The auditor is required to express an opinion on compliance with major programs, which must add up to 50% of the federal funds expended by the audited entity, or 25% if the entity is determined to be low risk. Type A programs – are the larger programs and would be audited as major programs unless the auditor determines they are low risk. Low risk programs must have been audited within the past two years and had no major audit findings. Type B programs – are the smaller programs and would be audited only if the auditor determines they are high risk. 160) The existence of one or more of the following conditions will exempt income-producing activities from UBIT: (1) the business is not regularly carried on; (2) volunteers perform most of the labor; (3) the not-for-profit sells donated merchandise; and (4) it is operated for the convenience of employees, patients or students. 161) Have an Employer’s Identification Number (EIN)Be organized as a corporation, trust or associationComplete IRS form 1023, Application for Recognition of ExemptionReceive notice from the IRS that the organization has been determined to be tax-exempt 162) Not-for-profits performing business activities, such as the sale of goods and services, compete with commercial enterprises providing similar goods and services. If the income on these activities were not taxed, not-for-profit entities would have an unfair advantage over taxpaying commercial enterprises. To provide for equity between these two groups and to encourage not-for-profits to focus on their tax-exempt mission, Congress passed the Unrelated Business Income Tax.

163) When computing unrelated business income tax, not-for-profits are allowed to deduct ordinary and necessary expenses directly connected with the trade or business under consideration. In addition, the first $1,000 of unrelated business income is not taxed. The tax is computed at the corporate rate. 164) Any four of the following:(a) The business is not regularly carried on.(b) Volunteers perform most of the labor.(c) The not-for-profit sells donated merchandise(d) It is operated for the convenience of employees, patients or students(e) Royalties, dividends and interest.(f) Income of a college, university or hospital from research performed.(g) Income from qualified public entertainment activities in connection with a fair or exchange.(h) Income from labor, agricultural, and horticultural organizations and business trade associations from convention or trade show activities.(i) Income related to rental or exchange of rental lists. 165) Answer may vary 166) Input measures – Dollars expended for program services and supporting services, # volunteer hours, donated supplies and materials.Output measures - # meals served, # clients spending the night, # of clients entering drug rehabilitation, # of clients entering job training programs.Outcome measures – # of clients obtaining permanent selfsufficiency.Efficiency – average cost of a client in obtaining permanent self-sufficiency. 167) Input measures – Dollars expended for fire protection, # manhours, # fire stations, # fire engines.Output measures - # fires extinguished, # inspections performed, average response time.Outcome measures – # fires reported, $ fire loss, # fire fatalities.Efficiency – average decrease in fire loss per input measure added (e.g. fire stations, fire engines, fire inspectors).

168) Service Efforts and Accomplishments reporting is especially important for governmental and not-for-profit entities because of the difficulty in communicating information about organizational performance in a non-business environment. In business reporting, Sale Revenues are a market-based assessment that you have a desired good or service and are offering it at a competitive price. Expenses are matched with revenues and the resulting net income tells the reader of financial statements whether the organization was able to produce the good or service at a cost less than the revenue generated. As a result, net income is a useful measure of performance and is easily compared across organizations. In a non-business organization the financial reporting system is effective at measuring the costs of providing goods or services. However, because many of the revenues are from non-exchange transactions (taxes or contributions), revenue is not based on a market perception of the value of the good or service. Rather, resource providers are motivated by other concerns. Therefore the difference between revenues and expenses is not a useful measure of organizational performance. Additionally, the mission of non-business organizations is generally more complicated than simply generating earnings. As a result, nonfinancial outcome measures are a more useful means of assessing performance. These measures are typically not captured by the financial reporting system and are more difficult to compare across organizations with differing activities.

169) A. If the government is not found to be low risk, the audit must include 50% ($1,170,000) of the federal funds expended. In this case, the auditor would be required to select the new HHS grant in the amount of $920,000 because it has never been audited. The other HHS grant could be audited, or the auditor could select the Department of Transportation grant, based on a risk assessment. The Department of Agriculture grant does not have to be evaluated since it is below the $100,000 threshold. B. If the government is found to be low risk, only 25% of the funds must be audited. The auditor could choose to audit only the new HHS grant ($920,000) as a major program.

Chapter 14:__________ TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The Department of Treasury maintains a government-wide system of accounts and prepares the federal government’s consolidated financial statements. ⊚ ⊚

true false

2) Accounting standards for the federal government and its agencies are established by the Federal Accounting Standards Advisory Board (FASB). ⊚ ⊚

true false

3) Accounting standards for the federal government and its agencies are established by the Government Accountability Office. ⊚ ⊚

true false

4) The Federal Accounting Standards Advisory Board was formed by the Secretary of the Treasury, Director of OMB, and Comptroller General. ⊚ ⊚

true false

5) Federal agencies must include a Managements’ Discussion and Analysis in their financial report. ⊚ ⊚

true false

6) The Statement of Net Cost of a federal agency is prepared on the accrual basis of accounting.

⊚ ⊚

true false

Federal agencies must include a Statement of Cash Flows in their annual report. ⊚ ⊚

true false

8) The difference between assets and liabilities of a federal agency is comprised of Fund Balance and may be classified as Nonspendable, Committed, Restricted, Assigned, and Unassigned. ⊚ ⊚

true false

9) The net position of a federal agency is comprised of Cumulative Results of Operations and Unexpended Appropriations. ⊚ ⊚

true false

10) The Statement of Changes in Net Position of a federal agency should articulate with net position on the agency’s Balance Sheet. ⊚ ⊚

true false

11) The Statement of Budgetary Resources for a federal agency is prepared on the accrual basis. ⊚ ⊚

true false

12) The Statement of Custodial Activity is not required of every federal agency but is prepared by the SEC, IRS, and Customs.

⊚ ⊚

true false

13) The Statement of Operations and Changes in Net Position for the consolidated report of the federal government is prepared on the modified accrual basis of accounting. ⊚ ⊚

true false

14) The budgetary authority process for a federal agency begins with the Treasury Department issuing a warrant granting the agency the authority to withdraw funds. ⊚ ⊚

true false

15) Apportionments are issued by the OMB and establish the amount of an appropriation that will be available each quarter. ⊚ ⊚

true false

16) Allotments are made at the agency level and assign portions of the appropriation to subunits or programs. ⊚ ⊚

17)

true false

The proprietary accounts of a federal agency reflect the status of an appropriation. ⊚ ⊚

true false

18) The proprietary accounts of a federal agency are used to prepare the accrual basis financial statements of the federal government and its agencies.

⊚ ⊚

true false

19) The account Fund Balance with Treasury is classified as an asset on a federal agency’s balance sheet. ⊚ ⊚

true false

20) The account Obligations—Undelivered Orders is credited when goods and services are received. ⊚ ⊚

true false

21) Typically, budgetary authority that is not obligated by a federal agency before the end of the fiscal year rolls over and is available for the following fiscal year. ⊚ ⊚

true false

22) The Office of Management and Budget, together with the Government Accountability Office (GAO) and the Department of the Treasury, are the primary organizations charged with financial management of the federal government. ⊚ ⊚

true false

23) The purpose of the FASAB is to develop and issue accounting standards for federal, state and local government reporting. ⊚ ⊚

true false

24) The accounting systems of federal agencies must serve both the external financial reporting needs mandated by the Chief Financial Officers’ Act and the necessity of having internal budgetary controls over the spending of public resources. This is accomplished through the maintenance of two self-balancing sets of accounts, termed budgetary and control accounts. ⊚ ⊚

true false

25) The purpose of apportionment is to prevent the federal agency from spending an appropriation too rapidly and having to request a supplemental appropriation later in the year. ⊚ ⊚

true false

26) The federal government is not required to include MD&A in its financial statements. It is strongly encouraged, however. ⊚ ⊚

true false

27) The Statement of Custodial Activity is required only if the government agency collects nonexchange funds to be turned over to the Treasury. ⊚ ⊚

true false

28) The annual financial report of the U.S. government is prepared by the Department of the Treasury and audited by the Government Accountability Office. ⊚ ⊚

true false

29) The annual financial report of the U.S. government is prepared by the Government Accountability Office and audited by the Department of the Treasury. ⊚ ⊚

true false

30) The Reconciliation of Net Operating Cost and Unified Budget Deficit is similar in purpose to the reconciliation of the Statement of Activities to the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balance required by state and local governments. ⊚ ⊚

true false

31) Because federal entities have both budgetary and financial reporting requirements, a dualtrack accounting system is employed using budgetary and proprietary accounts. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 32) Which of the following is responsible for preparing the federal government’s consolidated financial statements?

A) B) C) D)

33)

Congressional Budget Office Office of Management and Budget Department of Treasury Government Accountability Office

Which organization promulgates Statements of Federal Financial Accounting Standards?

A) B) C) D)

The American Institute of Certified Public Accountants The Federal Accounting Standards Advisory Board The U.S. Office of Management and Budget The U.S. Government Accountability Office

34) Which of the following is one of the principal organizations that formed the Federal Accounting Standards Advisory Board? .

A) B) C) D)

35)

Department of Treasury Association of Government Accountants American Institute of CPAs None of the choices are correct

Which of the following is (are) true regarding the Government Accountability Office?

A) The GAO establishes accounting standards applicable to the federal government and its agencies. B) The GAO establishes auditing standards applicable to the federal government and its agencies. C) Both of the choices are true. D) Neither of the choices is true.

36) Which of the following is responsible for auditing the federal government’ consolidated financial statements?

A) B) C) D)

Congressional Budget Office US Department of Internal Audit Office of Management and Budget Government Accountability Office

37) Which of the following organizations is (are) part of the executive branch of the federal government?

A) B) C) D)

Government Accountability Office Office of Management and Budget Neither of the choices is correct. Both of the choices are correct.

38) Which of the following is (are) true regarding Federal Accounting Standards Advisory Board?

A) The Board is called "Advisory" because Statements issued by the board are recommended accounting standards but are not "level A GAAP" for federal agencies. B) Statements issued by the board are recognized as the highest level of authoritative standard for federal government entities. C) Both of the choices are true. D) Neither of the choices is true.

39)

Which of the following is not required in a federal agency’s financial report?

A) B) C) D)

40)

Which of the following is (are) true regarding the Chief Financial Officers Act?

A) B) C) D)

41)

The Act created the position of chief financial officer within federal agencies. The Act called for audits of the financial statements of federal agencies. Both of the choices are true. Neither of the choices is true.

Which of the following is not required in a federal agency’s financial report?

A) B) C) D)

Balance Sheet Statement of Cash Flows Statement of Budgetary Resources Statement of Changes in Net Position

Management’s Discussion and Analysis Notes to the Financial Statements Required Supplemental Information Budgetary Comparison Schedule

42) Which of the following should appear within the equity (net position) section of a federal agency balance sheet?

A) B) C) D)

Net Position – Unexpended Appropriations Fund Balance with Treasury Both of the choices are correct. Neither of the choices is correct.

43) Which of the following accounts are used to display the difference between assets and liabilities in a federal agency Balance Sheet?

A) Unrestricted Net Position, Restricted Net Position, and Net Investment in Capital Assets. B) Unassigned, Assigned, Committed, Restricted, and Nonspendable fund balance. C) Unrestricted, Temporarily Restricted, and Permanently Restricted Net Assets. D) Unexpended Appropriations and Cumulative Results of Operations.

44)

Which of the following is true regarding the Balance Sheet of a federal agency?

A) The balance sheet is prepared using the economic resource measurement focus and accrual accounting. B) Assets are measured on the modified accrual basis. C) The difference between assets and liabilities is termed "Net Assets". D) Assets are separated between current and noncurrent.

45)

Which of the following is accurate regarding a federal agency’s Statement of Net Costs?

A) Costs are reported within the broad categories of current, capital, and debt service. B) It is similar in presentation to the GASB government-wide Statement of Activities in that earned revenues are subtracted from costs to determine the net cost of government services. C) Both of the choices are correct. D) Neither of the choices is correct.

46) Which of the following is (are) accurate regarding a federal agency’s Statement of Net Costs?

A) Net costs reported on the Statement of Net Costs may differ from those appearing in the Statement of Changes in Net Position, since the latter are measured on the budgetary basis. B) The Statement of Net Costs provides greater detail about the cost of the Agency’s programs, but agrees in total net cost reported on the Statement of Changes in Net Position. C) Both of the choices are correct. D) Neither of the choices is correct.

47) Which of the following is (are) accurate regarding a federal agency’s Statement of Changes in Net Position?

A) The statement starts with the beginning of year balances in the net position accounts and reconciles these to the ending balances appearing on the agency’s Balance Sheet. B) The statement does not report Appropriations Received since this is a budgetary account and does not affect net position. C) Both of the choices are correct. D) Neither of the choices is correct.

48) Which of the following is (are) accurate regarding a federal agency’s Statement of Budgetary Resources?

A) B) C) D)

Outlays are measured using the budgetary basis of accounting. The statement reports the status of budgetary resources at year end. Neither of the choices is correct. Both of the choices are correct.

49) Which of the following federal entities would be required to prepare a Statement of Custodial Activity?

A) B) C) D)

Department of Defense Internal Revenue Service Department of Homeland Security Department of Health and Human Services

50) Which of the following federal agencies are required to report a Statement of Custodial Activity?

A) B) C) D)

Customs and border protection Department of Interior Department of Defense All of the choices are correct

51) Which of the following does not appear in the federal government’s consolidated financial report?

A) B) C) D)

Management’s Discussion and Analysis Statement of Social Insurance Statement of Cash Flows Auditors Report

52) Which of the following statements appearing in the federal government’s consolidated financial report are prepared on the accrual basis of accounting?

A) B) C) D)

Balance Sheet. Statement of Operations and Changes in Net Position. Both of the choices are correct. Neither of the choices is correct.

53) Which of the following are included in the Financial Snapshot section of the federal government’s Citizen’s Guide to the Financial Report of the US Government? .

A) B) C) D)

54)

The Net Operating Cost of the federal government. The Net Position (assets minus liabilities) of the federal government. Neither of the choices is correct. Both of the choices are correct.

Which of the following are true of the proprietary accounts of the federal government?

A) The accounts provide a record by which federal expenditures may be traced to the budgetary authority granted by Congress. B) The accounts are used to present the financial position and results of operations of the federal government and its agencies using the accrual basis of accounting. C) Both of the choices are correct. D) Neither of the choices is correct.

55) Which of the following steps in the budgetary authority process occurs when the Office of Management and Budget establishes the quarterly amount available to a federal agency for spending?

A) B) C) D)

Apportionment Appropriation Allotment Obligation

56) Which of the following steps in the budgetary authority process occurs when Congress passes a spending bill which is signed by the President?

A) B) C) D)

Apportionment Appropriation Allotment Obligation

57) Which of the following steps in the budgetary authority process occurs when a federal agency issues a purchase order?

A) B) C) D)

Obligation Apportionment Appropriation Allotment

58) At what point in the budgetary authority process may a federal agency or its subunits begin to place orders for goods and services?

A) B) C) D)

Obligation Apportionment Appropriation Allotment

59) Assume a spending bill has been passed by Congress and signed by the President. The journal entries at the agency level to record this event will include:

A) B) C) D)

a debit to the account Unexpended Appropriations a debit to the account Unapportioned Authority a debit to the account Fund Balance with Treasury None of the choices are correct

60) Which of the following events will result in a journal entry being recorded in both the budgetary and proprietary accounts of a federal agency?

A) Treasury notifies the agency that Congress passed legislation (signed by the President) granting budgetary authority to fund its activities. B) The agency places orders for goods or services. C) All of the events will result in a journal entry being recorded. D) None of the events will result in a journal entry being recorded.

61) Which of the following events will result in a journal entry being recorded in both the budgetary and proprietary accounts of a federal agency?

A) Goods or services are received and approved for payment. B) OMB establishes the amount of the total appropriation that the agency may expend in the first quarter. C) None of the events will result in a journal entry being recorded. D) All of the events will result in a journal entry being recorded.

62) Which of the following steps in the federal government’s budgetary authority process is most similar to the recording of encumbrances by state and local governments?

A) B) C) D)

Apportionment Appropriation Allotment Obligation

63) Assume the OMB apportions 1/4 th of an appropriation to a federal agency for the first quarter of the fiscal year. The journal entries at the agency level to record this event will include:

A) B) C) D)

a debit to the account Unapportioned Authority a debit to the account Unexpended Appropriations a credit to the account Fund Balance with Treasury None of the choices are correct

64) Assume the director of a federal agency allots a portion of the agency’s apportionment to subunits within the agency. The journal entries at the agency level to record this event will include:

A) B) C) D)

a debit to the account Allotments a debit to the account Apportionments a credit to the account Obligations—Undelivered Orders None of the choices are correct

65) Assume a federal agency places orders for contracted services supporting a federal program. The journal entries at the agency level to record this event will include:

A) B) C) D)

a credit to the account Expended Appropriations a debit to the account Allotments Both of the choices are correct. Neither of the choices is correct.

66) Assume a federal agency places orders for contracted services supporting a federal program. The journal entries at the agency level to record this event will include:

A) B) C) D)

a debit to the account Allotments a credit to the account Obligations—Undelivered Orders Neither of the choices is correct. Both of the choices are correct.

67) Assume a federal agency receives supplies that had been previously ordered that will be used to support a federal program. The journal entries at the agency level to record this event will include:

A) B) C) D)

a credit to a liability account such as Accounts Payable a debit to the account Unexpended Appropriations Both of the choices are correct. Neither of the choices is correct.

68) Assume an outstanding account payable of a federal agency is paid. The journal entries at the agency level to record this event will include:

A) B) C) D)

a debit to the account Accounts Payable a credit to the account Cash Neither of the choices is correct. Both of the choices are correct.

69) Assume a federal agency has $150,000 of unobligated budgetary authority at the end of the fiscal year that must be returned to Treasury. The journal entry at the agency level to record this event in the proprietary accounts will include:

A) B) C) D)

70)

a debit to the account Unexpended Appropriations a credit to the account Fund Balance with Treasury Both of the choices are correct. Neither of the choices is correct.

Allotments is an example of which type of federal government account? Budgetary Account Yes No Yes No

A) B) C) D)

Proprietary Account Yes Yes No No

A) B) C) D)

71)

Fund Balance with Treasury is an example of which type of federal government account? Budgetary Account No Yes No Yes

A) B) C) D)

Proprietary Account Yes No No Yes

A) B) C) D)

72) Operating Expense: Contracted Services is an example of which type of federal government account? Budgetary Account Yes No Yes No

A) B) C) D)

Proprietary Account Yes Yes No No

A) B) C) D)

73) A federal agency prepared the following schedule showing the status of federal appropriations at the end of the first quarter:

Amount $ 770,000 -

Status Unapportioned authority

65,000 -

Apportionments.

40,000 -

Allotments.

25,000 -

Obligations for undelivered orders.

140,000 -

Expended appropriations

1,040,000

Total appropriations

What is the total amount of purchase orders placed in the first quarter of the year?

A) B) C) D)

$140,000 $165,000 $205,000 $180,000

74) A federal agency prepared the following schedule showing the status of federal appropriations at the end of the first quarter (assume all spending by the agency is done through purchase order): Amount $ 650,000 -

20,000 -

Apportionments.

70,000 -

Allotments.

50,000 -

Obligations for undelivered orders.

240,000 -

Expended appropriations

1,030,000

Status Unapportioned authority

Total appropriations

What is the total amount allotted to subunits or programs within the agency during the first quarter of the year?

A) B) C) D)

$240,000 $290,000 $310,000 $360,000

75) The purpose of the FASAB is to develop and issue federal accounting standards. The Board comprises ten members. What is the makeup of the board?

A) Two from the executive branch, two from the legislative branch, two who are appointed by the AICPA and five who are not employees of the federal government. B) Three from the executive branch, three from the legislative branch, and four who are not employees of the federal government. C) One from the executive branch, one from the legislative branch, two who are appointed by the AICPA and six who are not employees of the federal government. D) Two from the executive branch, two from the legislative branch, and six who are not employees of the federal government.

76) The purpose of the FASAB is to develop and issue federal accounting standards. Which of the following is not accurate?

A) FASAB has developed a conceptual framework to guide the Board in the development of new standards. The Concept Statements are authoritative and must be followed when reporting the financial results for federal government entities. B) The Board is considered "advisory" in that the standards must be approved by the three founding organizations (Treasury, OMB, and GAO). C) The Concept Statements developed by the FASAB are not authoritative, but they identify user needs, the objectives of the financial reports, and definitions of the reporting entity and the elements of the financial statements. D) The standards (called Statements of Federal Financial Accounting Standards) are recognized as the highest level of authoritative standard in the AICPA’s Code of Professional Conduct.

77) The entry to record appropriations is notable because it involves the use of account titles that are unique to the federal government. Which of the following statements is not correct?

A) The account Unexpended Appropriations is credited at the time of an appropriation. B) Unexpended Appropriations is an asset on the federal agency’s balance sheet called "Due from Treasury". C) Federal agencies do not typically maintain cash balances. Instead, the ability to draw cash from the Treasury is recognized as an asset at the time of an appropriation with the account Fund Balance with Treasury. D) Payments made by Treasury on behalf of the agency are reflected with a credit to Fund Balance with Treasury.

78) In addition to the Balance Sheet, Statement of Net Cost and Statement of Changes in Net Position, Federal government reporting standards includes which of the following:

A) B) C) D)

MD&A, audit report, Statement of Budgetary Resources, and RSI MD&A, RSI, and audit report Audit report, Statement of Budgetary Resources, and RSI MD&A, Statement of Budgetary Resources, and RSI

79) Which of the following statements is correct with respect to The Statement of Custodial Activity?

A) The statement is required only if the government agency collects nonexchange funds to be turned over to the Treasury. B) Because the collecting entity cannot use the funds for its own activities, the activities are analogous to an agency fund of a state or local government. C) Both of the choices are correct. D) Neither of the choices is correct.

80)

Which of the following is correct with respect to The Statement of Budgetary Resources?

A) The Statement of Budgetary Resources follows the budgetary (not accrual) basis of accounting. B) The statement provides information on how budgetary resources were obtained and the status of those resources at year-end. C) The budgetary basis of accounting is prescribed by OMB, not FASAB. D) All of the statements are correct.

81) Which of the following statements is correct with respect to the Reconciliation of Net Operating Cost and Unified Budget Deficit Statement?

A) The purpose of the statement is to reconcile the net operating result (revenue or cost) from the Statement of Operations and Changes in Net Position with the cash-based federal budget. B) The statement is similar to the reconciliation of the Statement of Activities to the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balance required by state and local governments. C) The Statement of Changes in Cash Balance from Unified Budget and Other Activities shows the relationship between the cash-based budget deficit and the change in the federal government’s operating cash balance. D) All of the statements are correct.

82) .

Which of the following statements is correct? 21

A) Because federal entities have both budgetary and financial reporting requirements, a dual-track accounting system is employed using budgetary and fiduciary accounts. B) The Statement of Budgetary Resources is optional. It is prepared using the budgetary basis and provides information on the status of budgetary resources. C) The AICPA establishes the accounting and reporting standards for the U.S. government overall and for federal agencies and departments. D) The AICPA’s Code of Professional Conduct recognizes FASAB standards as the highest level of authoritative standard for federal government agencies.

83)

Which of the following statements regarding federal government reporting is not true?

A) Similar to the government-wide Statement of Activities for state and local governments, program revenues are subtracted to determine the net cost of government services. B) The Audit report includes an opinion on the financial statements and reports on internal controls but does not comment on compliance with laws and regulations. C) On the balance sheet, the difference between assets and liabilities is called net position and is composed of unexpended appropriations and the cumulative result of operations. D) The Statement of Budgetary provides information on how budgetary resources were obtained and the status of those resources at year-end. The budgetary basis of accounting is prescribed by OMB, not FASAB.

84) The federal government also publishes an annual Citizen’s Guide to the Financial Report of the U.S. Government. Which of the following is correct with respect to this publication?

A) The guide presents plain-language explanations of key terms. B) It provides graphic displays of revenues by source and the cost of operating the government by function. C) A condensed financial report is included. D) All of the choices are included in the publication.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 85) List the financial statements required of every federal government agency and indicate whether the statement is prepared using the accrual or budgetary basis of accounting.

86)

Identify (in order of occurrence) the steps in the federal budgetary authority process.

87)

Describe the purpose of the following:

a) Federal government budgetary accounts b) Federal government proprietary accounts

88) Identify the primary functions of the following entities as they relate to financial reporting by the federal government: a) Office of Management and Budget b) Department of Treasury c) Government Accountability Office

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 89) Assume a federal agency has the following events:Receives a warrant from the Treasury notifying the agency of appropriations of $16,000,000.OMB apportions 1/4th of the appropriation for the first quarter of the year.The Director of the agency allots $3,800,000 to program units.Program units place orders $3,720,000.Supplies ($650,000) and services ($3,058,000) are received and paid during the first quarter. Supplies of $553,000 were used in the quarter. Required: Prepare any necessary journal entries to reflect the events described above. Identify whether the entry is budgetary or proprietary.

90) Assume a federal agency has the following events:Receives a warrant from the Treasury notifying the agency of appropriations of $22,000,000.OMB apportions 1/4th of the appropriation for the first quarter of the year.The Director of the agency allots $5,080,000 to program units.Program units place orders $5,000,000.Supplies ($540,000) and services ($4,225,000) are received and paid during the first quarter. Supplies of $521,940 were used in the quarter.Required: Prepare any necessary journal entries to reflect the events described above. Identify whether the entry is budgetary or proprietary.

91) Assume a federal agency prepared the following journal entries during the first quarter of the year. Prepare a schedule showing the status of the appropriation at the end of the first quarter. Budgetary Accounts 1.

Appropriations realized

10,000,000

Unapportioned authority

Unapportioned Authority

10,000,000

2,500,000

Apportionments

2,500,000

Apportionments

2,475,000

Allotments

2,475,000

Allotments

2,406,250

Obligations – undelivered orders

2,406,250

2,375,000

Expended Appropriations

2,375,000

92) Assume a federal agency prepared the following journal entries during the first quarter of the year. Prepare a schedule showing the status of the appropriation at the end of the first quarter. Budgetary Accounts 1.

Appropriations realized Unapportioned authority

5,000,000 5,000,000

Unapportioned Authority

1,250,000

Apportionments

1,250,000

1,220,000

Allotments

1,220,000

1,160,000

Obligations – undelivered orders

Obligations – undelivered orders Expended Appropriations

1,160,000

1,050,000 1,050,000

Answer Key Test name: Chapter 14: Financial Reporting by the Federal Government 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 26) FALSE .

27) TRUE 28) TRUE 29) FALSE 30) TRUE 31) TRUE 32) C 33) B 34) A 35) B 36) D 37) B 38) B 39) B 40) C 41) D 42) A 43) D 44) A 45) B 46) B 47) A 48) D 49) B 50) A 51) C 52) C 53) D 54) B 55) A 56) B .

57) A 58) D 59) C 60) A 61) A 62) D 63) A 64) B 65) B 66) D 67) A 68) A 69) C 70) C 71) A 72) B 73) B 74) D 75) D 76) A 77) B 78) A 79) C 80) D 81) D 82) D 83) B 84) D

85) Balance Sheet – accrual basisStatement of Net Cost – accrual basisStatement of Changes in Net Position – accrual basisStatement of Budgetary Resources – budgetary basis 86) AppropriationsApportionmentsAllotmentsObligationsExpended Appropriations 87) a) Budgetary accounts provide a record whereby federal expenditures may be traced back to the budgetary authority granted by Congress. Under federal budgetary accounting, budgetary resources (appropriations) are represented by debits. Credits reflect the status of the resources within the spending process. b) Proprietary accounts are those accounts which comprise the accrual basis financial statements prepared by the federal governments and its agencies. Proprietary accounts measure assets, liabilities, revenues and expenses (including depreciation) in much the same manner as accrual basis accounts of state and local governments.

88) a) Office of Management and Budget – OMB is in the executive branch of the federal government and is charged with carrying out the financial management directives of the Chief Financial Officers Act. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Board’s standards. b) Department of Treasury – Treasury is in the executive branch of the federal government and maintains a government-wide system of accounts and prepares the federal government’s consolidated financial statements. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Board’s standards. C) Government Accountability Office – GAO is in the legislative branch of the federal government and is responsible for promulgating governmental auditing standards (i.e. the Yellow Book) and for auditing the financial statements of some federal agencies and the consolidated statements of the federal government. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Board’s standards. 89) BUDGETARY ACCOUNTING

PROPRIETARY ACCOUNTING

1 .

APPROPRIATION 16,000,0 S REALIZED 00 UNAPPORTION 16,000,0 ED 00 AUTHORITY

FUND BALANCE 16,000,0 WITH TREASURY 00 UNEXPENDED 16,000,0 APPROPRIATI 00 ONS

2 .

UNAPPORTIONED 4,000,00 AUTHORITY 0

NO JOURNAL ENTRY REQUIRED

APPORTIONME NTS

4,000,00 0

3 .

APPORTIONMENT 3,800,00 S 0 ALLOTMENTS

ALLOTMENTS

OBLIGATIONS – UNDELIVERED ORDERS

5 .

NO JOURNAL ENTRY REQUIRED 3,800,00 0

3,720,00 0

NO JOURNAL ENTRY REQUIRED 3,720,00 0

OBLIGATIONS – 3,708,00 UNDELIVERED 0 ORDERS EXPENDED 3,708,00 APPROPRIATI 0 ONS

SUPPLIES

650,000

OPERATING (PROGRAM) EXPENSE ACCOUNTS PAYABLE

3,058,00 0

ACCOUNTS PAYABLE FUND BALANCE WITH TREASURY

3,708,00 0

OPERATING (PROGRAM) EXPENSE SUPPLIES

553,000

3,708,00 0

553,000

90) .

BUDGETARY ACCOUNTING

PROPRIETARY ACCOUNTING

1 .

APPROPRIATION 22,000,0 S REALIZED 00 UNAPPORTION 22,000,0 ED 00 AUTHORITY

FUND BALANCE 22,000,0 WITH TREASURY 00 UNEXPENDED 22,000,0 APPROPRIATI 00 ONS

2 .

UNAPPORTIONED 5,500,00 AUTHORITY 0

NO JOURNAL ENTRY REQUIRED

APPORTIONME NTS

3 .

5,500,00 0

APPORTIONMENT 5,080,00 S 0 ALLOTMENTS

4 .

ALLOTMENTS

OBLIGATIONS – UNDELIVERED ORDERS

5 .

NO JOURNAL ENTRY REQUIRED 5,080,00 0

5,000,00 0

NO JOURNAL ENTRY REQUIRED 5,000,00 0

OBLIGATIONS – 4,765,00 UNDELIVERED 0 ORDERS EXPENDED 3,765,00 APPROPRIATI 0 ONS

SUPPLIES

540,000

OPERATING (PROGRAM) EXPENSE ACCOUNTS PAYABLE

4,225,00 0

ACCOUNTS PAYABLE

4,765,00 0

FUND BALANCE WITH TREASURY

OPERATING (PROGRAM) EXPENSE SUPPLIES

4,765,00 0

521,490

91) AMOUNT $

7,500,000 -

STATUS UNAPPORTIONED AUTHORITY

25,000 -

APPORTIONMENTS

68,750 -

ALLOTMENTS

31,250 -

OBLIGATIONS FOR UNDELIVERED ORDERS

2,375,000 -

EXPENDED APPROPRIATIONS

10,000,000 -

TOTAL APPROPRIATIONS

92) AMOUNT $

3,750,000 -

STATUS UNAPPORTIONED AUTHORITY

30,000 -

APPORTIONMENTS

60,000 -

ALLOTMENTS

110,000 -

OBLIGATIONS FOR UNDELIVERED ORDERS

1,050,000 -

EXPENDED APPROPRIATIONS

5,000,000 -

TOTAL APPROPRIATIONS